AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON January 7, 2000
1933 ACT FILE NO. 333-84699
1940 ACT FILE NO. 811-05245
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO.__ [_]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 10 [X]
(Check appropriate box or boxes)
Dreyfus Strategic Municipals, Inc.
(Exact Name of Registrant as Specified in Charter)
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
(Address of Principal Executive Offices)
(212) 922-6130
(Registrant's Telephone Number, including Area Code)
Mark N. Jacobs, Esq.
The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
(Name and Address of Agent for Service)
Copy to:
Lewis G. Cole, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Proposed Proposed Amount
Amount Maximum Maximum of
Title Of Securities Being Offering Aggregate Registration
Being Registered Registered Price Per Offering Fee(1)(2)
Unit(1) Price(1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Auction Preferred Stock 40 $25,000 $1,000,000 $278
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Transmitted prior to filing.
</TABLE>
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
SUBJECT TO COMPLETION DATED JANUARY 7, 2000
$285,000,000
[LOGO] DREYFUS
Dreyfus Strategic Municipals, Inc.
2,280 Shares Series M
2,280 Shares Series T
2,280 Shares Series W
2,280 Shares Series TH
2,280 Shares Series F
Auction Preferred Stock
Liquidation Preference $25,000 Per Share
-------------------------
Dreyfus Strategic Municipals, Inc. (the "Fund") is a diversified, closed-end
management investment company. Its investment objective is to maximize current
income exempt from federal income tax to the extent consistent with the
preservation of capital. The Fund ordinarily invests at least 80% of its net
assets in municipal obligations and at least 50% of its assets in municipal
obligations considered investment grade. The Fund may invest the remainder of
its assets in higher risk, higher yielding municipal obligations of lesser
quality. See the "Investment Objective and Policies" section beginning on page
13 of this Prospectus for a discussion of the investment risks you should
consider in making an investment decision. See the "Investment Objective and
Policies" section beginning on page __ of this Prospectus for a discussion of
the investment risks you should consider in making an investment decision.
The Dreyfus Corporation ("Dreyfus") is the Fund's investment adviser.
<TABLE>
<CAPTION>
Per Share Sales Load (2) Proceeds to Fund(1)
<S> <C> <C> <C>
Public Offering Price.................... $ 25,000 $ $
TOTAL.................................... $285,000,000 $ $
- ------------
(1) Plus accumulated dividends, if any, from the Date of Original Issue.
(2) The Fund and Dreyfus have agreed to indemnify the Underwriter against
certain liabilities under the Securities Act of 1933. See "Underwriting."
</TABLE>
The Applicable Rate for the Initial Dividend Period will be ___% per annum
for Series M Preferred Stock, % per annum for Series T Preferred Stock, %
per annum for Series W Preferred Stock, ___% per annum for Series TH Preferred
Stock and ___% per annum for Series F Preferred Stock. The Applicable Rate
on the Preferred Stock for each Subsequent Dividend Period generally will be
determined pursuant to periodic Auctions conducted in accordance with the
procedures described herein. Unless the Fund gives notice of a Special Dividend
Period, each Subsequent Dividend Period for each series of Preferred Stock will
be a 7-Day Dividend Period.
Dividends on the Preferred Stock will be cumulative from the Date of
Original Issue and payable commencing on _____________, 2000 for Series M
Preferred Stock, ____________, 2000 for Series T Preferred Stock, ____________,
2000 for Series W Preferred Stock, ____________, 2000 for Series TH Preferred
Stock and _____________, 2000 for Series F Preferred Stock and, generally, on
each succeeding Tuesday for Series M, each succeeding Wednesday for Series T,
each succeeding Thursday for Series W, each succeeding Friday for Series TH and
each succeeding Monday for Series F.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus sets forth concisely information about the Fund that
you should know before investing. You should retain it for future reference. A
statement of additional information ("SAI") dated __________, 2000, containing
additional information about the Fund, is on file with the SEC and is
incorporated by reference into this Prospectus. The table of contents of the SAI
appears on page of this Prospectus. You may obtain a copy of the SAI without
charge by calling the Fund at 1-800-334-6899, or writing to the Fund at 200 Park
Avenue, New York, New York 10166.
-------------------------
PAINEWEBBER INCORPORATED
-------------------------
The date of this Prospectus is __________, 2000.
-------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
<PAGE>
(CONTINUED FROM THE PREVIOUS PAGE)
The Broker-Dealers may maintain a secondary trading market in the
Preferred Stock outside of the Auctions; however, they have no obligation to do
so, and there can be no assurance that a secondary market for the Preferred
Stock will develop or, if it does develop, that it will provide holders with a
liquid trading market. The Preferred Stock will not be listed for trading on any
exchange or any other market. An increase in the level of interest rates,
particularly during any Long Term Dividend Period, likely will have an adverse
effect on the secondary market price of the shares of Preferred Stock.
Each prospective purchaser should review carefully the detailed
information regarding the Auction Procedures which appears in this Prospectus
and the SAI.
Certain capitalized terms used in this Prospectus are defined in the
"Glossary" that appears at the end of this Prospectus.
The Underwriter is offering the shares of Preferred Stock subject to
certain conditions. It is expected that one certificate for each series of
Preferred Stock will be delivered to the nominee of Depository Trust and
Clearing Corporation on or about __________, 2000.
THE SHARES OF PREFERRED STOCK ARE NOT BANK DEPOSITS. AN INVESTMENT IN
SHARES OF PREFERRED STOCK IS NOT GUARANTEED, ENDORSED OR INSURED BY ANY BANK,
FINANCIAL INSTITUTION OR GOVERNMENT ENTITY, SUCH AS THE FEDERAL DEPOSIT
INSURANCE CORPORATION.
TABLE OF CONTENTS
PAGE
Prospectus Summary............................................................1
Financial Highlights.........................................................12
The Fund.....................................................................13
Use of Proceeds..............................................................13
Capitalization...............................................................14
Portfolio Composition........................................................14
Investment Objective and Policies............................................15
Description of Preferred Stock...............................................21
Management of the Fund.......................................................43
Taxes........................................................................44
Description of Capital Structure.............................................47
Certain Provisions of the Charter............................................48
Underwriting.................................................................49
Custodian and Transfer Agent.................................................50
Legal Opinions...............................................................50
Independent Auditors.........................................................50
Additional Information.......................................................50
Special Note Regarding Forward-Looking Statements............................51
Table of Contents of the SAI.................................................51
Glossary.....................................................................52
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NEITHER
THE FUND NOR THE UNDERWRITER HAS AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH
DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT
INFORMATION, YOU SHOULD NOT RELY ON IT. NEITHER THE FUND NOR THE UNDERWRITER IS
MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS
PROSPECTUS IS ACCURATE AS OF THE DATE ON THE FRONT COVER ONLY.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS AND IN THE SAI.
CERTAIN OF THE CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED IN THE
GLOSSARY THAT APPEARS AT THE END OF THIS PROSPECTUS.
THE FUND........................ The Fund is a diversified, closed-end
management investment company. The Fund was
organized under Maryland law on July 20,
1987, and has registered under the Investment
Company Act of 1940, as amended (the
"Investment Company Act"). The Fund's
principal office is located at 200 Park
Avenue, New York, New York 10166, and its
telephone number is 1-800-334-6899.
INVESTMENT ADVISER.............. Dreyfus is the Fund's investment adviser.
INVESTMENT OBJECTIVE AND
POLICIES...................... The Fund's investment objective is to
maximize current income exempt from federal
income tax to the extent consistent with the
preservation of capital. The Fund ordinarily
invests at least 80% of its net assets in
municipal obligations that provide income
exempt from federal income tax. No assurance
can be given that the Fund's investment
objective will be achieved. Under normal
market conditions, the Fund will invest at
least 50% of its net assets in municipal
obligations considered investment grade (at
least Baa/BBB) by Moody's, S&P or Fitch or
the unrated equivalent as determined by
Dreyfus at the time of purchase. The
remainder of the Fund's assets maybe invested
in municipal obligations considered below
investment grade, but rated no lower than C
by such Rating Agencies. However, the Fund's
ability to invest in lower rated municipal
obligations will be limited as a condition to
S&P's rating the shares of Preferred Stock
"AAA."
THE OFFERING.................... The Fund is offering an aggregate of:
o 2,280 shares of Series M Preferred Stock
o 2,280 shares of Series T Preferred Stock,
o 2,280 shares of Series W Preferred Stock
o 2,280 shares of Series TH Preferred Stock
o 2,280 shares of Series F Preferred Stock
each at a purchase price of $25,000 per share
plus accumulated dividends, if any, from the
Date of Original Issue.
The shares of Preferred Stock are being
offered by PaineWebber Incorporated. See
"Underwriting."
PRINCIPAL INVESTMENT RISKS...... Before investing in shares of the Preferred
Stock, you should consider carefully the
following risks of such an investment:
o if an Auction fails, you may not be able
to sell some or all of your shares;
o because of the nature of the market for
shares of Preferred Stock, you may
receive less than the price you paid for
your shares if you sell them outside of
the Auction, especially when market
interest rates are rising;
o the Rating Agency could downgrade the
shares of Preferred Stock, which could
adversely affect liquidity;
o the Fund may be forced to redeem your
shares to meet regulatory or Rating
Agency requirements or may voluntarily
redeem your shares in certain
circumstances;
o if an issuer of a municipal obligation
in which the Fund invests defaults,
there may be a negative impact on the
income and net asset value of the Fund's
portfolio;
o the Fund may not earn sufficient income
from its investments to pay dividends;
and
o if long-term interest rates rise, the
value of the Fund's investment portfolio
will decline, reducing the asset
coverage for the shares of Preferred
Stock.
For a description of additional risks of
investing in the Fund, see "Investment
Objective and Policies--Additional Risk
Considerations," and "--Risks of Investing in
the Preferred Stock."
DIVIDENDS ON
PREFERRED STOCK .............. The shares of Preferred Stock will entitle
their holders to receive cash dividends at
the Applicable Rate. The Applicable Rate for
each Dividend Period after the Initial
Dividend Period will be determined by an
Auction conducted on the Business Day next
preceding the start of the Dividend Period.
Typically, each Dividend Period for each
series of Preferred Stock after the Initial
Dividend Period will be 7 days. Dividends
ordinarily will be payable on each succeeding
Tuesday for Series M Preferred Stock, on each
succeeding Wednesday for Series T Preferred
Stock, on each succeeding Thursday for Series
W Preferred Stock, on each succeeding Friday
for Series TH Preferred Stock and on each
succeeding Monday for Series F Preferred
Stock, subject to certain exceptions.
Beneficial Owners and Potential Beneficial
Owners of shares of Preferred Stock may
participate in Auctions through their
Broker-Dealers. Except for certain Special
Dividend Periods, Beneficial Owners desiring
to continue to hold all of their shares of
Preferred Stock regardless of the Applicable
Rate resulting from Auctions need not
participate. For an explanation of Auctions
and the method of determining the Applicable
Rate, see "Description of Preferred
Stock--The Auction."
Dividends for the shares of Preferred Stock
will be paid through the Securities
Depository on each Dividend Payment Date. The
Securities Depository typically will
distribute dividends in same-day funds to
Agent Members, who are expected to distribute
such dividends to the person for whom they
are acting as agent in accordance with the
instructions of such person. See "Description
of Preferred Stock--Dividends."
A Special Dividend Period can be declared
only if certain conditions are met. See
"Description of Preferred Stock--Dividends."
If Sufficient Clearing Bids do not exist at
the Auction for the shares of Preferred
Stock, the Dividend Period commencing on the
Business Day succeeding that Auction will be
a 7-Day Dividend Period, and the holders of
the shares of Preferred Stock outstanding
before that Auction will be required to
continue to hold such shares for that
Dividend Period. In addition, the Fund may
not give a Notice of Special Dividend Period,
or if the Fund has given a Notice of Special
Dividend Period for the Preferred Stock, the
Fund will be required to give a Notice of
Revocation, if:
o either the Investment Company Act
Preferred Stock Asset Coverage is not
satisfied or the Fund fails to maintain
S&P Eligible Assets with an aggregate
Discounted Value at least equal to the
Preferred Stock Basic Maintenance
Amount, in each case on each of the two
Valuation Dates immediately preceding
the Business Day prior to the related
Auction Date for the shares of Preferred
Stock,
o sufficient funds for the payment of
dividends payable on the immediately
succeeding Dividend Payment Date have
not been irrevocably deposited with the
Auction Agent by the close of business
on the third Business Day preceding the
related Auction Date, or
o the Broker-Dealers have not given the
Fund notice that it is advisable to hold
an Auction in respect of a Special
Dividend Period.
In any of these events, the next succeeding
Dividend Period will be a 7-Day Dividend
Period.
ADVANCE NOTICE OF ALLOCA-
TION OF TAXABLE INCOME;
INCLUSION OF TAXABLE
INCOME IN DIVIDENDS........... Dividends paid from tax-exempt income earned
on municipal obligations will be exempt from
federal income tax, although some or all of
those dividends may be a tax preference item
for purposes of the federal alternative
minimum tax.
The Fund is required to allocate net capital
gains and any other income subject to federal
income tax proportionately among the Fund's
shares of common stock and shares of
Preferred Stock. The Fund will seek to notify
the Auction Agent of the amount of the
taxable income to be included in any dividend
on the shares of Preferred Stock before the
Auction establishing the Applicable Rate for
such dividend. The Auction Agent will notify
each Broker-Dealer whenever it receives any
such notice from the Fund, and each Broker-
Dealer will notify its Beneficial Owners and
Potential Beneficial Owners, as provided in
its Broker-Dealer Agreement.
The Fund also may include such taxable income
in a dividend on the shares of Preferred
Stock without giving advance notice thereof
if it increases the dividend by an amount
sufficient to offset substantially the tax
effect thereof. The amount of taxable income
allocable to the shares of Preferred Stock
will depend upon the amount of taxable income
realized by the Fund and other factors but
generally is not expected to be significant.
See "Taxes" and "Description of Preferred
Stock--The Auction--Auction Date; Advance
Notice of Allocation of Taxable Income;
Inclusion of Taxable Income in Dividends."
ADDITIONAL DIVIDENDS ........... If the Fund retroactively allocates any net
capital gains or other taxable income to the
shares of Preferred Stock without advance
notice, the Fund will make payments to
holders of the shares of Preferred Stock to
which such allocation was made to offset
substantially the tax effect thereof. This
retroactive allocation may happen if (i) all
or a portion of the outstanding shares of
Preferred Stock are redeemed, (ii) the Fund
liquidates, (iii) a debt obligation believed
to be a municipal obligation unexpectedly
turns out to be an obligation subject to
federal income tax or (iv) any other reason
determined in good faith by the Fund. See
"Description of Preferred
Stock--Dividends--Additional Dividends" and
"Taxes."
DETERMINATION OF MAXIMUM
APPLICABLE RATES.............. Except during a Non-Payment Period, the
Applicable Rate for any Dividend Period for
the Preferred Stock will not be more than the
Maximum Applicable Rate. The Maximum
Applicable Rate for each series of Preferred
Stock will depend on the credit rating
assigned to such shares and on the duration
of the Dividend Period. The Maximum
Applicable Rate will be the Applicable
Percentage of the Reference Rate.
The Reference Rate is:
o with respect to any Dividend Period or
any Short Term Dividend Period having 28
or fewer days, the higher of the
applicable "AA" Composite Commercial
Paper Rate and the Taxable Equivalent of
the Short-Term Municipal Obligation
Rate,
o with respect to any Short Term Dividend
Period having more than 28 but fewer
than 183 days, the applicable "AA"
Composite Commercial Paper Rate,
o with respect to any Short Term Dividend
Period having 183 or more but fewer than
364 days, the applicable U.S. Treasury
Bill Rate, and
o with respect to any Long Term Dividend
Period, the applicable U.S. Treasury
Note Rate.
The Applicable Percentage will be determined based on:
o the credit rating assigned on such date
to the shares of Preferred Stock by S&P
(or, if S&P does not make such rating
available, the equivalent of such rating
by a Substitute Rating Agency), and
o whether the Fund has provided
notification to the Auction Agent,
before the Auction establishes the
Applicable Rate for any dividend, that
net capital gains or other taxable
income will be included in such dividend
on the shares of Preferred Stock as
follows:
APPLICABLE
APPLICABLE Percentage of
Percentage of Reference Rate
S&P Credit Reference Rate --
Ratings No Notification Notification
AA- or higher... 110% 150%
A- to A+........ 125 160
BBB- to BBB+.... 150 250
Below BBB-....... 200 275
There is no minimum Applicable Rate in
respect of any Dividend Period.
The Applicable Rate for any Dividend Period
commencing during any Non-Payment Period, and
the rate used to calculate the late charge
described under "Description of Preferred
Stock--Dividends--Non-Payment Period; Late
Charge," initially will be 200% of the
Reference Rate (or 275% of such rate if the
Fund has provided notification to the Auction
Agent before the Auction establishing the
Applicable Rate for any dividend that net
capital gains or other taxable income will be
included in such dividend on shares of
Preferred Stock).
AUCTION PROCEDURES ............. Separate Auctions will be conducted for each
series of Preferred Stock. Unless otherwise
permitted by the Fund, Beneficial Owners and
Potential Beneficial Owners of shares of
Preferred Stock may participate in Auctions
only through their Broker-Dealers.
Broker-Dealers will submit the Orders of
their respective customers who are Beneficial
Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as
Existing Holders in respect of shares subject
to Orders submitted or deemed submitted to
them by Beneficial Owners and as Potential
Holders in respect of shares subject to
Orders submitted to them by Potential
Beneficial Owners. On or before each Auction
Date (the Business Day next preceding the
first day of each Dividend Period), each
Beneficial Owner may submit Orders to its
Broker-Dealer as follows:
o Hold Order--indicating its desire to
hold the shares of Preferred Stock
without regard to the Applicable Rate
for the next Dividend Period for such
shares.
o Bid--indicating its desire to hold the
shares of Preferred Stock, provided the
Applicable Rate for the next Dividend
Period for such shares is not less than
the rate per annum specified in such
Bid.
o Sell Order--indicating its desire to
sell the shares of Preferred Stock
without regard to the Applicable Rate
for the next Dividend Period for such
shares.
A Beneficial Owner may submit different types
of Orders to its Broker-Dealer with respect
to the shares of Preferred Stock then held by
such Beneficial Owner, provided that the
total number of shares of Preferred Stock
covered by such Orders does not exceed the
number of shares of Preferred Stock held by
the Beneficial Owner. If, however, a
Beneficial Owner offers through its
Broker-Dealer to purchase additional shares
of Preferred Stock in the Auction, such
Beneficial Owner, for purposes of such offer
to purchase additional shares, will be
treated as a Potential Beneficial Owner as
described below. Bids by Beneficial Owners
through their Broker-Dealers with rates per
annum higher than the Maximum Applicable Rate
will be treated as Sell Orders.
If an Order is not submitted on behalf of a
Beneficial Owner for any reason, including
the failure of a Broker-Dealer to submit such
Beneficial Owner's Order to the Auction
Agent, then a Hold Order (in the case of an
Auction relating to a Dividend Period of 91
days or less) and a Sell Order (in the case
of an Auction relating to a Special Dividend
Period of longer than 91 days) will be deemed
to have been submitted on behalf of such
Beneficial Owner.
Potential Beneficial Owners of shares of
Preferred Stock may submit Bids through their
Broker-Dealers offering to purchase shares of
Preferred Stock, provided the Applicable Rate
for the next Dividend Period for such shares
is not less than the rate per annum specified
in such Bid. A Bid by a Potential Beneficial
Owner with a rate per annum higher than the
Maximum Applicable Rate will not be
considered.
Neither the Fund nor the Auction Agent will
be responsible for a Broker-Dealer's failure
to comply with any of the Auction Procedures.
A Broker-Dealer also may hold shares of
Preferred Stock for its own account as a
Beneficial Owner and, thus, may participate
in an Auction on behalf of both itself and
its customers. A Broker-Dealer acting for
itself will be subject to the same procedures
as when it acts on behalf of a Beneficial
Owner or a Potential Beneficial Owner.
If Sufficient Clearing Bids exist in an
Auction for a series of Preferred Stock, the
Applicable Rate will be the lowest rate per
annum specified in the Submitted Bids which,
taking into account such rate per annum and
all lower rates per annum bid by Existing
Holders and Potential Holders, would result
in Existing Holders and Potential Holders
owning all of the shares of Preferred Stock
available for purchase in the Auction.
If Sufficient Clearing Bids do not exist, the
Dividend Period next following the Auction
automatically will be a 7-Day Dividend Period
and the Applicable Rate will be the Maximum
Applicable Rate. In such event, Existing
Holders that have submitted Sell Orders will
not be able to sell in the Auction all, and
may not be able to sell any, shares of
Preferred Stock subject to such Sell Orders.
If all Existing Holders submit (or are deemed
to have submitted) Hold Orders in an Auction,
the Dividend Period next following the
Auction automatically will be the same length
as the immediately preceding Dividend Period,
and the Applicable Rate will be 40% of the
Reference Rate (as defined under
"Determination of Maximum Applicable Rates"
above) in effect on the date of the Auction
(or 60% of such rate if the Fund has provided
notification to the Auction Agent, before the
Auction establishes the Applicable Rate for
any dividend, that net capital gains or other
taxable income will be included in such
dividend on shares of Preferred Stock).
The Auction Procedures include a pro rata
allocation of shares for purchase and sale,
which may result in an Existing Holder
selling or holding, or a Potential Holder
purchasing, a number of shares of Preferred
Stock that is less than the number of shares
of Preferred Stock specified in its Order. If
the allocation has this result, a
Broker-Dealer will be required to make
appropriate pro rata allocations among its
customers and itself.
A Sell Order by an Existing Holder will
constitute an irrevocable offer to sell the
shares of Preferred Stock subject to it, and
a Bid placed by an Existing Holder also will
constitute an irrevocable offer to sell the
shares of Preferred Stock subject to it if
the rate per annum specified in the Bid is
higher than the Applicable Rate determined in
the Auction, in each case at a price per
share equal to $25,000.
A Bid placed by a Potential Holder will
constitute an irrevocable offer to purchase
the shares of Preferred Stock subject thereto
if the rate per annum specified in such Bid
is less than or equal to the Applicable Rate
determined in the Auction. Settlement of
purchases and sales will be made on the next
Business Day (also a Dividend Payment Date)
after the Auction Date through the Securities
Depository. Purchasers will make payment
through their Agent Members in same-day funds
to the Securities Depository against delivery
by book-entry to their Agent Members. The
Securities Depository will make payment to
the sellers' Agent Members in accordance with
the Securities Depository's normal
procedures, which now provide for payment in
same-day funds. See "Description of Preferred
Stock--The Auction."
ASSET MAINTENANCE............... Under its Charter, the Fund must maintain (i)
S&P Eligible Assets having in the aggregate a
Discounted Value at least equal to the
Preferred Stock Basic Maintenance Amount and
(ii) Investment Company Act Preferred Stock
Asset Coverage of at least 200%. See
"Description of Preferred Stock--Asset
Maintenance."
The Fund estimates that, based on the
composition of its portfolio at December 31,
1999, the Investment Company Act Preferred
Stock Asset Coverage with respect to shares x
of Preferred Stock will be approximately
______% immediately after the issuance of the
shares of Preferred Stock offered hereby in
an amount representing approximately ______%
of the Fund's capital (including the capital
attributable to the shares of Preferred
Stock).
The Discount Factors and guidelines for
calculating the Discounted Value of the
Fund's portfolio for purposes of determining
whether the Preferred Stock Basic Maintenance
Amount has been satisfied have been
established by S&P in connection with the
Fund's receipt of ratings on the shares of
Preferred Stock on their Date of Original
Issue of "AAA" from S&P.
MANDATORY REDEMPTION ........... If the Preferred Stock Basic Maintenance
Amount or the Investment Company Act
Preferred Stock Asset Coverage is not
maintained or restored as required, the
shares of Preferred Stock will be subject to
mandatory redemption, out of funds legally
available, at the Mandatory Redemption Price
of $25,000 per share, plus an amount equal to
accumulated but unpaid dividends to the date
fixed for redemption. In addition, holders of
shares of Preferred Stock may be entitled to
receive Additional Dividends in the event of
redemption of such shares of Preferred Stock.
See "Description of Preferred
Stock--Dividends--Additional Dividends." Any
such redemption will be limited to the
minimum number of shares of Preferred Stock
necessary to restore the Preferred Stock
Basic Maintenance Amount or the Investment
Company Act Preferred Stock Asset Coverage,
as the case may be. The Fund's ability to
complete a mandatory redemption may be
restricted by the provisions of the
Investment Company Act. See "Description of
Preferred Stock--Redemption--Mandatory
Redemption."
OPTIONAL REDEMPTION............. The shares of Preferred Stock are redeemable
at the option of the Fund on any Dividend
Payment Date (except during the Initial
Dividend Period or a Non-Call Period) at the
Optional Redemption Price of $25,000 per
share, plus an amount equal to accumulated
but unpaid dividends to the date fixed for
redemption plus the premium, if any,
resulting from the designation of a Premium
Call Period. See "Description of Preferred
Stock--Redemption--Optional Redemption."
Holders of shares of Preferred Stock also may
be entitled to receive Additional Dividends
if their shares of Preferred Stock are
redeemed. See "Description of Preferred
Stock--Dividends--Additional Dividends."
LIQUIDATION PREFERENCE .......... The liquidation preference of the shares of
Preferred Stock will be $25,000 per share,
plus an amount equal to accumulated but
unpaid dividends. See "Description of
Preferred Stock--Liquidation Rights." Holders
of shares of Preferred Stock also may be
entitled to receive Additional Dividends if
the Fund is liquidated. See "Description of
Preferred Stock--Dividends--Additional
Dividends."
RATING........................... Shares of Preferred Stock will be issued only
if S&P gives them a credit quality rating of
"AAA." The Fund may seek at some future time
to have the shares of Preferred Stock rated
by an additional Rating Agency. See
"Investment Objective and Policies--Rating
Agency Guidelines."
VOTING RIGHTS.................... Holders of any shares of Preferred Stock,
voting as a separate class, have the right to
elect at least two Directors at all times and
to elect a majority of the Directors at any
time when two years' dividends on any shares
of Preferred Stock are unpaid. The holders of
any shares of Preferred Stock will vote as a
separate class on certain other matters as
required under the Fund's Charter and the
Investment Company Act. See "Description of
Preferred Stock--Voting Rights," "Description
of Capital Structure" and "Certain Provisions
of the Charter."
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth certain specified information for a share
of common stock of the Fund outstanding throughout each period presented. The
financial highlights for each of the ten years in the period ended September 30,
1999 presented have been audited by Ernst & Young LLP, the Fund's independent
auditors, whose report covering each of the five years in the period ended
September 30, 1999, is included in the Fund's September 30, 1998 Annual Report
and is incorporated by reference in the SAI. The financial highlights should be
read in conjunction with the financial statements and notes thereto included in
the Fund's September 30, 1999 Annual Report, which is available without charge
from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
PER SHARE DATA:
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of period..... $10.22 $ 10.02 $ 9.88 $ 9.96 $ 9.73 $ 10.43 $ 10.10 $ 9.96 $ 9.79 $ 9.97
------ ------- ------ ------ ------- ------- ------- ------- ------- ------
INVESTMENT OPERATIONS
Investment income--net.... .56 .59 .66 .68 .71 .73 .75 .75 .78 .78
Net realized and
unrealized gain (loss)
on investments.......... (.80) .25 .16 (.09) .23 (.69) .31 .17 .27 (.15)
----- ------- ------ ------- ------- ------- ------ ------ ------ -------
TOTAL FROM INVESTMENT
OPERATIONS.............. (.24) .84 .82 .59 .94 .04 1.06 .92 1.05 .63
----- ------- ------ ------- ------- ------- ------ ------ ------ -------
DISTRIBUTIONS:
Dividends from
investment income--net.. (.57) (.64) (.68) (.67) (.71) (.72) (.73) (.75) (.76) (.76)
Dividends from
net realized gain on
investments............. -- -- -- -- -- (.02) -- (.03) (.12) (.05)
----- ------- ------- ------ -------- ------- ------ ------ ----- -----
TOTAL DISTRIBUTIONS....... (.57) (.64) (.68) (.67) (.71) (.74) (.73) (.78) (.88) (.81)
----- -------- ------- ------- -------- ------- ----- ------ ----- -----
Net asset value, end of
period.................. $ 9.41 $ 10.22 $ 10.02 $ 9.88 $ 9.96 $ 9.73 $10.43 $10.10 $ 9.96 $ 9.79
====== ======= ======= ====== ======= ====== ====== ====== ====== ======
Market value, end of
period.................. $ 8 $10 5/16 $ 10 5/8 $ 10 $ 9 5/8 $ 9 7/8 $11 1/8 $10 5/8 $10 1/2 $10
======= ======== ======== ======= ======== ======= ======= ======= ======= =====
TOTAL INVESTMENT
RETURN* (17.55%) 3.35% 13.77% 11.23% 4.91% ( 4.63%) 12.40% 9.14% 14.80% 1.98%
RATIOS/
SUPPLEMENTAL DATA:
Ratio of expenses to
average net assets...... .84% .85% .85% .86% .87% .86% .87% .88% .88% .89%
Ratio of net investment
income to average net
assets.................. 5.63% 5.78% 6.64% 6.92% 7.30% 7.24% 7.40% 7.56% 7.99% 7.94%
Portfolio turnover rate... 27.05% 20.95% 16.66% 19.27% 13.68% 4.85% 11.59% 21.80% 6.43% 10.51%
Net assets, end of
period (000's Omitted).. $550,755 $595,693 $577,209 $560,072 $559,862 $541,124 $565,589 $533,151 $510,120 $482,515
- ---------------------------------
* Calculated based on market value.
</TABLE>
<PAGE>
THE FUND
The Fund is a diversified, closed-end management investment company
that commenced operations in 1987. The Fund's investment objective is to
maximize current income exempt from federal income tax to the extent consistent
with the preservation of capital. The Fund invests in a diversified portfolio
consisting principally of municipal obligations.
The Fund was organized as a Maryland corporation on July 20, 1987 and
has registered with the SEC under the Investment Company Act. In September 1987,
the Fund issued 45,000,000 shares of common stock pursuant to the initial public
offering thereof and commenced operations. The net proceeds of such offering
were $420,750,000. The Fund's common stock is traded on the New York Stock
Exchange ("NYSE") under the symbol "LEO." The Fund's principal office is located
at 200 Park Avenue, New York, New York 10166. Dreyfus is registered with the SEC
under the Investment Advisers Act of 1940, as amended.
USE OF PROCEEDS
The estimated net proceeds of this offering will be $281,950,000
after the payment of offering expenses (not expected to exceed $200,000) and the
sales load. See "Underwriting."
Dreyfus anticipates that the Fund will take up to sixty days from its
receipt of the net proceeds of the offer to invest or otherwise employ such
proceeds in accordance with the Fund's investment objective and policies under
current market conditions. Pending such investment, the proceeds of the offer
will be held in high-quality, short-term, tax-exempt money market instruments or
shares of investment companies which invest in such securities. Consequently,
the proceeds may not be invested for up to sixty days in securities consistent
with the Fund's goal of maximizing current income.
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the
Fund as of December 31, 1999 as adjusted to give effect to the issuance of the
shares of Preferred Stock offered hereby.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
Shareholders' equity:
Preferred Stock, par value $0.001 per share (no shares issued; 11,400
shares of Preferred Stock, as adjusted, at $25,000 per share
<S> <C> <C>
liquidation preference)................................................... - $285,000,000
Common Stock, par value $0.001 per share (______________ shares issued
and outstanding).......................................................... $ $
Capital in excess of par value attributable to common stock....................
Undistributed investment income - net..........................................
Accumulated realized gain (loss) - net.........................................
Unrealized [appreciation/depreciation] on investments - net.................... _____________ _____________
Net assets..................................................................... $ $
============ ============
</TABLE>
PORTFOLIO COMPOSITION
As of December 31, 1999, approximately ___% of the market value of
the Fund's portfolio was invested in long-term municipal obligations and the
remainder was invested in short-term municipal obligations. The following table
sets forth certain information with respect to the composition of the Fund's
investment portfolio as of December 31, 1999.
<TABLE>
<CAPTION>
Number of Value
S&P* MOODY'S* FITCH* Issues (IN THOUSANDS) PERCENT
---- -------- ------ -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
AAA Aaa AAA $ %
AA Aa AA
A A A
BBB Baa BBB
BB Ba BB
B B B
NR+ NR+ NR+
Cash
Total $ %
----------
* Ratings: Using the highest of S&P, Moody's or Fitch ratings on the Fund's
municipal obligations. See "Appendix A" to the SAI. S&P and Fitch rating
categories may be modified further by a plus (+) or minus (-) in AA, A,
BBB, BB and B ratings. Moody's rating categories may be modified further by
a 1, 2, or 3 in Aa, A, Baa, Ba B ratings.
+ Securities that are not rated by S&P, Moody's or Fitch. These municipal
obligations may be rated by a Ratings Agency other than S&P, Moody's or
Fitch, or may not be rated by any such Rating Agency.
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is to maximize current income exempt
from federal income tax to the extent consistent with the preservation of
capital. The Fund invests in a diversified portfolio of municipal obligations.
The Fund's investment objective may not be changed without the affirmative vote
of the holders of a majority (as defined in the Investment Company Act) of the
Fund's outstanding voting securities. No assurance can be given that the Fund
will achieve its investment objective.
MANAGEMENT POLICIES
Under normal market conditions, the Fund will invest, as a fundamental
policy, at least 80% of its net assets in municipal obligations. Municipal
obligations are debt obligations issued by states, territories and possessions
of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or multi-state agencies or
authorities, that provide income exempt from federal income tax. Municipal
obligations are classified as general obligation bonds, revenue bonds and notes.
General obligation bonds are secured by the issuer's pledge of its faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenue derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Notes are
short-term instruments which are obligations of the issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. The Fund may purchase floating and variable rate
obligations, municipal derivatives, such as custodial receipt programs created
by financial intermediaries, tender option bonds and participations in municipal
obligations.
Under normal market conditions, the Fund invests at least 50% of its
net assets in municipal obligations considered at investment grade by Moody's,
S&P or Fitch or the unrated equivalent as determined by Dreyfus in the case of
bonds, and in the two highest rating categories of Moody's, S&P or Fitch or the
unrated equivalent as determined by Dreyfus in the case of short-term
obligations having or deemed to have maturities of less than one year.
Investment grade bonds are those rated in the four highest rating categories of
Moody's, S&P or Fitch. The Fund may invest the remainder of its assets in
municipal obligations, which, in the case of bonds, are considered speculative
grade by Moody's S&P and Fitch, including, those rated no lower than C, but it
currently is the intention of the Fund to invest such remainder of its assets
primarily in bonds rated no lower than Ba by Moody's and BB by S&P and Fitch.
See "Rating Agency Guidelines" below. bonds rated below investment grade and
shorter term obligations rated below the two highest rating categories of
Moody's, S&P and Fitch will be purchased only if Dreyfus determines that the
purchase is consistent with the Fund's investment objective. Investment grade
bonds are those rated in the four highest rating categories of Moody's, S&P or
Fitch. See "Additional Risk Considerations" below. The Fund also may invest in
securities which, while not rated, are determined by Dreyfus to be of comparable
quality to the rated securities in which the Fund may invest; for the purpose of
the 50% requirement described in this paragraph, such unrated securities shall
be deemed to have the rating so determined. The Fund also may invest in taxable
investments of the quality described below. Under normal market conditions, the
weighed average maturity of the Fund's portfolio is expected to exceed ten
years.
From time to time, the Fund may invest more than 25% of the value of its
total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental users. Interest on certain municipal
obligations (including certain industrial development bonds) which are specific
private activity bonds, while exempt from federal income tax, is a preference
item for the purpose of the federal alternative minimum tax ("AMT"). Where a
regulated investment company receives such interest, a proportionate share of
any exempt-interest dividend paid by the investment company will be treated as a
preference item to the shareholder. The Fund may invest without limitation in
such municipal obligations if Dreyfus determines that their purchase is
consistent with the Fund's investment objective.
From time to time, (a) on a temporary basis other than for temporary
defensive purposes (but not to exceed 20% of the Fund's net assets) or (b) for
temporary defensive purposes without limitation, the Fund may invest in taxable
short-term investments ("Taxable Investments") consisting of: notes of issuers
having, at the time of purchase, a quality rating within the two highest grades
of Moody's, S&P or Fitch; obligations of the U.S. Government, its agencies or
instrumentalities; commercial paper rated at least P-2 by Moody's or at least
A-2 by S&P or Fitch; certificates of deposit of U.S. domestic banks, including
foreign branches of domestic banks, with assets of $1 billion or more; bankers'
acceptances; time deposits; and repurchase agreements in respect of any of the
foregoing. See the SAI for a description of these securities. Dividends paid by
the Fund that are attributable to interest earned from Taxable Investments will
be taxable to investors. See "Taxes." Under normal market conditions, the Fund
anticipates that not more than 5% of its total assets will be invested in any of
the foregoing categories of Taxable Investments.
INVESTMENT TECHNIQUES
The Fund may employ, among others, the investment techniques described
below. Use of certain of these techniques may give rise to taxable income. These
instruments and certain related risks are described more specifically under
"Additional Information About Certain Portfolio Securities and Investment
Techniques" in the SAI. The Fund's ability to use some of these techniques, such
as investing in futures, engaging in options transactions and lending portfolio
securities is limited as a condition to S&P's rating the shares of Preferred
Stock "AAA." See "Rating Agency Guidelines" below.
WHEN-ISSUED SECURITIES. New issues of municipal obligations usually are
offered on a when-issued basis, which means that delivery and payment for such
municipal obligations normally take place within 45 days after the date of the
commitment to purchase. The payment obligation and the interest rate that will
be received on the municipal obligations are fixed at the time the buyer enters
into the commitment. The Fund will make commitments to purchase such municipal
obligations only with the intention of actually acquiring the securities, but
the Fund may sell these securities before the settlement date if it is deemed
advisable, although any gain realized on such sale would be taxable. The Fund
will not accrue income with respect to a when-issued security before its stated
delivery date. No additional when-issued commitments will be made if more than
20% of the Fund's net assets would be so committed.
STAND-BY COMMITMENTS. The Fund may acquire "stand-by commitments" with
respect to municipal obligations held in its portfolio. Under a stand-by
commitment the Fund obligates a broker, dealer or bank to repurchase at the
Fund's option specified securities at a specified price. In this respect,
stand-by commitments are comparable to put options. The exercise of a stand-by
commitment, therefore, is subject to the ability of the seller to make payment
on demand. The Fund will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The Fund anticipates that stand-by commitments will be
available from brokers, dealers and banks without the payment of any direct or
indirect consideration. The Fund may pay for stand-by commitments if such action
is deemed necessary, thus increasing to a degree the cost of the underlying
municipal obligation and similarly decreasing such security's yield to
investors.
DERIVATIVES. The Fund may invest in, or enter into, certain types of
derivatives, such as futures and options, for a variety of reasons, including to
increase current income, reduce fluctuations in net asset value and protect
against a decline in the value of municipal obligations held by the Fund or an
increase in the price of municipal obligations the Fund proposes to purchase in
the future. Distributions by the Fund of any gains realized on the Fund's
futures and options transactions will be taxable. The Rating Agency guidelines
for the Preferred Stock limit the use of these derivatives.
Derivatives may entail investment exposures that are greater than their
cost would suggest, meaning that a small investment in derivatives could have a
large potential impact on the Fund's performance.
If the Fund invests in derivatives at inopportune times or judges market
conditions incorrectly, such investments may lower the Fund's return or result
in a loss. The Fund also could experience losses if its derivatives were poorly
correlated with its other investments, or if the Fund were unable to liquidate
its position because of an illiquid secondary market. The market for many
derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid and unpredictable changes in the prices for
derivatives.
The Fund may acquire call options on specific municipal obligations. The
Fund generally would purchase these call options to protect the Fund from the
issuer of the related municipal obligation redeeming, or other holder of the
call option from calling away, the municipal obligation before maturity. The
sale by the Fund of a call option it owns on a specific municipal obligation
could result in the receipt of taxable income by the Fund. Certain securities
purchased by the Fund, such as those with interest rates that fluctuate directly
or indirectly based on multiples of a stated index, are designed to be highly
sensitive to changes in interest rates and can subject the holders thereof to
extreme reductions of yield and possibly loss of principal.
Although the Fund will not be a commodity pool, certain derivatives subject
the Fund to the rules of the Commodity Futures Trading Commission which limit
the extent to which the Fund can invest in such derivatives. The Fund may invest
in futures contracts and options with respect thereto for hedging purposes
without limit. However, the Fund may not invest in such contracts and options
for other purposes if the sum of the amount of initial margin deposits and
premiums paid for unexpired options with respect to such contracts, other than
for bona fide hedging purposes, exceeds 5% of the liquidation value of the
Fund's assets, after taking into account unrealized profits and unrealized
losses on such contracts and options, but in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation.
The Fund may purchase call and put options and may write (i.e., sell)
covered call and put option contracts. When required by the SEC, the Fund will
segregate permissible liquid assets to cover its obligations relating to its
purchase of derivatives. To maintain this required cover, the Fund may have to
sell portfolio securities at disadvantageous prices or times because it may not
be possible to liquidate a derivative position at a reasonable price.
The Fund may invest in residual interest municipal obligations whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in inverse
floaters may involve greater risk than an investment in a fixed-rate bond.
Because changes in the interest rate on the other security or index inversely
affect the residual interest paid on the inverse floater, the value of an
inverse floater is generally more volatile than that of a fixed-rate bond.
Inverse floaters have interest rate adjustment formulas which generally reduce
or, in the extreme, eliminate the interest paid to the Fund when short-term
interest rates rise, and increase the interest paid to the Fund when short-term
interest rates fall. Inverse floaters have varying degrees of liquidity, and the
market for these securities is relatively volatile. These securities tend to
underperform the market for fixed-rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed-rate bonds when
interest rates decline. Shifts in long-term interest rates may, however, alter
this tendency. Although volatile, inverse floaters typically offer the potential
for yields exceeding the yields available on fixed-rate bonds with comparable
credit quality, coupon, call provisions and maturity. These securities usually
permit the investor to convert the floating-rate to a fixed-rate (normally
adjusted downward), and this optional conversion feature may provide a partial
hedge against rising rates if exercised at an opportune time.
ADDITIONAL RISK CONSIDERATIONS
THE FUND'S INVESTMENTS ARE SUBJECT TO INTEREST RATE, MARKET, INCOME, CALL
AND CREDIT RISK. The prices of municipal obligations tend to fall as interest
rates rise. Securities that have longer maturities tend to fluctuate more in
price in response to changes in market interest rates. This risk is usually
greater among municipal obligations with longer maturities or durations and when
residual interest municipal obligations are held by the Fund. This means that
the Fund, which invests in such longer-term securities, is subject to greater
market risk (other things being equal) than a fund investing solely in
shorter-term securities.
The Fund's income is based primarily on the interest it earns from its
investments, which can vary widely over the short- and long-term. If interest
rates fall, the Fund's income available over time to make dividend payments with
respect to the Preferred Stock could drop as well if the Fund purchases
securities with lower interest coupons.
The Fund may invest in inverse floaters. Compared to similar fixed-rate
municipal obligations, the value of these bonds will fluctuate to a greater
extent in response to changes in prevailing long-term interest rates. Moreover,
the income earned on inverse floaters will fluctuate in response to changes in
prevailing short-term interest rates. Thus, when such bonds are held by the
Fund, an increase in short- or long-term market interest rates will adversely
affect the income received from such bonds.
If interest rates fall, it is possible that issuers of callable bonds with
high interest coupons will "call" (or prepay) their bonds before their maturity
date. If a call were exercised by the issuer during a period of declining
interest rates, the Fund would likely replace such called security with a lower
yielding security.
Municipal obligations are subject to the risk of non-payment of scheduled
interest and/or principal. Such non-payment would result in a reduction of
income to the Fund, a reduction in the value of the security experiencing
non-payment and a potential decrease in the net asset value of the Fund.
Securities rated below investment grade or unrated securities of comparable
quality are subject to the risk of an issuer's inability to meet principal and
interest payments on the obligations ("credit risk") and also may be subject to
price volatility due to such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and general market liquidity
("market risk"). The prices of lower quality securities also are more likely to
react to real or perceived developments affecting market risk and credit risk
than are prices of investment grade quality securities, which react primarily to
movements in the general level of interest rates.
The Fund is permitted to invest in securities rated Baa by Moody's or
BBB by S&P or Fitch and up to 50% of its assets may be invested in securities
rated below Baa by Moody's and BBB by S&P or Fitch, but in no event lower than C
by such Rating Agencies. The Fund's ability to invest in lower rated municipal
obligations, however, will be limited as a condition to S&P's rating the shares
of Preferred Strock "AAA". Bonds which are rated Baa by Moody's are considered
medium grade obligations; they are neither highly protected nor poorly secured,
and are considered by Moody's to have speculative characteristics. Bonds which
are rated BBB by S&P are regarded as having adequate capacity to pay interest
and repay principal, and while such bonds normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories. Bonds rated BBB by Fitch
are considered to be of satisfactory credit quality and the obligor's ability to
pay interest and repay principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more likely to have an
adverse impact on these bonds, and therefore, impair timely payment of interest
or principal. Because up to 50% of the Fund's portfolio may consist of bonds
rated below investment grade and as low as C by Moody's, S&P and Fitch (commonly
known as junk bonds), the Fund may be subject to investment risks as to these
securities that are greater than those incurred by a fund which invests only in
securities rated in a higher category by these Rating Agencies. These higher
yielding (and, therefore, higher risk) securities generally may be subject to
substantial risks with respect to the ability of the issuing entity to make
timely payments of principal and interest and to greater market fluctuation than
certain lower yielding, higher rated fixed-income securities. The retail
secondary market for these securities may be less liquid than that of higher
rated securities; adverse conditions could make it difficult at times for the
Fund to sell certain securities or could result in lower prices. See "Appendix
A" to the SAI for a general description of Moody's, S&P and Fitch ratings of
municipal obligations. Although ratings may be useful in evaluating the safety
of interest and principal payments, they do not evaluate the market value risk
of these bonds. It also is possible that a Rating Agency might not timely change
the rating on a particular issue to reflect subsequent events. Once the rating
of a bond in the Fund's portfolio has been changed, the Fund will consider all
circumstances deemed relevant in determining whether to continue to hold the
bond.
YEAR 2000 ISSUES. The Fund could be adversely affected if the computer
systems used by Dreyfus and the Fund's other service providers do not properly
process and calculate date-related information from and after January 1, 2000.
Dreyfus has taken steps designed to avoid year 2000-related problems in its
systems and to monitor the readiness of other service providers. In addition,
issuers of securities in which the Fund invests may be adversely affected by
year 2000-related problems. This could have an impact on the value of the Fund's
investments.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate will not be a limiting factor when the
Fund deems it desirable to purchase or sell securities. A 100% annual turnover
rate would occur, for example, if all the securities in the portfolio were
replaced in a period of one year. A higher turnover rate necessarily involves
greater expenses to the Fund. The Fund will engage in portfolio trading if it
believes that a transaction will help in achieving its investment objective.
RATING AGENCY GUIDELINES
The Fund intends that, so long as shares of Preferred Stock are
outstanding, the composition of its portfolio will reflect guidelines
established by S&P in connection with the Fund's receipt of a rating for such
shares on or prior to their Date of Original Issue of at least "AAA" from S&P.
S&P issues ratings for various securities reflecting the perceived
creditworthiness of such securities. The guidelines have been developed by S&P
in connection with issuances of asset-backed and similar securities, including
debt obligations and variable rate preferred stock, generally on a case-by-case
basis through discussions with the issuers of these securities. The guidelines
are designed to ensure that assets underlying outstanding debt or preferred
stock will be varied sufficiently and will be of sufficient quality and amount
to justify investment grade ratings. The guidelines do not have the force of law
but have been adopted by the Fund to satisfy current requirements necessary for
S&P to issue the above-described rating for the shares of Preferred Stock, which
rating generally is relied upon by institutional investors in purchasing such
securities. The guidelines provide a set of tests for portfolio composition and
asset coverage that supplement (and in some cases are more restrictive than) the
applicable requirements under the Investment Company Act. See "Description of
Preferred Stock--Asset Maintenance."
The Fund intends to maintain a Discounted Value for its portfolio at least
equal to the Preferred Stock Basic Maintenance Amount. S&P has established
guidelines for determining Discounted Value. To the extent any particular
portfolio holding does not satisfy these guidelines, all or a portion of such
holding's value will not be included in the calculation of Discounted Value of
the Fund's portfolio assets. The S&P guidelines may impose limitations on the
percentage of Fund assets that may be invested in holdings not eligible for
inclusion in the calculation of the Discounted Value of the Fund's portfolio.
Upon any failure to maintain the required aggregate Discounted Value, the
Fund will seek to alter the composition of its portfolio to retain a Discounted
Value at least equal to the Preferred Stock Basic Maintenance Amount on or
before the Preferred Stock Basic Maintenance Cure Date, thereby incurring
additional transaction costs and possible losses and/or gains on dispositions of
portfolio securities. If any such failure is not cured in a timely manner, the
shares of Preferred Stock will be subject to mandatory redemption. The Preferred
Stock Basic Maintenance Amount includes the sum of (i) the aggregate liquidation
value of the shares of Preferred Stock then outstanding and (ii) certain accrued
and projected payment obligations of the Fund. See "Description of Preferred
Stock--Asset Maintenance" and "Description of Preferred Stock--Redemption."
The Fund may, but is not required to, adopt any modifications to these
guidelines established hereafter by S&P. Failure to adopt any such
modifications, however, may result in a change in the rating described above or
a withdrawal of the rating altogether. In addition, any Rating Agency providing
a rating for the shares of Preferred Stock, at any time, may change or withdraw
any such rating. As set forth in the Charter, the Fund's Board of Directors,
without shareholder approval, may modify certain definitions or restrictions
that have been adopted by the Fund pursuant to the Rating Agency guidelines,
provided the Fund's Board of Directors has obtained written confirmation from
S&P that any such change would not impair the ratings then assigned by S&P to
the shares of Preferred Stock.
As described by S&P, a preferred stock rating is an assessment of the
capacity and willingness of an issuer to pay preferred stock obligations. The
rating on the shares of Preferred Stock is not a recommendation to purchase,
hold or sell shares of Preferred Stock, inasmuch as the rating does not comment
as to market price or suitability for a particular investor, nor do the Rating
Agency guidelines address the likelihood that a holder of shares of Preferred
Stock will be able to sell such shares in an Auction or otherwise. The rating is
based on current information furnished to S&P by the Fund and Dreyfus and
information obtained from other sources. The rating may be changed, suspended or
withdrawn as a result of changes in, or the unavailability of, such information.
The Fund's shares of common stock have not been rated by a Rating Agency. For
more detailed description of S&P guidelines, see "Rating Agency Guidelines" in
the SAI.
For a more detailed description of S&P guidelines, see "Rating Agency
Guidelines" in the SAI.
RISKS OF INVESTING IN THE PREFERRED STOCK
There are a number of specific factors investors in the shares of Preferred
Stock should consider:
o The credit rating of the shares of Preferred Stock could be reduced
while an investor holds the shares of Preferred Stock, which could
affect liquidity.
o Neither the Broker-Dealers nor the Fund are obligated to purchase the
shares of Preferred Stock in an Auction or otherwise nor is the Fund
required to redeem the shares of Preferred Stock in the event of a
failed Auction.
o If in an Auction Sufficient Clearing Bids do not exist, the Applicable
Rate will be the Maximum Applicable Rate, and in such event,
Beneficial Owners that have submitted Sell Orders will not be able to
sell in the Auction all, and may not be able to sell any, of the
shares of Preferred Stock subject to such Sell Orders. Thus, under
certain circumstances, Beneficial Owners may not have liquidity of
investment.
o If long-term interest rates rise, the value of the Fund's investment
portfolio will decline, reducing the asset coverage for the Preferred
Stock.
o If an issuer of a municipal obligation in which the Fund invests fails
to make timely interest or principal payments, there may be a
negative impact on the income and net asset value of the Fund's
portfolio.
The Broker-Dealers may maintain a secondary trading market in the shares of
Preferred Stock outside of Auctions; however, they have no obligation to do so
and there can be no assurance that a secondary market for the shares of
Preferred Stock will develop or, if it does develop, that it will provide
holders with a liquid trading market (i.e., trading will depend on the presence
of willing buyers and sellers and the trading price is subject to variables to
be determined at the time of the trade by the Broker-Dealers). The shares of
Preferred Stock will not be registered on any stock exchange or on any automated
quotation system. If you try to sell your shares of Preferred Stock between
Auctions, you may not be able to sell any or all of your shares, or you may not
be able to sell them for $25,000 per share or $25,000 per share plus accumulated
dividends. An increase in the level of interest rates, particularly during any
Long Term Dividend Period, likely will have an adverse effect on the secondary
market price of the shares of Preferred Stock.
The Fund's Charter includes provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the Fund
or to change the composition of its Board of Directors. See "Certain Provisions
of the Charter."
DESCRIPTION OF PREFERRED STOCK
The following is a brief description of the terms of the shares of
Preferred Stock. This description does not purport to be complete and is subject
to and qualified in its entirety by reference to the Charter, including the
provisions thereof establishing the shares of Preferred Stock. The Charter has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part.
Each series of Preferred Stock will be preferred stock that entitles its
holders to receive dividends when, as and if declared by the Fund's Board of
Directors, out of funds legally available therefor, at a rate per annum that may
vary for the successive Dividend Periods for each such series. After the Initial
Dividend Period, each Subsequent Dividend Period for each series of Preferred
Stock generally will be a 7-Day Dividend Period; provided, however, that before
any Auction, the Fund may elect, subject to certain limitations described
herein, upon giving notice to holders thereof, a Special Dividend Period. The
Applicable Rate for a particular Dividend Period for a series of Preferred Stock
will be determined by an Auction conducted on the Business Day before the start
of such Dividend Period. Beneficial Owners and Potential Beneficial Owners of
shares of Preferred Stock may participate in Auctions therefor. Except in the
case of a Special Dividend Period of longer than 91 days, Beneficial Owners
desiring to continue to hold all of their shares of Preferred Stock regardless
of the Applicable Rate resulting from Auctions need not participate. For an
explanation of Auctions and the method of determining the Applicable Rate, see
"Description of Preferred Stock--The Auction."
Except as otherwise required by law or unless there is no Securities
Depository, all outstanding shares of Preferred Stock of each series will be
represented by one or more certificates registered in the name of the nominee of
the Securities Depository (initially expected to be Cede & Co. ("Cede")), and no
person acquiring shares of Preferred Stock will be entitled to receive a
certificate representing such shares. See "Appendix D" to the SAI. As a result,
the nominee of the Securities Depository is expected to be the sole holder of
record of each series of Preferred Stock. Accordingly, each purchaser of shares
of Preferred Stock must rely on (i) the procedures of the Securities Depository
and, if such purchaser is not a member of the Securities Depository, such
purchaser's Agent Member, to receive dividends, distributions and notices and to
exercise voting rights (if and when applicable) and (ii) the records of the
Securities Depository and, if such purchaser is not a member of the Securities
Depository, such purchaser's Agent Member, to evidence its beneficial ownership
of the shares of Preferred Stock.
When issued and sold, the shares of Preferred Stock of each series will
have a liquidation preference of $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) and will be
fully paid and non-assessable. See "Description of Preferred Stock--Liquidation
Rights." The shares of Preferred Stock will not be convertible into the Fund's
shares of common stock or other shares of the Fund, and the holders thereof will
have no preemptive rights. The shares of Preferred Stock will not be subject to
any sinking fund but will be subject to redemption at the option of the Fund at
the Optional Redemption Price on any Dividend Payment Date for such series
(except during the Initial Dividend Period and during a Non-Call Period) and, in
certain circumstances, will be subject to mandatory redemption by the Fund at
the Mandatory Redemption Price. See "Description of Preferred
Stock--Redemption."
In addition to serving as the Auction Agent in connection with the Auction
Procedures described below, Bankers Trust Company will be the transfer agent,
registrar, dividend disbursing agent and redemption agent for each series of
Preferred Stock. The Auction Agent, however, will serve merely as the agent of
the Fund, acting in accordance with the Fund's instructions, and will not be
responsible for any evaluation or verification of any matters certified to it.
Except in an Auction, the Fund will have the right (to the extent permitted
by applicable law) to purchase or otherwise acquire any shares of Preferred
Stock so long as the Fund is current in the payment of dividends on shares of
Preferred Stock and on any other shares of the Fund ranking on a parity with the
shares of Preferred Stock with respect to the payment of dividends or upon
liquidation.
THE AUCTION
GENERAL. Holders of the shares of Preferred Stock of each series will be
entitled to receive cumulative cash dividends on their shares when, as and if
declared by the Fund's Board of Directors, out of the funds legally available
therefor. Dividends will be paid on the Initial Dividend Payment Date with
respect to the Initial Dividend Period for each series and, thereafter, on each
Dividend Payment Date with respect to a Subsequent Dividend Period for each
series at the rate per annum equal to the Applicable Rate for each such Dividend
Period.
The provisions of the Charter establishing the terms of the shares of
Preferred Stock offered hereby provide that the Applicable Rate for each
Dividend Period after the Initial Dividend Period for each series will be equal
to the rate per annum that the Auction Agent advises has resulted on the
Business Day preceding the first day of such Dividend Period as a result of the
Auction Procedures. The Auction Procedures are attached as "Appendix D" to the
SAI. If, however, the Fund should fail to pay or duly provide for the full
amount of any dividend on or the redemption price of the shares of Preferred
Stock called for redemption, the Applicable Rate for the shares of Preferred
Stock will be determined as set forth under "Description of Preferred
Stock--Dividends--Determination of Dividend Rate."
AUCTION AGENT AGREEMENT. The Fund will enter into the Auction Agent
Agreement, which provides, among other things, that the Auction Agent will
follow the Auction Procedures for the purpose of determining the Applicable Rate
for each series of Preferred Stock. The Fund will pay the Auction Agent
compensation for its services under the Auction Agent Agreement.
The Auction Agent will act as agent for the Fund in connection with
Auctions. In the absence of bad faith or negligence on its part, the Auction
Agent will not be liable for any action taken, suffered or omitted, or for any
error of judgment made, by it in the performance of its duties under the Auction
Agent Agreement, and will not be liable for any error of judgment made in good
faith unless the Auction Agent shall have been negligent in ascertaining the
pertinent facts. Pursuant to the Auction Agent Agreement, the Fund is required
to indemnify the Auction Agent for certain losses and liabilities incurred by
the Auction Agent without negligence or bad faith on its part in connection with
the performance of its duties under such agreement.
The Auction Agent may terminate the Auction Agent Agreement upon notice to
the Fund, which termination may be no earlier than sixty days following delivery
of such notice. If the Auction Agent resigns, the Fund will use its best efforts
to enter into an agreement with a successor Auction Agent containing
substantially the same terms and conditions as the Auction Agent Agreement. The
Fund may terminate the Auction Agent Agreement, provided that prior to such
termination the Fund shall have entered into such an agreement with respect
thereto with a successor Auction Agent.
BROKER-DEALER AGREEMENTS. The Auctions require the participation of one or
more broker-dealers. The Auction Agent will enter into Broker-Dealer Agreements
with PaineWebber Incorporated and other Broker-Dealers selected by the Fund,
which provide for the participation of such Broker-Dealers in Auctions. A
Broker-Dealer Agreement may be terminated by the Auction Agent or a Broker-
Dealer on five days' notice to the other party, provided that the Broker-Dealer
Agreement with PaineWebber Incorporated may not be terminated without the prior
written consent of the Fund, which consent may not be unreasonably withheld.
SECURITIES DEPOSITORY. Depository Trust and Cleaning Corporation initially
will act as the Securities Depository for the Agent Members with respect to the
shares of Preferred Stock. One or more registered certificates for all of the
shares of each series of Preferred Stock initially will be registered in the
name of Cede, as nominee of the Securities Depository. The certificate will bear
a legend to the effect that such certificate is issued subject to the provisions
restricting transfers of the shares of Preferred Stock of the series to which it
relates contained in the Charter. Cede initially will be the holder of record of
all shares of Preferred Stock, and Beneficial Owners will not be entitled to
receive certificates representing their ownership interest in such shares. See
"Appendix D" to the SAI. The Securities Depository will maintain lists of its
participants and will maintain the positions (ownership interests) of the shares
of Preferred Stock held by each Agent Member, whether as the Beneficial Owner
thereof for its own account or as nominee for the Beneficial Owner thereof.
Payments made by the Fund to holders of shares of Preferred Stock will be duly
made by making payments to the nominee of the Securities Depository.
AUCTION PROCEDURES. The following is a brief summary of the procedures to
be used in conducting Auctions. This summary is qualified by reference to the
Auction Procedures set forth in "Appendix D" to the SAI. The Settlement
Procedures to be used with respect to Auctions are set forth in "Appendix C" to
the SAI.
AUCTION DATE; ADVANCE NOTICE OF ALLOCATION OF TAXABLE INCOME; INCLUSION OF
TAXABLE INCOME IN DIVIDENDS. An Auction to determine the Applicable Rate for the
shares of Preferred Stock offered hereby for each Dividend Period for such
shares (other than the Initial Dividend Period therefor) will be held on the
Auction Date. The initial Auction Date will be _____________, 2000 for Series M
Preferred Stock, __________, 2000 for Series T Preferred Stock, __________, 2000
for Series W Preferred Stock, __________, 2000 for Series TH Preferred Stock and
_________________, 2000 for Series F Preferred Stock. Auctions for the shares of
Preferred Stock for Dividend Periods after the Initial Dividend Period
ordinarily will be held every Monday after the preceding Dividend Payment Date
for Series M Preferred Stock; every Tuesday after the preceding Dividend Payment
Date for Series T Preferred Stock; every Wednesday after the preceding Dividend
Period for Series W Preferred Stock; every Thursday after the preceding Dividend
Payment Date for Series TH Preferred Stock; and every Friday after the preceding
Dividend Payment Date for Series F Preferred Stock. Each subsequent Dividend
Period ordinarily will begin on the following Tuesday for Series M Preferred
Stock, on the following Wednesday for Series T Preferred Stock, on the following
Thursday for Series W Preferred Stock, on the following Friday for Series TH
Preferred Stock and on the following Monday for Series F Preferred Stock. The
Auction Date and the first day of the related Dividend Period for a series of
Preferred Stock (both of which must be Business Days) need not be consecutive
calendar days. See "Description of Preferred Stock--Dividends" for information
concerning the circumstances under which a Dividend Payment Date may fall on a
date other than the days specified above, which may affect the Auction Date.
Except as noted below, whenever the Fund intends to include any net capital
gain or other income subject to federal income tax in any dividend on the shares
of Preferred Stock, the Fund will notify the Auction Agent of the amount to be
so included at least five Business Days prior to the Auction Date on which the
Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from the Fund, in turn it will notify each
Broker-Dealer, who, on or prior to such Auction Date, in accordance with its
Broker-Dealer Agreement, will notify its customers who are Beneficial Owners and
Potential Beneficial Owners believed to be interested in submitting an Order in
the Auction to be held on such Auction Date. The Fund also may include such
income in a dividend on the shares of Preferred Stock without giving advance
notice thereof if it increases the dividend by an additional amount calculated
as if such income were a Retroactive Taxable Allocation and the additional
amount were an Additional Dividend; provided that the Fund will notify the
Auction Agent of the additional amounts to be included in such dividend at least
five Business Days prior to the applicable Dividend Payment Date. See
"Description of Preferred Stock--Dividends--Additional Dividends."
ORDERS BY BENEFICIAL OWNERS, POTENTIAL BENEFICIAL OWNERS, EXISTING HOLDERS
AND POTENTIAL HOLDERS. On or prior to each Auction Date for a series of
Preferred Stock:
(a) each Beneficial Owner may submit to its Broker-Dealer by telephone a:
(i) Hold Order--indicating the number of outstanding shares of
Preferred Stock, if any, that such Beneficial Owner desires to continue to
hold without regard to the Applicable Rate for the next Dividend Period for
such shares;
(ii) Bid--indicating the number of outstanding shares of Preferred
Stock, if any, that such Beneficial Owner desires to continue to hold,
provided that the Applicable Rate for the next Dividend Period for such
shares is not less than the rate per annum then specified by such
Beneficial Owner; and/or
(iii) Sell Order--indicating the number of outstanding shares of
Preferred Stock, if any, that such Beneficial Owner offers to sell without
regard to the Applicable Rate for the next Dividend Period for such shares;
and
(b) Broker-Dealers will contact customers who are Potential Beneficial
Owners of shares of Preferred Stock to determine whether such Potential
Beneficial Owners desire to submit Bids indicating the number of shares of
Preferred Stock which they offer to purchase provided that the Applicable Rate
for the next Dividend Period for such shares is not less than the rates per
annum specified in such Bids.
The communication by a Beneficial Owner or Potential Beneficial Owner to a
Broker-Dealer and the communication by a Broker-Dealer, whether or not acting
for its own account, to the Auction Agent of the foregoing information is
hereinafter referred to as an "Order" and collectively as "Orders." A Beneficial
Owner or a Potential Beneficial Owner placing an Order, including a
Broker-Dealer acting in such capacity for its own account, is hereinafter
referred to as a "Bidder" and collectively as "Bidders." 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, before the Submission Deadline on any
Auction Date will be irrevocable.
In an Auction, a Beneficial Owner may submit different types of Orders with
respect to shares of Preferred Stock then held by such Beneficial Owner, as well
as Bids for additional shares of Preferred Stock. For information concerning the
priority given to different types of Orders placed by Beneficial Owners, see
"Submission of Orders by Broker-Dealers to Auction Agent" below.
The Maximum Applicable Rate for a series of Preferred Stock will be the
Applicable Percentage of the Reference Rate. The Auction Agent will round each
applicable Maximum Applicable Rate to the nearest one-thousandth (0.001) of one
percent per annum, with any such number ending in five ten-thousandths of one
percent being rounded upwards to the nearest one-thousandth (0.001) of one
percent. The Auction Agent will not round the applicable Reference Rate as part
of its calculation of the Maximum Applicable Rate.
The Maximum Applicable Rate for a series of Preferred Stock will depend on
the credit rating or ratings assigned to the shares of such series. The
Applicable Percentage will be determined based on (i) the credit rating assigned
on such date to such shares by S&P (or if S&P shall not make such rating
available, the equivalent of such rating by a Substitute Rating Agency), and
(ii) whether the Fund has provided notification to the Auction Agent before the
Auction establishing the Applicable Rate for any dividend that net capital gains
or other taxable income will be included in such dividend on the shares of
Preferred Stock as follows:
<TABLE>
<CAPTION>
Applicable Applicable
Percentage of Percentage of
Reference Reference
Rate - Rate -
S&P CREDIT RATINGS NO NOTIFICATION NOTIFICATION
<S> <C> <C>
AA- or higher........................................... 110% 150%
A- to A+................................................ 125 160
BBB- to BBB+............................................ 150 250
Below BBB-.............................................. 200 275
</TABLE>
There is no minimum Applicable Rate in respect of any Dividend Period. The
Fund will take all reasonable action necessary to enable S&P to provide a rating
for each series of Preferred Stock. If S&P does not make such a rating
available, the Underwriter or its affiliates and successors, after consultation
with the Fund, will select a Substitute Rating Agency.
Any Bid by a Beneficial Owner specifying a rate per annum higher than the
Maximum Applicable Rate will be treated as a Sell Order, and any Bid by a
Potential Beneficial Owner specifying a rate per annum higher than the Maximum
Applicable Rate will not be considered. See "Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate" and "Acceptance and
Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares"
below.
Neither the Fund nor the Auction Agent will be responsible for a
Broker-Dealer's failure to comply with the foregoing. A Broker-Dealer also may
hold shares of Preferred Stock in its own account as a Beneficial Owner. A
Broker-Dealer thus may submit Orders to the Auction Agent as a Beneficial Owner
or a Potential Beneficial Owner and therefore participate in an Auction as an
Existing Holder or Potential Holder on behalf of both itself and its customers.
Any Order placed with the Auction Agent by a Broker-Dealer as or on behalf of a
Beneficial Owner or a Potential Beneficial Owner will be treated in the same
manner as an Order placed with a Broker-Dealer by a Beneficial Owner or a
Potential Beneficial Owner. Similarly, any failure by a Broker-Dealer to submit
to the Auction Agent an Order in respect of any shares of Preferred Stock held
by it or its customers who are Beneficial Owners will be treated in the same
manner as a Beneficial Owner's failure to submit to its Broker-Dealer an Order
in respect of shares of Preferred Stock held by it, as described in the next
paragraph. If a Broker-Dealer participates in an Auction as an Existing Holder
or a Potential Holder only to represent the interests of a Beneficial Owner or
Potential Beneficial Owner, whether it be its customers or itself, all
discussion herein relating to the consequences of an Auction for Existing
Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented thereby. For information concerning the priority
given to different types of Orders placed by Existing Holders, see "Submission
of Orders by Broker-Dealers to Auction Agent" below. Each purchase or sale in an
Auction will be settled on the Business Day next succeeding the Auction Date at
a price per share equal to $25,000. See "Notification of Results; Settlement"
below.
If one or more Orders covering in the aggregate all of the outstanding
shares of Preferred Stock held by a Beneficial Owner are not submitted to the
Auction Agent prior to the Submission Deadline, either because a Broker-Dealer
failed to contact such Beneficial Owner or otherwise, the Auction Agent will
deem a Hold Order (in the case of an Auction relating to a Dividend Period of 91
days or less) and a Sell Order (in the case of an Auction relating to a Special
Dividend Period of longer than 91 days) to have been submitted on behalf of such
Beneficial Owner covering the number of outstanding the shares of Preferred
Stock held by such Beneficial Owner and not subject to Orders submitted to the
Auction Agent. If all of the outstanding shares of Preferred Stock are subject
to Submitted Hold Orders, the Dividend Period next succeeding the Auction
automatically will be the same length as the immediately preceding Dividend
Period, and the Applicable Rate for the next Dividend Period for all the shares
of Preferred Stock will be 40% of the Reference Rate on the date of the
applicable Auction (or 60% of such rate if the Fund has provided notification to
the Auction Agent prior to the Auction establishing the Applicable Rate for any
dividend that net capital gains or other taxable income will be included in such
dividend on the shares of Preferred Stock).
For the purposes of an Auction, the shares of Preferred Stock for which the
Fund has given notice of redemption and deposited moneys therefor with the
Auction Agent in trust or segregated in an account at the Fund's custodian bank
for the benefit of the Auction Agent, as set forth under "Description of
Preferred Stock--Redemption," will not be considered as outstanding and will not
be included in such Auction. Pursuant to its Charter, the Fund is prohibited
from reissuing and its affiliates (other than the Underwriter) are prohibited
from transferring (other than to the Fund) any shares of Preferred Stock they
may acquire. Neither the Fund nor any affiliate of the Fund (other than the
Underwriter) may submit an Order in any Auction, except that an affiliate of the
Fund that is a Broker-Dealer may submit an Order.
SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT. Before 1:00 p.m.,
New York City time, on each Auction Date, or such other time on the Auction Date
as may be specified by the Auction Agent (the "Submission Deadline"), each
Broker-Dealer will submit to the Auction Agent in writing all Orders obtained by
it for the Auction for a series of Preferred Stock to be conducted on such
Auction Date, designating itself (unless otherwise permitted by the Fund) as the
Existing Holder or Potential Holder in respect of the shares of Preferred Stock
subject to such Orders. 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, before the Submission Deadline on any Auction Date, will be irrevocable.
If the rate per annum specified in any Bid contains more than three figures
to the right of the decimal point, the Auction Agent will round such rate per
annum up to the next highest one-thousandth (0.001) of one percent. If one or
more Orders of an Existing Holder are submitted to the Auction Agent and such
Orders cover in the aggregate more than the number of outstanding shares of
Preferred Stock held by such Existing Holder, such Orders will be considered
valid in the following order of priority:
(i) any Hold Order will be considered valid up to and including the
number of outstanding shares of Preferred Stock held by such Existing
Holder, provided that if more than one Hold Order is submitted by such
Existing Holder and the number of shares of Preferred Stock subject to such
Hold Orders exceeds the number of outstanding shares of Preferred Stock
held by such Existing Holder, the number of shares of Preferred Stock
subject to each of such Hold Orders will be reduced pro rata so that such
Hold Orders, in the aggregate, will cover exactly the number of outstanding
shares of Preferred Stock held by such Existing Holder;
(ii) any Bids will be considered valid, in the ascending order of
their respective rates per annum if more than one Bid is submitted by such
Existing Holder, up to and including the excess of the number of
outstanding shares of Preferred Stock held by such Existing Holder over the
number of outstanding shares of Preferred Stock subject to any Hold Order
referred to in clause (i) above (and if more than one Bid submitted by such
Existing Holder specifies the same rate per annum and together they cover
more than the remaining number of shares that can be the subject of valid
Bids after application of clause (i) above and of the foregoing portion of
this clause (ii) to any Bid or Bids specifying a lower rate or rates per
annum, the number of shares subject to each of such Bids will be reduced
pro rata so that such Bids, in the aggregate, cover exactly such remaining
number of outstanding shares); and the number of outstanding shares, if
any, subject to Bids not valid under this clause (ii) will be treated as
the subject of a Bid by a Potential Holder; and
(iii) any Sell Order will be considered valid up to and including the
excess of the number of outstanding shares of Preferred Stock held by such
Existing Holder over the sum of the number of shares of Preferred Stock
subject to Hold Orders referred to in clause (i) above and the number of
shares of Preferred Stock subject to valid Bids by such Existing Holder
referred to in clause (ii) above; provided that, if more than one Sell
Order is submitted by any Existing Holder and the number of shares of
Preferred Stock subject to such Sell Orders is greater than such excess,
the number of shares of Preferred Stock subject to each of such Sell Orders
will be reduced pro rata so that such Sell Orders, in the aggregate, will
cover exactly the number of shares of Preferred Stock equal to such excess.
If more than one Bid of any Potential Holder is submitted in any Auction,
each Bid submitted in such Auction will be considered a separate Bid with the
rate per annum and number of shares of Preferred Stock therein specified.
DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND APPLICABLE
RATE. Not earlier than the Submission Deadline for each Auction, the Auction
Agent will assemble all Orders submitted or deemed submitted to it by the
Broker-Dealers (each such "Hold Order," "Bid" or "Sell Order" as submitted or
deemed submitted by a Broker-Dealer hereinafter being referred to as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order") and will determine the excess of the
number of outstanding shares of Preferred Stock over the number of outstanding
shares of Preferred Stock subject to Submitted Hold Orders (such excess being
referred to as the "Available Shares of Preferred Stock") and whether Sufficient
Clearing Bids have been made in such Auction. Sufficient Clearing Bids will have
been made if the number of outstanding shares of Preferred Stock that are the
subject of Submitted Bids of Potential Holders with rates per annum not higher
than the Maximum Applicable Rate equals or exceeds the number of outstanding
shares that are the subject of Submitted Sell Orders (including the number of
shares subject to Bids of Existing Holders specifying rates per annum higher
than the Maximum Applicable Rate). If Sufficient Clearing Bids have been made,
the Auction Agent will determine the lowest rate per annum specified in the
Submitted Bids (the "Winning Bid Rate") which would result in the number of
shares subject to Submitted Bids specifying such rate per annum or a lower rate
per annum being at least equal to the Available Shares of Preferred Stock. If
Sufficient Clearing Bids have been made, the Winning Bid Rate will be the
Applicable Rate for the next Dividend Period for the shares of Preferred Stock
then outstanding. If Sufficient Clearing Bids have not been made (other than
because all outstanding shares of Preferred Stock are the subject of Submitted
Hold Orders), the Dividend Period next following the Auction automatically will
be a 7-Day Dividend Period, and the Applicable Rate for such Dividend Period
will be equal to the Maximum Applicable Rate.
If Sufficient Clearing Bids have not been made, Beneficial Owners that have
Submitted Sell Orders will not be able to sell in the Auction all, and may not
be able to sell any shares of Preferred Stock subject to such Submitted Sell
Orders. See "Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares" below. Thus, under some circumstances,
Beneficial Owners may not have liquidity of investment.
ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND
ALLOCATION OF SHARES. Based on the determinations described under "Determination
of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate" above and
subject to the discretion of the Auction Agent to round as described below,
Submitted Bids and Submitted Sell Orders will be accepted or rejected in the
order of priority set forth in the Auction Procedures with the result that
Existing Holders and Potential Holders of a series of Preferred Stock will sell,
continue to hold and/or purchase shares of Preferred Stock as set forth below.
Existing Holders that submit or are deemed to have submitted Hold Orders will
continue to hold the shares of Preferred Stock subject to such Hold Orders.
If Sufficient Clearing Bids have been made:
(a) each Existing Holder that placed a Submitted Bid specifying a rate
per annum higher than the Winning Bid Rate or a Submitted Sell Order will
sell the outstanding shares of Preferred Stock subject to such Submitted
Bid or Submitted Sell Order;
(b) each Existing Holder that placed a Submitted Bid specifying a rate
per annum lower than the Winning Bid Rate will continue to hold the
outstanding shares of Preferred Stock subject to such Submitted Bid;
(c) each Potential Holder that placed a Submitted Bid specifying a
rate per annum lower than the Winning Bid Rate will purchase the number of
shares of Preferred Stock subject to such Submitted Bid;
(d) each Existing Holder that placed a Submitted Bid specifying a rate
per annum equal to the Winning Bid Rate will continue to hold the
outstanding shares of Preferred Stock subject to such Submitted Bids,
unless the number of outstanding shares of Preferred Stock subject to all
such Submitted Bids of Existing Holders is greater than the excess of the
Available Shares of Preferred Stock over the number of shares of Preferred
Stock accounted for in clauses (b) and (c) above, in which event each
Existing Holder with such a Submitted Bid will sell a number of outstanding
shares of Preferred Stock determined on a pro rata basis based on the
number of outstanding shares of Preferred Stock subject to all such
Submitted Bids of such Existing Holders; and
(e) each Potential Holder that placed a Submitted Bid specifying a
rate per annum equal to the Winning Bid Rate will purchase any Available
Shares of Preferred Stock not accounted for in clause (b), (c) or (d) above
on a pro rata basis based on the shares of Preferred Stock subject to all
such Submitted Bids of Potential Holders.
If Sufficient Clearing Bids have not been made (other than because all
outstanding shares of Preferred Stock are the subject of Submitted Hold Orders):
(a) each Existing Holder that placed a Submitted Bid specifying a rate
per annum equal to or lower than the Maximum Applicable Rate will continue
to hold the outstanding shares of Preferred Stock subject to such Submitted
Bid;
(b) each Potential Holder that placed a Submitted Bid specifying a
rate per annum equal to or lower than the Maximum Applicable Rate will
purchase the number of shares of Preferred Stock subject to such Submitted
Bid; and
(c) each Existing Holder that placed a Submitted Bid specifying a rate
per annum higher than the Maximum Applicable Rate or a Submitted Sell Order
will sell a number of outstanding shares of Preferred Stock determined on a
pro rata basis based on the outstanding shares of Preferred Stock subject
to all such Submitted Bids and Submitted Sell Orders. If as a result of the
Auction Procedures described above any Existing Holder would be entitled or
required to sell, or any Potential Holder would be entitled or required to
purchase, a fraction of shares of Preferred Stock, the Auction Agent, in
such manner as, in its sole discretion, it shall determine, will round up
or down the number of shares of Preferred Stock being sold or purchased on
such Auction Date so that each share sold or purchased by each Existing
Holder or Potential Holder will be a whole share of Preferred Stock. If
any Potential Holder would be entitled or required to purchase less than a
whole share of Preferred Stock, the Auction Agent, in such manner as, in
its sole discretion, it shall determine, will allocate shares of Preferred
Stock for purchase among Potential Holders so that only whole shares of
Preferred Stock are purchased by any such Potential Holder, even if such
allocation results in one or more of such Potential Holders not purchasing
any shares of Preferred Stock.
NOTIFICATION OF RESULTS; SETTLEMENT. The Auction Agent will advise each
Broker-Dealer who submitted a Bid or Sell Order in an Auction whether such Bid
or Sell Order was accepted or rejected in whole or in part and of the Applicable
Rate for the next Dividend Period for the related shares of Preferred Stock by
telephone at approximately 3:00 p.m., New York City time, on the Auction Date
for such Auction. Each such Broker-Dealer that submitted an Order for the
account of a customer then will advise such customer whether such Bid or Sell
Order was accepted or rejected, will confirm purchases and sales with each
customer purchasing or selling shares of Preferred Stock as a result of the
Auction and will advise each customer purchasing or selling shares of Preferred
Stock to give instructions to its Agent Member of the Securities Depository to
pay the purchase price against delivery of such shares or to deliver such shares
against payment therefor as appropriate. If a customer selling shares of
Preferred Stock as a result of an Auction fails to instruct its Agent Member to
deliver such shares, the Broker-Dealer that submitted such customer's Bid or
Sell Order will instruct such Agent Member to deliver such shares against
payment therefor. Each Broker-Dealer that submitted a Hold Order in an Auction
on behalf of a customer also will advise such customer of the Applicable Rate
for the next Dividend Period for the shares of Preferred Stock. The Auction
Agent will record each transfer of shares of Preferred Stock on the record book
of Existing Holders to be maintained by the Auction Agent.
In accordance with the Securities Depository's normal procedures, on the
day after each Auction Date, the transactions described above will be executed
through the Securities Depository, and the accounts of the respective Agent
Members at the Securities Depository will be debited and credited as necessary
to effect the purchases and sales of shares of Preferred Stock as determined in
such Auction. Purchasers will make payment through their Agent Members in
same-day funds to the Securities Depository against delivery through their Agent
Members; the Securities Depository will make payment in accordance with its
normal procedures, which now provide for payment in same-day funds. If the
procedures of the Securities Depository applicable to shares of Preferred Stock
shall be changed to provide for payment in next-day funds, then purchasers may
be required to make payment in next-day funds. If the certificates for the
shares of Preferred Stock are not held by the Securities Depository or its
nominee, payment will be made in same-day funds to the Auction Agent against
delivery of such certificates.
If any Existing Holder selling shares of Preferred Stock in an Auction
fails to deliver such shares, the Broker-Dealer of any person that was to have
purchased shares of Preferred Stock in such Auction may deliver to such person a
number of whole shares of Preferred Stock that is less than the number of shares
that otherwise was to be purchased by such person. In such event, the number of
shares of Preferred Stock to be so delivered will be determined by such
Broker-Dealer. Delivery of such lesser number of shares will constitute good
delivery. Each Broker-Dealer Agreement also will provide that neither the Fund
nor the Auction Agent will have responsibility or liability with respect to the
failure of a Potential Beneficial Owner, Beneficial Owner or their respective
Agent Members to deliver shares of Preferred Stock or to pay for shares of
Preferred Stock purchased or sold pursuant to an Auction or otherwise.
BROKER-DEALERS
The Auction Agent after each Auction will pay a service charge from funds
provided by the Fund to each Broker-Dealer on the basis of the purchase price of
shares of Preferred Stock placed by such Broker-Dealer at such Auction. The
service charge (i) for any 7-Day Dividend Period will be payable at the annual
rate of 0.25% of the purchase price of the shares of Preferred Stock placed by
such Broker-Dealer in any such Auction and (ii) for any Special Dividend Period
will be determined by mutual consent of the Fund and any such Broker-Dealer or
Broker-Dealers and will be based upon a selling concession that would be
applicable to an underwriting of fixed or variable rate preferred stock with a
similar final maturity or variable rate dividend period, respectively, at the
commencement of the Dividend Period with respect to such Auction. For the
purposes of the preceding sentence, the shares of Preferred Stock will be placed
by a Broker-Dealer if such shares were (i) the subject of Hold Orders deemed to
have been made by Beneficial Owners that were acquired by such Beneficial Owners
through such Broker-Dealer or (ii) the subject of the following Orders submitted
by such Broker-Dealer: (A) a Submitted Bid of a Beneficial Owner that resulted
in such Beneficial Owner continuing to hold such shares as a result of the
Auction, (B) a Submitted Bid of a Potential Beneficial Owner that resulted in
such Potential Beneficial Owner purchasing such shares as a result of the
Auction or (C) a Submitted Hold Order.
The Broker-Dealer Agreements provide that a Broker-Dealer may submit Orders
in Auctions for its own account, unless the Fund notifies all Broker-Dealers
that they no longer may do so; provided that Broker-Dealers may continue to
submit Hold Orders and Sell Orders. If a Broker-Dealer submits an Order for its
own account in any Auction of shares of Preferred Stock, it may have knowledge
of Orders placed through it in that Auction and therefore have an advantage over
other Bidders, but such Broker-Dealer would not have knowledge of Orders
submitted by other Broker-Dealers in that Auction.
The Broker-Dealers may maintain a secondary trading market in the shares of
Preferred Stock outside of Auctions; however, they have no obligation to do so
and there can be no assurance that a secondary market for the shares of
Preferred Stock will develop or, if it does develop, that it will provide
holders with a liquid trading market (i.e., trading will depend on the presence
of willing buyers and sellers and the trading price is subject to variables to
be determined at the time of the trade by the Broker-Dealers). The shares of
Preferred Stock will not be registered on any stock exchange or on any automated
quotation system. An increase in the level of interest rates, particularly
during any Long Term Dividend Period for a series of Preferred Stock, likely
will have an adverse effect on the secondary market price of such shares of
Preferred Stock, and a selling shareholder may sell shares of Preferred Stock
between Auctions at a price per share of less than $25,000.
DIVIDENDS
GENERAL. The holders of shares of Preferred Stock of each series will be
entitled to receive, when, as and if declared by the Fund's Board of Directors,
out of funds legally available therefor, cumulative cash dividends on their
shares, at the Applicable Rate determined as set forth below under
"Determination of Dividend Rate," payable on the dates set forth below.
Dividends on the shares of Preferred Stock so declared and payable will be paid
(i) in preference to and in priority over any dividends so declared and payable
on the Fund's shares of common stock, and (ii) to the extent permitted under the
Internal Revenue Code and to the extent available, out of net tax-exempt income
earned on the Fund's investments. Dividends on the shares of Preferred Stock, to
the extent that they are derived from municipal obligations, generally will be
exempt from federal income tax, though some or all of those dividends may be a
tax preference item for purposes of AMT. See "Taxes."
Dividends on each series of Preferred Stock will accumulate from the Date
of Original Issue and will be payable on the dates described below. Dividends on
a series of shares of Preferred Stock with respect to the Initial Dividend
Period will be payable on the Initial Dividend Payment Date for that series.
Following the Initial Dividend Payment Date, dividends on each series of
Preferred Stock will be payable, at the option of the Fund, either (i) with
respect to any 7-Day Dividend Period and any Short Term Dividend Period of 35
or fewer days, on the day next succeeding the last day thereof or (ii) with
respect to any Short Term Dividend Period of more than 35 days and with respect
to any Long Term Dividend Period, monthly on the first Business Day of each
calendar month during such Short Term Dividend Period or Long Term Dividend
Period and on the day next succeeding the last day thereof (each such date
referred to in clause (i) or (ii) being referred to herein as a "Normal Dividend
Payment Date"), except that if such Normal Dividend Payment Date is not a
Business Day, the Dividend Payment Date will be the first Business Day next
succeeding such Normal Dividend Payment Date. Although any particular Dividend
Payment Date may not occur on the originally scheduled date because of the
exceptions discussed above, the next succeeding Dividend Payment Date, subject
to such exceptions, will occur on the next following originally scheduled date.
If for any reason a Dividend Payment Date cannot be fixed as described above,
then the Fund's Board of Directors will fix the Dividend Payment Date. The
Fund's Board of Directors before authorizing a dividend may change a Dividend
Payment Date if such change does not adversely affect the contract rights of the
holders of shares of Preferred Stock set forth in the Charter.
Before each Dividend Payment Date, the Fund is required to deposit with the
Auction Agent sufficient funds for the payment of declared dividends. The Fund
does not intend to establish any reserves for the payment of dividends.
Each dividend will be paid to the record holder of the shares of Preferred
Stock, which holder is expected to be the nominee of the Securities Depository.
See "Description of Preferred Stock--The Auction--Securities Depository." The
Securities Depository will credit the accounts of the Agent Members of the
Existing Holders in accordance with the Securities Depository's normal
procedures which provide for payment in same-day funds. The Agent Member of an
Existing Holder will be responsible for holding or disbursing such payments on
the applicable Dividend Payment Date to such Existing Holder in accordance with
the instructions of such Existing Holder. 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 nominee of the Securities Depository. Any
dividend payment made on the shares of Preferred Stock first will be credited
against the earliest declared but unpaid dividends accumulated with respect to
such shares.
Holders of the shares of Preferred Stock will not be entitled to any
dividends, whether payable in cash, property or stock, in excess of full
cumulative dividends except as described under "Additional Dividends" and
"Non-Payment Period; Late Charge" below. No interest will be payable in respect
of any dividend payment or payments on the shares of Preferred Stock which may
be in arrears.
The amount of cash dividends per share of Preferred Stock of each series
payable (if declared) on the Initial Dividend Payment Date, each 7-Day Dividend
Period and each Dividend Payment Date of each Short Term Dividend Period will be
computed by multiplying the Applicable Rate for such Dividend Period by a
fraction, the numerator of which will be the number of days in such Dividend
Period or part thereof that such share was outstanding and for which dividends
are payable on such Dividend Payment Date and the denominator of which will be
365, multiplying the amount so obtained by $25,000, and rounding the amount so
obtained to the nearest cent. During any Long Term Dividend Period, the amount
of cash dividends per share of Preferred Stock payable (if declared) on any
Dividend Payment Date will be computed by multiplying the Applicable Rate for
such Dividend Period by a fraction, the numerator of which will be such number
of days in such part of such Dividend Period that such share was outstanding and
for which dividends are payable on such Dividend Payment Date and the
denominator of which will be 360, multiplying the amount so obtained by $25,000,
and rounding the amount so obtained to the nearest cent.
NOTIFICATION OF DIVIDEND PERIOD. With respect to each Dividend Period that
is a Special Dividend Period, the Fund, at its sole option and to the extent
permitted by law, by a Request for Special Dividend Period to the Auction Agent
and to each Broker-Dealer, may request that the next succeeding Dividend Period
for a series of Preferred Stock will be a number of days (other than seven),
evenly divisible by seven, and not fewer than seven nor more than 364 in the
case of a Short Term Dividend Period or one whole year or more but not greater
than five years in the case of a Long Term Dividend Period, specified in such
notice, provided that the Fund may not give a Request for Special Dividend
Period of greater than 28 days (and any such request will be null and void)
unless, for any Auction occurring after the initial Auction, Sufficient Clearing
Bids were made in the last occurring Auction and unless full cumulative
dividends, any amounts due with respect to redemptions, and any Additional
Dividends payable before such date have been paid in full. Such Request for
Special Dividend Period, in the case of a Short Term Dividend Period, will be
given on or before the second Business Day but not more than seven Business Days
before an Auction Date for the shares of Preferred Stock of that series and, in
the case of a Long Term Dividend Period, will be given on or before the second
Business Day but not more than 28 days before an Auction Date for the shares of
Preferred Stock of that series. Upon receiving such Request for Special Dividend
Period, the Broker-Dealers jointly will determine whether, given the factors set
forth below, it is advisable that the Fund issue a Notice of Special Dividend
Period as contemplated by such Request for Special Dividend Period and the
Optional Redemption Price of the shares of Preferred Stock of that series during
such Special Dividend Period and the Specific Redemption Provisions and will
give the Fund and the Auction Agent written notice (a "Response") of such
determination by no later than the second Business Day prior to such Auction
Date. In making such determination, the Broker-Dealers will consider (i)
existing short-term and long-term market rates and indices of such short-term
and long-term rates, (ii) existing market supply and demand for short-term and
long-term securities, (iii) existing yield curves for short-term and long-term
securities comparable to the shares of Preferred Stock, (iv) industry and
financial conditions which may affect the shares of Preferred Stock of that
series, (v) the investment objective of the Fund and (vi) the Dividend Periods
and dividend rates at which current and potential beneficial holders of the
shares of Preferred Stock would remain or become beneficial holders.
If the Broker-Dealers do not give the Fund and the Auction Agent a Response
by such second Business Day or if the Response states that given the factors set
forth above it is not advisable that the Fund give a Notice of Special Dividend
Period for the shares of Preferred Stock of that series, the Fund may not give a
Notice of Special Dividend Period in respect of such Request for Special
Dividend Period. In the event the Response indicates that it is advisable that
the Fund give a Notice of Special Dividend Period for the shares of Preferred
Stock of that series, the Fund, by no later than the second Business Day before
such Auction Date, may give a notice (a "Notice of Special Dividend Period") to
the Auction Agent, the Securities Depository and each Broker-Dealer, which
notice will specify (i) the duration of the Special Dividend Period, (ii) the
Optional Redemption Price, if any, as specified in the related Response and
(iii) the Specific Redemption Provisions, if any, as specified in the related
Response. The Fund has agreed to provide a copy of such Notice of Special
Dividend Period to S&P. The Fund will not give a Notice of Special Dividend
Period, and, if such Notice of Special Dividend Period was given already, will
give telephonic and written notice of its revocation (a "Notice of Revocation")
to the Auction Agent, each Broker-Dealer, and the Securities Depository on or
before the Business Day prior to the relevant Auction Date if (x) either the
Investment Company Act Preferred Stock Asset Coverage is not satisfied or the
Fund fails to maintain S&P Eligible Assets with an aggregate Discounted Value at
least equal to the Preferred Stock Basic Maintenance Amount, on each of the two
Valuation Dates immediately preceding the Business Day prior to the relevant
Auction Date on an actual basis and on a pro forma basis giving effect to the
proposed Special Dividend Period (using as a pro forma dividend rate with
respect to such Special Dividend Period the dividend rate the Broker-Dealers
advise the Fund is an approximately equal rate for securities similar to the
shares of Preferred Stock with an equal dividend period), (y) sufficient funds
for the payment of dividends payable on the immediately succeeding Dividend
Payment Date have not been irrevocably deposited with the Auction Agent by the
close of business on the third Business Day preceding the related Auction Date
or (z) the Broker-Dealers jointly advise the Fund that, after consideration of
the factors listed above, they have concluded that it is advisable to give a
Notice of Revocation. The Fund also has agreed to provide a copy of such Notice
of Revocation to S&P. If the Fund is prohibited from giving a Notice of Special
Dividend Period as a result of the factors enumerated in clause (x), (y) or (z)
above or if the Fund gives a Notice of Revocation with respect to a Notice of
Special Dividend Period, the next succeeding Dividend Period for that series
will be a 7-Day Dividend Period. In addition, in the event Sufficient Clearing
Bids are not made in any Auction or an Auction is not held for any reason, the
next succeeding Dividend Period will be a 7-Day Dividend Period, and the Fund
may not again give a Notice of Special Dividend Period (and any such attempted
notice will be null and void) until Sufficient Clearing Bids have been made in
an Auction with respect to a 7-Day Dividend Period.
DETERMINATION OF DIVIDEND RATE. The dividend rate on a series of Preferred
Stock during the period from and including the Date of Original Issue for the
shares of Preferred Stock to but excluding the Initial Dividend Payment Date for
that series of Preferred Stock (the "Initial Dividend Period") will be the rate
per annum set forth on the cover page of this Prospectus. Commencing on the
Initial Dividend Payment Date for a series of Preferred Stock, the Applicable
Rate on that series of Preferred Stock for each Subsequent Dividend Period,
which Subsequent Dividend Period will be a period commencing on and including a
Dividend Payment Date and ending on and including the calendar day before the
next Dividend Payment Date (or last Dividend Payment Date in a Dividend Period
if there is more than one Dividend Payment Date), will be equal to the rate per
annum that results from the Auction with respect to such Subsequent Dividend
Period. The Initial Dividend Period and Subsequent Dividend Period for each
series of Preferred Stock is referred to herein as a "Dividend Period." Cash
dividends will be calculated as set forth above under "Dividends--General."
NON-PAYMENT PERIOD; LATE CHARGE. A Non-Payment Period for a series of
Preferred Stock will commence if the Fund fails to (i) declare, before the close
of business on the second Business Day preceding any Dividend Payment Date, for
payment on or (to the extent permitted as described below) within three Business
Days after such Dividend Payment Date to the persons who held such shares as of
12:00 noon, New York City time, on the Business Day preceding such Dividend
Payment Date, the full amount of any dividend on the shares of Preferred Stock
payable on such Dividend Payment Date or (ii) deposit, irrevocably in trust, in
same-day funds, with the Auction Agent by 12:00 noon, New York City time, (A) on
such Dividend Payment Date the full amount of any cash dividend on such shares
(if declared) payable on such Dividend Payment Date or (B) on any redemption
date for the shares of Preferred Stock called for redemption, the Mandatory
Redemption Price per share of such shares of Preferred Stock or, in the case of
an optional redemption, the Optional Redemption Price per share. Such
Non-Payment Period will consist of the period commencing on and including the
aforementioned Dividend Payment Date or redemption date, as the case may be, and
ending on and including the Business Day on which, by 12:00 noon, New York City
time, all unpaid cash dividends and unpaid redemption prices shall have been so
deposited or otherwise shall have been made available to the applicable holders
in same-day funds, provided that a Non-Payment Period for the Preferred Stock
will not end unless the Fund shall have given at least five days' but no more
than 30 days' written notice of such deposit or availability to the Auction
Agent, the Securities Depository and all holders of the Preferred Stock of such
series. Notwithstanding the foregoing, the failure by the Fund to deposit funds
as provided for by clauses (ii) (A) or (ii) (B) above within three Business Days
after any Dividend Payment Date or redemption date, as the case may be, in each
case to the extent contemplated below, shall not constitute a "Non-Payment
Period." The Applicable Rate for each Dividend Period for the shares of
Preferred Stock of any series, commencing during a Non-Payment Period, will be
equal to the NonPayment Period Rate; and each Dividend Period commencing after
the first day of, and during, a NonPayment Period will be a 7-Day Dividend
Period. Any dividend on the Preferred Stock due on any Dividend Payment Date for
such shares (if, prior to the close of business on the second Business Day
preceding such Dividend Payment Date, the Fund has declared such dividend
payable on such Dividend Payment Date to the persons who held such shares as of
12:00 noon, New York City time, on the Business Day preceding such Dividend
Payment Date) or redemption price with respect to such shares not paid to such
persons when due may be paid to such persons in the same form of funds by 12:00
noon, New York City time, on any of the first three Business Days after such
Dividend Payment Date or due date, as the case may be, provided that such amount
is accompanied by a late charge calculated for such period of non-payment at the
Non-Payment Period Rate applied to the amount of such non-payment based on the
actual number of days comprising such period divided by 365. In the case of a
willful failure of the Fund to pay a dividend on a Dividend Payment Date or to
redeem any shares of Preferred Stock on the date set for such redemption, the
preceding sentence shall not apply and the Applicable Rate for the Dividend
Period commencing during the Non-Payment Period resulting from such failure
shall be the Non-Payment Period Rate. For the purposes of the foregoing, payment
to a person in same-day funds on any Business Day at any time will be considered
equivalent to payment to that person in New York Clearing House (next-day) funds
at the same time on the preceding Business Day, and any payment made after 12:00
noon, New York City time, on any Business Day shall be considered to have been
made instead in the same form of funds and to the same person before 12:00 noon,
New York City time, on the next Business Day. The Non-Payment Period Rate
initially will be 200% of the applicable Reference Rate (or 275% of such rate if
the Fund has provided notification to the Auction Agent prior to the Auction
establishing the Applicable Rate for any dividend that net capital gains or
other taxable income will be included in such dividend on the shares of
Preferred Stock), provided that the Board of Directors of the Fund shall have
the authority to adjust, modify, alter or change from time to time the initial
NonPayment Period Rate if the Board of Directors of the Fund determines and S&P
(or any Substitute Rating Agency in lieu of S&P in the event such party shall
not rate the Preferred Stock) advises the Fund in writing that such adjustment,
modification, alteration or change will not adversely affect its then-current
rating on the shares of Preferred Stock.
RESTRICTIONS ON DIVIDENDS AND OTHER PAYMENTS. Under the Investment Company
Act, the Fund may not declare dividends or make other distributions on the
Fund's shares of common stock or purchase any such shares if, at the time of the
declaration, distribution or purchase, as applicable (and after giving effect
thereto), asset coverage (as defined in the Investment Company Act) with respect
to the outstanding shares of Preferred Stock would be less than 200% (or such
other percentage as in the future may be required by law). Under the Internal
Revenue Code, the Fund must, among other things, distribute each year at least
90% of the sum of its net tax-exempt income and investment company taxable
income in order to maintain its qualification for tax treatment as a regulated
investment company. The foregoing limitations on dividends, other distributions
and purchases in certain circumstances may impair the Fund's ability to maintain
such qualification. See "Taxes." Upon any failure to pay dividends on the shares
of Preferred Stock for two years or more, the holders of the shares of Preferred
Stock will acquire certain additional voting rights. See "Voting Rights" below.
For so long as any shares of Preferred Stock are outstanding, the Fund will
not declare, pay or set apart for payment any dividend or other distribution
(other than a dividend or distribution paid in shares of, or options, warrants
or rights to subscribe for or purchase, shares of its common stock or other
stock, if any, ranking junior to the shares of Preferred Stock as to dividends
or upon liquidation) in respect of its shares of common stock or any other stock
of the Fund ranking junior to or on a parity with the shares of Preferred Stock
as to dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any shares of common stock or shares of any
other such junior stock (except by conversion into or exchange for stock of the
Fund ranking junior to shares of Preferred Stock as to dividends and upon
liquidation) or any such parity stock (except by conversion into or exchange for
stock of the Fund ranking junior to or on a parity with shares of Preferred
Stock as to dividends and upon liquidation), unless (A) immediately after such
transaction, the Fund would have S&P Eligible Assets with an aggregate
Discounted Value equal to or greater than the Preferred Stock Basic Maintenance
Amount, and the Investment Company Act Preferred Stock Asset Coverage (see
"Asset Maintenance" and "Redemption" below) would be satisfied, (B) full
cumulative dividends on the shares of Preferred Stock due on or before the date
of the transaction have been declared and paid or have been declared and
sufficient funds for the payment thereof deposited with the Auction Agent, (C)
any Additional Dividend required to be paid on or before the date of such
declaration or payment has been paid and (D) the Fund has redeemed the full
number of shares of Preferred Stock required to be redeemed by any provision for
mandatory redemption contained in the Charter.
ADDITIONAL DIVIDENDS. If the Fund retroactively allocates any net capital
gains or other taxable income to the shares of Preferred Stock without having
given advance notice thereof to the Auction Agent as described above under "The
Auction--Auction Date; Advance Notice of Allocation of Taxable Income; Inclusion
of Taxable Income in Dividends," the Fund, within 90 days (and generally within
60 days) after the end of the Fund's fiscal year for which a Retroactive Taxable
Allocation is made, will provide notice thereof to the Auction Agent and to each
holder of shares of Preferred Stock (initially Cede as nominee of the Securities
Depository) during such fiscal year at such holder's address as the same appears
or last appeared on the stock books of the Fund. Such a retroactive allocation
may happen when such allocation is made as a result of (i) the redemption of all
or a portion of the outstanding shares of Preferred Stock, (ii) the liquidation
of the Fund (the amount of such allocation referred to herein as a "Retroactive
Taxable Allocation"), (iii) a debt obligation believed to be a municipal
obligation unexpectedly turns out to be an obligation subject to federal income
tax or (iv) any other reason determined in good faith by the Fund. The Fund,
within 30 days after such notice is given to the Auction Agent, will pay to the
Auction Agent (who then will distribute to such holders of the shares of
Preferred Stock), out of funds legally available therefor, an amount equal to
the aggregate Additional Dividend with respect to all Retroactive Taxable
Allocations made to such holders during the fiscal year in question. See
"Taxes."
An "Additional Dividend" means a payment to a present or former holder of
the shares of Preferred Stock of an amount that would cause (i) the dollar
amount of such holder's dividends received on the shares of Preferred Stock with
respect to the fiscal year in question (including the Additional Dividend) less
the federal income tax and applicable state tax attributable to the aggregate of
(x) the Retroactive Taxable Allocations made to such holder with respect to the
fiscal year in question and (y) the Additional Dividend (to the extent taxable)
to equal (ii) the dollar amount of such holder's dividends received on the
shares of Preferred Stock with respect to the fiscal year in question (excluding
the Additional Dividend) if there had been no Retroactive Taxable Allocations.
An Additional Dividend shall be calculated (i) without consideration being given
to the time value of money; (ii) assuming that none of the dividends received
from the Fund is a preference item for purposes of AMT; and (iii) assuming that
each Retroactive Taxable Allocation would be taxable to each holder of shares of
Preferred Stock at the maximum marginal federal income tax rate (including any
surtax) applicable to the taxable character of the distribution (i.e., ordinary
income or net capital gain) in the hands of an individual or a corporation,
whichever is greater (disregarding the effect of any state and local taxes and
the phase out of, or provisions limiting, personal exemptions, itemized
deductions, or the benefit of lower tax brackets). Although the Fund generally
intends to designate any Additional Dividend as an "exempt-interest" dividend to
the extent permitted by applicable law, it is possible that all or a portion of
any Additional Dividend will be taxable to the recipient thereof. See
"Taxes--Tax Treatment of Additional Dividends." The Fund will not pay a further
Additional Dividend with respect to any taxable portion of an Additional
Dividend.
If the Fund does not give advance notice of the amount of taxable income to
be included in a dividend on the shares of Preferred Stock in the related
Auction, as described above under "The Auction--Auction Date; Advance Notice of
Allocation of Taxable Income; Inclusion of Taxable Income in Dividends," the
Fund may include such taxable income in a dividend on the shares of Preferred
Stock if it increases the dividend by an additional amount calculated as if such
income were a Retroactive Taxable Allocation and the additional amount were an
Additional Dividend and notifies the Auction Agent of such inclusion at least
five days prior to the applicable Dividend Payment Date.
ASSET MAINTENANCE
The Fund will be required to satisfy two separate asset maintenance
requirements under the terms of the Charter. These requirements are summarized
below.
INVESTMENT COMPANY ACT PREFERRED STOCK ASSET COVERAGE. The Fund will be
required under the Charter to maintain, with respect to the shares of Preferred
Stock, as of the last Business Day of each month in which any shares of
Preferred Stock are outstanding, asset coverage of at least 200% with respect to
senior securities which are shares in the Fund, including the shares of
Preferred Stock (or such other asset coverage as in the future may be specified
in or under the Investment Company Act as the minimum asset coverage for senior
securities which are shares of a closed-end investment company as a condition of
paying dividends on its common stock) ("Investment Company Act Preferred Stock
Asset Coverage"). If the Fund fails to maintain Investment Company Act Preferred
Stock Asset Coverage and such failure is not cured as of the last Business Day
of the following month (the "Investment Company Act Cure Date"), the Fund will
be required under certain circumstances to redeem certain of the shares of
Preferred Stock. See "Redemption" below.
The Investment Company Act Preferred Stock Asset Coverage immediately
following the issuance of shares of Preferred Stock offered hereby (after giving
effect to the deduction of the sales load and offering expenses for the shares
of Preferred Stock) computed using the Fund's net assets as of December 31, 1999
and assuming the shares of Preferred Stock had been issued as of such date will
be as follows:
Value of Fund assets less liabilities not
constituting senior securities $
- ----------------------------------------------------
Senior securities representing indebtedness plus
liquidation value of the shares of Preferred Stock = $285,000,000 = ___%
PREFERRED STOCK BASIC MAINTENANCE AMOUNT. So long as the shares of
Preferred Stock are outstanding, the Fund will be required under the Charter to
maintain as of each Business Day (a "Valuation Date") S&P Eligible Assets having
in the aggregate a Discounted Value at least equal to the Preferred Stock Basic
Maintenance Amount. If the Fund fails to meet such requirement as of any
Valuation Date and such failure is not cured on or before the second Business
Day after such Valuation Date (the "Preferred Stock Basic Maintenance Cure
Date"), the Fund will be required in certain circumstances to redeem certain of
the shares of Preferred Stock. Upon any failure to maintain the required
Discounted Value, the Fund will use its best efforts to alter the composition of
its portfolio to retain a Discounted Value at least equal to the Preferred Stock
Basic Maintenance Amount on or before the Preferred Stock Basic Maintenance Cure
Date. See "Redemption" below.
The Discount Factors and guidelines for determining the market value of the
Fund's portfolio holdings have been based on criteria established in connection
with rating the shares of Preferred Stock. These factors include the sensitivity
of the market value of the relevant asset to changes in interest rates, the
liquidity and depth of the market for the relevant asset, the credit quality of
the relevant asset (for example, the lower the rating of a debt obligation, the
higher the related discount factor) and the frequency with which the relevant
asset is marked to market. In no event will the Discounted Value of any asset of
the Fund exceed its unpaid principal balance or face amount as of the date of
calculation. The Discount Factor relating to any asset of the Fund and the
Preferred Stock Basic Maintenance Amount, the assets eligible for inclusion in
the calculation of the Discounted Value of the Fund's portfolio and certain
definitions and methods of calculation relating thereto may be changed from time
to time by the Fund, without shareholder approval, but only in the event the
Fund receives written confirmation from S&P, and any Substitute Rating Agency
that any such changes would not impair the ratings then assigned to the shares
of Preferred Stock by S&P or any Substitute Rating Agency.
On or before the third Business Day after a Valuation Date on which the
Fund fails to maintain S&P Eligible Assets with an aggregate Discounted Value
equal to or greater than the Preferred Stock Basic Maintenance Amount, the Fund
is required to deliver to the Auction Agent and S&P a report with respect to the
calculation of the Preferred Stock Basic Maintenance Amount and the value of its
portfolio holdings as of the date of such failure (a "Preferred Stock Basic
Maintenance Report"). Additionally, on or before the third Business Day after
the first day of a Special Dividend Period, the Fund will deliver a Preferred
Stock Basic Maintenance Report to S&P and the Auction Agent. The Fund also will
deliver a Preferred Stock Basic Maintenance Report as of the last Business Day
of the last month of each fiscal quarter of the Fund on or before the third
Business Day after such day. Within ten Business Days after delivery of such
report relating to the last Business Day of the last month of each fiscal
quarter of the Fund, the Fund will deliver a letter prepared by the Fund's
independent auditors regarding the accuracy of the calculations made by the Fund
in its most recent Preferred Stock Basic Maintenance Report. Also, on or before
5:00 p.m., New York City time, on the first Business Day after shares of the
Fund's common stock are repurchased by the Fund, the Fund will complete and
deliver to S&P a Preferred Stock Basic Maintenance Report as of the close of
business on such date that shares of the Fund's common stock are repurchased. If
any such letter prepared by the Fund's independent auditors shows that an error
was made in the most recent Preferred Stock Basic Maintenance Report, the
calculation or determination made by the Fund's independent auditors will be
conclusive and binding on the Fund.
REDEMPTION
OPTIONAL REDEMPTION. To the extent permitted under the Investment Company
Act and under Maryland law, upon giving a Notice of Redemption, as provided
below, the Fund, at its option, may redeem the shares of Preferred Stock, in
whole or in part, out of funds legally available therefor, at the Optional
Redemption Price per share on any Dividend Payment Date; provided that no shares
of Preferred Stock may be redeemed at the option of the Fund during (a) the
Initial Dividend Period with respect to the shares of Preferred Stock or (b) a
Non-Call Period to which such share is subject. "Optional Redemption Price"
means $25,000 per share of Preferred Stock plus an amount equal to accumulated
but unpaid dividends (whether or not earned or declared) to the date fixed for
redemption plus any applicable redemption premium, if any, attributable to the
designation of a Premium Call Period. In addition, holders of shares of
Preferred Stock may be entitled to receive Additional Dividends in the event of
redemption of such shares of Preferred Stock to the extent provided herein. See
"Description of Preferred Stock--Dividends--Additional Dividends." The Fund has
the authority to redeem the shares of Preferred Stock for any reason and may
redeem all or part of the outstanding shares of Preferred Stock if it
anticipates that the Fund's leveraged capital structure will result in a lower
rate of return to holders of shares of the Fund's common stock for any
significant period of time than that obtainable if the shares of common stock
were unleveraged.
MANDATORY REDEMPTION. The Fund will be required to redeem, out of funds
legally available therefor, at the Mandatory Redemption Price per share, the
shares of Preferred Stock to the extent permitted under the Investment Company
Act and Maryland law, on a date fixed by the Fund's Board of Directors, if the
Fund fails to maintain S&P Eligible Assets with an aggregate Discounted Value
equal to or greater than the Preferred Stock Basic Maintenance Amount or to
satisfy the Investment Company Act Preferred Stock Asset Coverage and such
failure is not cured on or before the Preferred Stock Basic Maintenance Cure
Date or the Investment Company Act Cure Date (herein collectively referred to as
a "Cure Date"), as the case may be. "Mandatory Redemption Price" for each series
of Preferred Stock means $25,000 per share plus an amount equal to accumulated
but unpaid dividends (whether or not earned or declared) to the date fixed for
redemption. In addition, holders of shares of Preferred Stock may be entitled to
receive Additional Dividends in the event of redemption of such shares of
Preferred Stock to the extent provided herein. See "Description of Preferred
Stock--Dividends--Additional Dividends." The number of shares of Preferred Stock
to be redeemed will be equal to the lesser of (a) the minimum number of shares
of Preferred Stock the redemption of which, if deemed to have occurred
immediately prior to the opening of business on the Cure Date, together with all
other shares of the preferred stock subject to redemption or retirement, would
result in the Fund having S&P Eligible Assets each with an aggregate Discounted
Value equal to or greater than the Preferred Stock Basic Maintenance Amount or
satisfaction of the Investment Company Act Preferred Stock Asset Coverage, as
the case may be, on such Cure Date (provided that, if there is no such minimum
number of shares the redemption of which would have such result, all shares of
Preferred Stock then outstanding will be redeemed), and (b) the maximum number
of shares of Preferred Stock, together with all other shares of preferred stock
subject to redemption or retirement, that can be redeemed out of funds expected
to be legally available therefor on such redemption date. In determining the
number of shares of Preferred Stock required to be redeemed in accordance with
the foregoing, the Fund shall allocate the number required to be redeemed which
would result in the Fund having S&P Eligible Assets with an aggregate Discounted
Value equal to or greater than the Preferred Stock Basic Maintenance Amount or
satisfaction of the Investment Company Act Preferred Stock Asset Coverage, as
the case may be, pro rata among shares of Preferred Stock and other preferred
stock subject to redemption pursuant to provisions similar to those set forth
below; provided that, shares of Preferred Stock that may not be redeemed at the
option of the Fund due to the designation of a Non-Call Period applicable to
such shares (A) will be subject to mandatory redemption only to the extent that
other shares are not available to satisfy the number of shares required to be
redeemed and (B) will be selected for redemption in an ascending order of
outstanding number of days in the Non-Call Period (with shares with the lowest
number of days to be redeemed first) and by lot in the event of shares having an
equal number of days in such Non-Call Period. The Fund is required to effect
such a mandatory redemption not later than 35 days after such Cure Date, except
that if the Fund does not have funds legally available for the redemption of all
of the required number of shares of Preferred Stock which are subject to
mandatory redemption or the Fund otherwise is unable to effect such redemption
on or prior to 35 days after such Cure Date, the Fund will redeem those shares
of Preferred Stock which it was unable to redeem on the earliest practicable
date on which it is able to effect such redemption.
GENERAL. If the shares of Preferred Stock are to be redeemed, a notice of
redemption will be mailed to each record holder of such shares of Preferred
Stock (initially Cede as nominee of the Securities Depository) and to the
Auction Agent not less than 17 nor more than 30 days before the date fixed for
the redemption thereof. Each notice of redemption will include a statement
setting forth: (i) the redemption date, (ii) the aggregate number of shares of
Preferred Stock to be redeemed, (iii) the redemption price, (iv) the place or
places where shares of Preferred Stock are to be surrendered for payment of the
redemption price, (v) a statement that dividends on the shares to be redeemed
will cease to accumulate on such redemption date (except that holders may be
entitled to Additional Dividends) and (vi) the provision of the Charter pursuant
to which such shares are being redeemed. The notice also will be published in
THE WALL STREET JOURNAL. No defect in the notice of redemption or in the mailing
or publication thereof will affect the validity of the redemption proceedings,
except as required by applicable law.
If less than all of the outstanding shares of Preferred Stock are to be
redeemed, the shares to be redeemed will be selected by lot or such other method
as the Fund deems fair and equitable, and the results thereof will be
communicated to the Auction Agent. The Auction Agent will give notice to the
Securities Depository, whose nominee will be the record holder of all shares of
Preferred Stock, and the Securities Depository will determine the number of
shares to be redeemed from the account of the Agent Member of each Existing
Holder. Each Agent Member will determine the number of shares to be redeemed
from the account of each Existing Holder for which it acts as agent. An Agent
Member may select for redemption shares from the accounts of some Existing
Holders without selecting for redemption any shares from the accounts of other
Existing Holders. Notwithstanding the foregoing, if neither the Securities
Depository nor its nominee is the record holder of all of the shares of the
series of Preferred Stock, the particular shares to be redeemed will be selected
by the Fund by lot or by such other method as the Fund deems fair and equitable.
If the Fund gives notice of redemption, and concurrently or thereafter
deposits in trust with the Auction Agent, or segregates in an account at the
Fund's custodian bank for the benefit of the Auction Agent, Deposit Securities
(with a right of substitution) having an aggregate Discounted Value (utilizing
an S&P Exposure Period of three Business Days) equal to the redemption payment
for the shares of Preferred Stock as to which notice of redemption has been
given, with irrevocable instructions and authority to pay the redemption price
to the record holders thereof, then upon the date of such deposit or, if no such
deposit is made, upon such date fixed for redemption (unless the Fund defaults
in making payment of the redemption price), all rights of the holders of such
shares called for redemption will cease and terminate, except the right of such
holders to receive the redemption price thereof and any Additional Dividends,
but without interest, and such shares no longer will be deemed to be
outstanding. The Fund will be entitled to receive, from time to time, the
interest, if any, earned on such Deposit Securities deposited with the Auction
Agent, and the holders of any shares so redeemed will have no claim to any such
interest. Any funds so deposited which are unclaimed at the end of one year from
such redemption date will be repaid, upon demand, to the Fund, after which the
holders of the shares of Preferred Stock of such series so called for redemption
may look only to the Fund for payment thereof.
So long as any shares of Preferred Stock are held of record by the nominee
of the Securities Depository (initially Cede), the redemption price for such
shares will be paid on the redemption date to the nominee of the Securities
Depository. The Securities Depository's normal procedures now provide for it to
distribute the amount of the redemption price to Agent Members who, in turn, are
expected to distribute such funds to the persons for whom they are acting as
agent.
Notwithstanding the provisions for redemption described above, no shares of
Preferred Stock will be subject to optional redemption (i) unless all dividends
in arrears on the outstanding shares of Preferred Stock, and all capital stock
of the Fund ranking on a parity with the shares of Preferred Stock with respect
to the payment of dividends or upon liquidation, have been or are being
contemporaneously paid or declared and set aside for payment and (ii) if
redemption thereof would result in the Fund's failure to maintain S&P Eligible
Assets with an aggregate Discounted Value equal to or greater than the shares of
Preferred Stock Basic Maintenance Amount.
LIQUIDATION RIGHTS
Upon any liquidation, dissolution or winding up of the Fund, whether
voluntary or involuntary, the holders of shares of Preferred Stock of each
series will be entitled to receive, out of the assets of the Fund available for
distribution to shareholders, before any distribution or payment is made upon
any common stock or any other shares of the Fund ranking junior in right of
payment upon liquidation of the Preferred Stock, $25,000 per share together with
the amount of any dividends accumulated but unpaid (whether or not earned or
declared) thereon to the date of distribution, and after such payment the
holders of the Preferred Stock will be entitled to no other payments except for
any Additional Dividends. If such assets of the Fund are insufficient to make
the full liquidation payment on outstanding shares of Preferred Stock and
liquidation payments on any other outstanding class or series of preferred stock
of the Fund ranking on a parity with the Preferred Stock as to payment upon
liquidation, then such assets will be distributed among the holders of the
Preferred Stock and the holders of shares of such other class or series ratably
in proportion to the respective preferential amounts to which they are entitled.
After payment of the full amount of liquidation distribution to which they are
entitled, the holders of shares of Preferred Stock will not be entitled to any
further participation in any distribution of assets by the Fund except for any
Additional Dividends. A consolidation, merger or share exchange of the Fund with
or into any other entity or entities or a sale, whether for cash, shares of
stock, securities or properties, of all or substantially all or any part of the
assets of the Fund will not be deemed or construed to be a liquidation,
dissolution or winding up of the Fund.
VOTING RIGHTS
Except as otherwise indicated in this Prospectus and except as otherwise
required by applicable law, holders of shares of Preferred Stock will be
entitled to one vote per share on each matter submitted to a vote of
shareholders and will vote together with holders of shares of the Fund's common
stock and any other preferred stock as a single class.
In connection with the election of the Fund's Directors, holders of the
shares of Preferred Stock and any other preferred stock, voting as a separate
class, shall be entitled at all times to elect two of the Fund's Directors, and
the remaining Directors will be elected by holders of shares of the Fund's
common stock and shares of Preferred Stock and any other preferred stock, voting
together as a single class. In addition, if at any time dividends on outstanding
shares of Preferred Stock are unpaid in an amount equal to at least two full
years' dividends thereon or if at any time holders of the shares of Preferred
Stock are entitled, together with the holders of shares of any other preferred
stock, to elect a majority of the Fund's Directors under the Investment Company
Act, then the number of Directors constituting the Fund's Board of Directors
automatically will be increased by the smallest number that, when added to the
two Directors elected exclusively by the holders of the Preferred Stock and any
other preferred stock as described above, would constitute a majority of the
Fund's Board of Directors as so increased by such smallest number, and at a
special meeting of shareholders which will be called and held as soon as
practicable, and at all subsequent meetings at which Directors are to be
elected, the holders of the shares of Preferred Stock and any other preferred
stock, voting as a separate class, will be entitled to elect the smallest number
of additional Directors that, together with the two Directors which such
holders in any event will be entitled to elect, constitutes a majority of the
total number of Directors of the Fund as so increased. The terms of office of
the persons who are Directors at the time of that election will continue. If the
Fund thereafter pays, or declares and sets apart for payment in full, all
dividends payable on all outstanding shares of Preferred Stock and any other
preferred stock for all past Dividend Periods, the additional voting rights of
the holders of shares of Preferred Stock and any other preferred stock as
described above will cease, and the terms of office of all of the additional
Directors elected by the holders of shares of Preferred Stock and any other
preferred stock (but not of the Directors with respect to whose election the
holders of shares of common stock were entitled to vote or the two Directors
the holders of shares of Preferred Stock and any other preferred stock have the
right to elect in any event) will terminate automatically.
The affirmative vote of a majority of the votes entitled to be cast by
holders of outstanding shares of Preferred Stock and any other preferred stock,
voting as a separate class, will be required to (i) authorize, create or issue
any class or series of stock ranking prior to the shares of Preferred Stock or
any other series of preferred stock with respect to the payment of dividends or
the distribution of assets on liquidation; provided, however, that no vote is
required to authorize the issuance of another class or series of preferred stock
which is substantially identical in all respects to the shares of Preferred
Stock, if the Fund obtains written confirmation from S&P that the issuance of
any additional shares would not impair the rating then assigned to the Preferred
Stock, or (ii) amend, alter or repeal the provisions of the Charter, whether by
merger, consolidation or otherwise, so as to adversely affect any of the
contract rights expressly set forth in the Charter of holders of shares of
Preferred Stock or any other preferred stock. The Fund may not, without the
affirmative vote of the holders of at least 66-2/3% of the shares of Preferred
Stock outstanding at the time, voting as separated class, file a voluntary
application for relief under federal bankruptcy law or any similar application
under state law for so long as the Fund is solvent and does not foresee becoming
insolvent. To the extent permitted under the Investment Company Act, in the
event shares of more than one series of Preferred Stock are outstanding, the
Fund will not approve any of the actions set forth in clause (i) or (ii) which
adversely affects the contract rights expressly set forth in the Charter of a
holder of shares of a series of Preferred Stock differently than those of a
holder of shares of any other series of Preferred Stock without the affirmative
vote of at least a majority of votes entitled to be cast by holders of the
shares of Preferred Stock of each series adversely affected and outstanding at
such time (each such adversely affected series voting separately as a class).
The Fund's Board of Directors, however, without shareholder approval, may amend,
alter or repeal any or all of the various Rating Agency guidelines described
herein in the event the Fund receives confirmation from S&P that any such
amendment, alteration or repeal would not impair the rating then assigned to the
shares of Preferred Stock.
Unless a higher percentage is provided for under the Charter, as described
in "Description of Capital Structure" or "Certain Provisions of the Charter,"
the affirmative vote of a majority of the votes entitled to be cast by holders
of outstanding shares of Preferred Stock and any other preferred stock, voting
as a separate class, will be required to approve any plan of reorganization
(including bankruptcy proceedings) adversely affecting such shares or any action
requiring a vote of security holders under Section 13(a) of the Investment
Company Act including, among other things, changes in the Fund's investment
objective or changes in the investment restrictions described as fundamental
policies under "Investment Objective and Policies." The class vote of holders of
shares of Preferred Stock and any other preferred stock described above in each
case will be in addition to a separate vote of the requisite percentage of
shares of common stock and shares of Preferred Stock and any other preferred
stock, voting together as a single class, necessary to authorize the action in
question.
The foregoing voting provisions will not apply to the shares of Preferred
Stock if, at or before the time when the act with respect to which such vote
otherwise would be required to be taken, such shares were (i) redeemed or (ii)
called for redemption and sufficient funds were deposited in trust to effect
such redemption.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The business affairs of the Fund are managed under the
general supervision of its Board of Directors in accordance with Maryland law.
The names and business addresses of the Directors and Officers of the Fund and
their principal occupations during the past five years are set forth in the SAI.
INVESTMENT ADVISER. Dreyfus is a wholly-owned subsidiary of Mellon Bank,
N.A., which is a wholly-owned subsidiary of Mellon Financial Corporation
("Mellon"). Mellon is a global financial services company with approximately
$2.5 trillion in assets under management, administration or custody, including
approximately $450 billion under management. Mellon provides wealth management,
global investment services and a comprehensive array of banking services for
individuals, businesses and institutions. Mellon is headquarted in Pittsburgh,
Pennsylvania.
Dreyfus provides investment management services to the Fund pursuant to a
Management Agreement, subject to the authority of the Fund's Board of Directors
in accordance with Maryland law. The Fund's primary portfolio manager is A. Paul
Disdier. He has held that position since ____________ and has been employed by
Dreyfus since 1988. The Fund's other portfolio managers are identified in the
SAI. Dreyfus also provides research services for the Fund and for other funds
advised by Dreyfus through a professional staff of portfolio managers and
securities analysts.
Under the terms of the Management Agreement, the Fund has agreed to pay
Dreyfus a monthly fee at the annual rate of 0.75% of the value of the Fund's
average weekly net assets.
The Management Agreement provides that Dreyfus shall not be liable for any
error of judgment or mistake of law, or for any loss suffered by the Fund in
connection with the matters to which the Management Agreement relates, except
for a loss resulting from willful misfeasance, bad faith or gross negligence on
the part of Dreyfus in the performance of its duties or from reckless disregard
of its obligations and duties under the Management Agreement.
Dreyfus has a personal securities trading policy (the "Policy") which
restricts the personal securities transactions of its employees. Its primary
purpose is to ensure that personal trading by Dreyfus's employees does not
disadvantage any fund managed by Dreyfus. Under the Policy, Dreyfus's employees
must preclear personal transactions in securities not exempt under the Policy.
In addition, Dreyfus's employees must report their personal securities
transactions and holdings, which are reviewed for compliance with the Policy. In
that regard, Dreyfus's portfolio managers and other investment personnel also
are subject to the oversight of Mellon's Investment Ethics Committee (the
"Committee"). Portfolio managers and other investment personnel of Dreyfus who
comply with the Policy's preclearance and disclosure procedures and the
requirements of the Committee may be permitted to purchase, sell or hold
securities which also may be or are held in fund(s) they manage or for which
they otherwise provide investment advice.
The Management Agreement may be terminated without penalty upon 60 days'
written notice by the Fund's Board of Directors or by a majority vote of the
outstanding shares of the Fund or, upon not less than 90 days' notice, by
Dreyfus, and automatically terminates in the event of its assignment.
TAXES
GENERAL
The Fund qualifies and has elected to be treated as a regulated investment
company ("RIC") under Subchapter M of the Internal Revenue Code and intends to
continue to qualify under those provisions each year. To qualify as a RIC, the
Fund must, among other things, satisfy certain requirements as to the sources of
its income and the composition of its assets (see below). In addition, the Fund
is required, each year, to distribute at least 90% of its net investment income
(i.e., the Fund's investment company taxable income, as that term is defined in
the Internal Revenue Code, without regard to the deduction for dividends paid)
and 90% of its net tax-exempt income. As a RIC, the Fund (but not its
stockholders) generally will be relieved of U.S. federal income taxes on its
taxable investment income and capital gains that it distributes to its
stockholders. The Fund intends, each year, to distribute to its stockholders
substantially all of its taxable investment income and capital gains as well as
its tax-exempt income.
Under present law and based, in part, on certain representations of the
Fund, Stroock & Stroock & Lavan LLP, counsel to the Fund, is of the opinion
that the Preferred Stock will constitute stock of the Fund, and thus
distributions with respect to the Preferred Stock (other than distributions in
redemption of the Preferred Stock that are treated as exchanges of stock under
section 302(b) of the Internal Revenue Code) will constitute dividends to the
extent of the Fund's current and accumulated earnings and profits, as calculated
for federal income tax purposes. It is possible, however, that the IRS might
take a contrary position, asserting, for example, that the Preferred Stock
constitutes debt of the Fund. If this position were upheld, the discussion of
the treatment of distributions herein would not apply. Instead, distributions by
the Fund to the holders of the Preferred Stock would constitute interest,
whether or not they exceeded the earnings and profits of the Fund, would be
included in full in the income of the recipient and would be taxed as ordinary
income. Stroock & Stroock & Lavan LLP believes that such a position, if asserted
by the IRS, would be unlikely to prevail if the issue were properly litigated.
The following discussion assumes that the Preferred Stock constitutes stock of
the Fund.
Each dividend distribution ordinarily will constitute income exempt from
federal income tax (i.e., qualify as an "exempt-interest dividend," which is
excludable from the shareholder's gross income). A portion of dividends
attributable to interest on certain municipal obligations, however, may be a
preference item for purposes of AMT. Furthermore, exempt-interest dividends are
included in determining what portion, if any, of a person's social security and
railroad retirement benefits will be includible in gross income subject to
federal income tax. Distributions of any taxable net investment income and net
short-term capital gain will be taxable as ordinary income. Finally,
distributions of the Fund's net capital gain (the excess of net long term
capital gain over net short term capital loss) as capital gain dividends, if
any, will be taxable to shareholders as long-term capital gains, regardless of
the length of time they held their shares. Distributions, if any, in excess of
the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after that basis has been reduced to zero, will constitute
capital gains to the shareholder (assuming the shares are held as a capital
asset).
Dividends and other distributions declared by the Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. The IRS has taken
the position that if a RIC has more than one class of shares, it may designate
distributions made to each class in any year as consisting of no more than that
class's proportionate share of particular types of income for that year,
including tax-exempt interest and net capital gain. A class's proportionate
share of a particular type of income for a year is determined according to the
percentage of total dividends paid by the RIC during that year that was paid to
the class. Thus, the Fund is required to allocate a portion of its net capital
gains and other taxable income to the shares of Preferred Stock. The Fund
generally will notify the Auction Agent of the amount of any net capital gain
and other taxable income to be included in any dividend on the shares of
Preferred Stock prior to the Auction establishing the Applicable Rate for that
dividend. Except for the portion of any dividend that it informs the Auction
Agent will be treated as net capital gain or other taxable income, the Fund
anticipates that the dividends paid on the shares of Preferred Stock will
constitute exempt-interest dividends. The amount of net capital gains and
ordinary income allocable to the shares of Preferred Stock (a "taxable
distribution") will depend upon the amount of such gains and income realized by
the Fund and the total dividends paid by the Fund to its holders of common stock
and holders of Preferred Stock during a taxable year, but taxable distributions
generally are not expected to be significant. The tax treatment of Additional
Dividends also may affect the Fund's calculation of each class's allocable share
of capital gains and other taxable income. See "Tax Treatment of Additional
Dividends" below.
Although the matter is not free from doubt, due to the absence of direct
regulatory or judicial authority, Stroock & Stroock & Lavan LLP has advised the
Fund that under current law the manner in which the Fund intends to allocate
items of tax-exempt income, net capital gain, and other taxable income, if any,
among the Fund's shares of common stock and the shares of Preferred Stock will
be respected for federal income tax purposes. It is possible that the IRS could
disagree with counsel's opinion and attempt to reallocate the Fund's net capital
gain or other taxable income. In the event of such a reallocation, some of the
dividends identified by the Fund as exempt-interest dividends to holders of
shares of Preferred Stock may be recharacterized as additional net capital gain
or other taxable income. In the event of such recharacterization, however, the
Fund would not be required to make payments to such shareholders to offset the
tax effect of such reallocation. Stroock & Stroock & Lavan LLP has advised the
Fund that in its opinion, if the IRS were to challenge in court the Fund's
allocation of income and gain and the issue were properly litigated, the IRS
would be unlikely to prevail. You should be aware, however, that the opinion of
Stroock & Stroock & Lavan LLP represents only its best legal judgment and is not
binding on the IRS or the courts.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of Preferred Stock is not deductible for federal income tax
purposes to the extent that interest relates to exempt-interest dividends
received from the Fund.
If at any time when shares of Preferred Stock are outstanding the Fund does
not meet the asset coverage requirements of the Investment Company Act, the Fund
will be required to suspend distributions to holders of common stock until the
asset coverage is restored. See "Description of Preferred
Stock--Dividends--Restrictions on Dividends and Other Payments." Such a
suspension may prevent the Fund from distributing the amounts required for
maintaining its RIC status, and may, therefore, jeopardize the Fund's
qualification for taxation as a RIC. Upon any failure to meet the asset coverage
requirements of the Investment Company Act, the Fund, in its sole discretion,
may redeem shares of Preferred Stock in order to maintain or restore the
requisite asset coverage and avoid the adverse consequences to the Fund and its
shareholders of failing to qualify for treatment as a RIC. See "Description of
Preferred Stock--Redemption." There can be no assurance, however, that any such
action would achieve that objective.
Certain of the Fund's investment practices are subject to Internal Revenue
Code provisions that, among other things, may defer the use of certain losses of
the Fund and affect the holding period of securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in the amounts necessary to satisfy the requirements for
maintaining RIC status and for avoiding income and excise taxes. The Fund will
monitor its transactions and may make certain tax elections in order to mitigate
the effect of these rules and prevent disqualification of the Fund as a RIC.
TAX TREATMENT OF ADDITIONAL DIVIDENDS
If the Fund makes a Retroactive Taxable Allocation, it will pay Additional
Dividends to holders of shares of Preferred Stock who are subject to the
Retroactive Taxable Allocation. See "Description of Preferred
Stock--Dividends--Additional Dividends." The federal income tax consequences of
the receipt of Additional Dividends under existing law are uncertain. An
Additional Dividend generally will be designated by the Fund as an
exempt-interest dividend except to the extent net capital gain or other taxable
income is allocated thereto as described above.
SALES OF SHARES OF PREFERRED STOCK
The sale of shares of Preferred Stock (including transfers in connection
with a redemption or repurchase of shares of Preferred Stock) will be a taxable
transaction for federal income tax purposes. A selling shareholder generally
will recognize gain or loss equal to the difference between the holder's
adjusted tax basis in the shares of Preferred Stock and the amount received. If
the shares of Preferred Stock are held as a capital asset, the gain or loss will
be a capital loss and will be long-term if the shares of Preferred Stock have
been held for more than one year. Any loss realized on a disposition of shares
of Preferred Stock held for six months or less will be disallowed to the extent
of any exempt-interest dividends received with respect to those shares of
Preferred Stock, and any such loss that is not disallowed will be treated as a
long-term, rather than a short-term, capital loss to the extent of any capital
gain dividends received with respect to those shares of Preferred Stock. A
shareholder's holding period is suspended for any periods during which the
shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property, or through certain
options or short sales. Any loss realized on a sale or exchange of shares of
Preferred Stock will be disallowed to the extent those shares of Preferred Stock
are replaced by other shares of Preferred Stock within a period of 61 days
beginning 30 days before and ending 30 days after the date of disposition of the
original shares of Preferred Stock. In that event, the basis of the replacement
shares of Preferred Stock will be adjusted to reflect the disallowed loss.
BACKUP WITHHOLDING
The Fund is required to withhold 31% of all taxable dividends, capital gain
dividends and repurchase proceeds payable to any individuals and certain other
non-corporate shareholders who do not provide the Fund with a correct taxpayer
identification number. Withholding at that rate from taxable dividends and
capital gain dividends also is required for such shareholders who otherwise are
subject to backup withholding.
------------------------------
The foregoing briefly summarizes some of the important federal income tax
consequences of investing in the shares of Preferred Stock, reflects the federal
income tax law, as of the date of this Prospectus, and does not address special
tax rules applicable to certain types of investors, such as corporate and
foreign investors. Other federal, state or local tax considerations may apply to
a particular investor, including state alternative minimum tax. Investors should
consult their tax advisers regarding the tax consequences of purchasing, holding
and disposing of Preferred Stock and any proposed tax law change.
DESCRIPTION OF CAPITAL STRUCTURE
The Fund was incorporated in Maryland on July 20, 1987. It is authorized to
issue 499,988,600 shares of common stock, $0.001 par value per share. All shares
of common stock have equal non-cumulative voting rights and equal rights with
respect to dividends and liquidation. Shares of common stock are fully paid and
non-assessable when issued and have no pre-emptive, conversion or exchange
rights. So long as any preferred stock is outstanding, holders of common stock
will not be entitled to receive any net income of or other distributions from
the Fund unless all accrued dividends on any preferred stock have been paid, and
unless asset coverage (as defined in the Investment Company Act) would be at
least 200% after giving effect to such distributions. The following table shows
the amount of (i) shares authorized and (ii) shares outstanding (no shares are
held for the Fund's own account), for each class of authorized securities of the
Fund as of December 31, 1999.
AMOUNT AMOUNT
TITLE OF CLASS AUTHORIZED OUTSTANDING
Common Stock...................................... 499,988,600
Auction Preferred Stock..........................
Series M..................................... 2,280 -0-
Series T..................................... 2,280 -0-
Series WW.................................... 2,280 -0-
Series TH.................................... 2,280 -0-
Series F..................................... 2,280 -0-
Holders of shares of common stock are entitled to share equally in
dividends declared by the Fund's Board of Directors payable to holders of shares
of common stock and in the net assets of the Fund available for distribution to
holders of shares of common stock after payment of the preferential amounts
payable to holders of any outstanding preferred stock. Neither holders of shares
of common stock nor holders of shares of Preferred Stock have pre-emptive or
conversion rights and shares of common stock are not redeemable. Upon
liquidation of the Fund, after paying or adequately providing for the payment of
all liabilities of the Fund and the liquidation preference with respect to any
outstanding shares of Preferred Stock, and upon receipt of such releases,
indemnities and refunding agreements as they deem necessary for their
protection, the Directors may distribute the remaining assets of the Fund among
the holders of shares of common stock.
Holders of shares of common stock are entitled to one vote for each share
held and will vote with the holders of any outstanding shares of Preferred Stock
or other shares of preferred stock on each matter submitted to a vote of holders
of shares of common stock, except as described under "Description of Preferred
Stock--Voting Rights."
The shares of common stock, shares of Preferred Stock and any other shares
of preferred stock do not have cumulative voting rights, which means that the
holders of more than 50% of the shares of common stock, shares of Preferred
Stock and any other shares of preferred stock voting for the election of
Directors can elect all of the Directors standing for election by such holders,
and, in such event, the holders of the remaining shares of common stock, shares
of Preferred Stock and any other shares of preferred stock will not be able to
elect any of such Directors.
So long as shares of Preferred Stock or other shares of preferred stock are
outstanding, holders of shares of common stock will not be entitled to receive
any dividends of or other distributions from the Fund, unless at the time of
such declaration, (1) all accrued dividends on shares of Preferred Stock or
accrued interest on borrowings has been paid and (2) the value of the Fund's
total assets (determined after deducting the amount of such dividend or other
distribution), less all liabilities and indebtedness of the Fund not represented
by senior securities, is at least 300% of the aggregate amount of such
securities representing indebtedness and at least 200% of the aggregate amount
of securities representing indebtedness plus the aggregate liquidation value of
the outstanding preferred stock (expected to equal the aggregate original
purchase price of the outstanding shares of Preferred Stock plus redemption
premium, if any, together with any accrued and unpaid dividends thereon, whether
or not earned or declared and on a cumulative basis). In addition to the
requirements of the Investment Company Act, the Fund is required to comply with
other asset coverage requirements as a condition of the Fund obtaining a rating
of the shares of Preferred Stock from a Rating Agency. These requirements
include an asset coverage test more stringent than under the Investment Company
Act. See "Description of Preferred Stock--Dividends--Restrictions on Dividends
and Other Payments."
So long as any shares of the Fund's preferred stock are outstanding, the
Fund may not purchase, redeem or otherwise acquire any shares of its common
stock unless (i) all accrued preferred stock dividends have been paid and (ii)
at the time of such purchase, redemption or acquisition, the net asset value of
the Fund's portfolio (determined after deducting the acquisition price of the
common stock) is at least 200% of the liquidation value of the outstanding
preferred stock (expected to equal the original purchase price per share plus
any accrued and unpaid dividends thereon). In addition, any purchase by the Fund
of the shares of its common stock at a time when shares of Preferred Stock are
outstanding will increase the leverage applicable to the outstanding shares of
common stock then remaining.
The shares of common stock commenced trading on the NYSE on September 30,
1987. At December 31, 1999, the net asset value per share of common stock was
$8.99, and the closing price per share of common stock on the NYSE was $7 1/2.
Under the Investment Company Act, the Fund is permitted to have outstanding
more than one series of preferred stock as long as no single series has priority
over another series as to the distribution of assets of the Fund or the payment
of dividends. Neither holders of shares of common stock nor holders of the
shares of Preferred Stock have pre-emptive rights to purchase any shares of
preferred stock. It is anticipated that the net asset value per share of
preferred stock will equal its original purchase price per share plus
accumulated dividends per share.
CERTAIN PROVISIONS OF THE CHARTER
The Charter includes provisions that could have the effect of limiting the
ability of other entities or persons to acquire control of the Fund or to change
the composition of its Board of Directors and could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging a third party from seeking to obtain control of
the Fund. The Fund's Board of Directors is divided into three classes, with the
term of office of one class expiring each year. This provision could delay for
up to two years the replacement of a majority of the Board of Directors. The
Charter provides that the maximum number of Directors that may constitute the
Fund's entire Board is twelve. A Director may be removed from office or the
maximum number of Directors increased only by vote of the holders of at least
75% of the shares of the Fund entitled to be voted on the matter. Moreover,
under Maryland law, a director on a classified board, such as the Fund's, may be
removed from office only for cause.
In addition, the Charter requires the favorable vote of the holders of at
least 75% of the outstanding shares of the Fund to approve, adopt or authorize
any of the following actions:
(i) a merger or consolidation or statutory share exchange of the Fund with
or into another corporation;
(ii) a sale of all or substantially all of the Fund's assets (other than in
the regular course of the Fund's investment activities); or
(iii) a liquidation or dissolution of the Fund;
unless such action has been approved, adopted or authorized by the affirmative
vote of two-thirds of the total number of Directors fixed in accordance with the
By-Laws, in which case the affirmative vote of a majority of the outstanding
shares of the Fund is required.
The Fund's Board of Directors has determined that the 75% voting
requirements described above, which are greater than the minimum requirements
under Maryland law or the Investment Company Act and which can only be changed
by a similar 75% vote, are in the best interests of shareholders generally.
Reference should be made to the Charter on file with the SEC for the full text
of these provisions.
UNDERWRITING
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York
10019, acting as underwriter (the "Underwriter"), has agreed, subject to the
terms and conditions of the Underwriting Agreement with the Fund and Dreyfus
(the "Underwriting Agreement"), to purchase from the Fund the number of shares
set forth below. The Underwriter is committed to purchase all of such shares of
Preferred Stock if any are purchased.
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES OF SHARES OF SHARES OF SHARES OF SHARES OF
UNDERWRITER SERIES M SERIES T SERIES W SERIES TH SERIES F
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK STOCK STOCK
<S> <C> <C> <C> <C> <C>
PaineWebber Incorporated....
</TABLE>
The Underwriter has advised the Fund that it proposes initially to offer
the shares of Preferred Stock to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such price
less a concession not in excess of $___ per share. The Underwriter may allow,
and such dealers may reallow, a discount not in excess of $___ per share to
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed. Investors must pay for any shares of
Preferred Stock purchased in the initial public offering on or before
__________, 2000.
The Underwriter will act in Auctions as a Broker-Dealer as set forth under
"Description of Preferred Stock--The Auction--Broker-Dealer Agreements" and will
be entitled to fees for services as A Broker-Dealer as set forth under
"Description of Preferred Stock--Broker-Dealers." The Underwriter also may
provide information to be used in ascertaining the Reference Rate.
The Fund anticipates that the Underwriter from time to time may act a
dealer in connection with the execution of the Fund's portfolio transactions.
See "Investment Restrictions" and "Portfolio Trading" in the SAI.
The Fund and Dreyfus have agreed to indemnify the Underwriter against
certain liabilities including liabilities under the Securities Act of 1933.
CUSTODIAN AND TRANSFER AGENT
Boston Safe Deposit and Trust Company, an indirect wholly-owned subsidiary
of Mellon, located at One Boston Place, Boston, Massachusetts, 02108
acts as Custodian for the assets of the Fund. The Bank of New York, located at
101 Barclay Street, New York, New York 10286 acts as the Fund's Transfer Agent,
Dividend-Paying Agent and Registrar.
LEGAL OPINIONS
Stroock & Stroock & Lavan LLP, New York, New York, serves as counsel to the
Fund and will pass on the legality of the shares of Preferred Stock. Certain
legal matters will be passed on for the Underwriter by Skadden, Arps, Slate,
Meagher & Flom (Illinois), Chicago, Illinois.
INDEPENDENT AUDITORS
The data in the "Financial Highlights" section of this Prospectus for each
of the ten years in the period ended September 30, 1999 are based upon
financial statements that have been audited by _____________________,
independent auditors, _________________________, as indicated in their reports
with respect thereto, and are included in reliance on their report given on
their authority as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act and in accordance therewith
is required to file reports, proxy statements and other information with the
SEC. Any such reports, proxy statements and other information can be inspected
and copied at the public reference facilities of the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the SEC: Northeast Regional Office, at Seven World Trade
Center, Suite 1300, New York, New York 10048; Pacific Regional Office, at
5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036; and Midwest
Regional Office, at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials can be obtained from the public reference
section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The SEC maintains a Web site at http://www.sec.gov containing
reports, proxy and information statements and other information regarding
registrants, including the Fund, that file electronically with the SEC. Reports,
proxy statements and other information concerning the Fund can also be inspected
at the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
Additional information regarding the Fund and the shares of Preferred Stock
is contained in the Registration Statement on Form N-2, including amendments,
exhibits and schedules thereto, relating to such shares filed by the Fund with
the SEC in Washington, D.C. This Prospectus does not contain all of the
information set forth in the Registration Statement, including any amendments,
exhibits and schedules thereto. For further information with respect to the Fund
and the shares of Preferred Stock offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected without charge at the SEC's principal
office in Washington, D.C., and copies of all or any part thereof may be
obtained from the SEC upon the payment of certain fees prescribed by the SEC.
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus constitute forward-looking
statements, which involve known and unknown risks, uncertainties and other
factors that may cause the actual results, levels of activity, performance or
achievements of the Fund to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. As a result, no assurance can be given as to the
future results, levels of activity, performance or achievements, and neither the
Fund nor any other person assumes responsibility for the accuracy and
completeness of such statements.
TABLE OF CONTENTS OF THE SAI
PAGE
General Information......................................................
Additional Information About Certain Portfolio Securities
and Investment Techniques............................................
Investment Restrictions..................................................
Rating Agency Guidelines.................................................
Management of the Fund...................................................
Ownership of Fund Shares.................................................
Portfolio Trading........................................................
Repurchase of Shares.....................................................
Taxation.................................................................
Financial Statements.....................................................
Appendix A: Ratings of Municipal Obligations............................A-1
Appendix B: Tax Equivalent Yield Table..................................B-1
Appendix C: Settlement Procedures.......................................C-1
Appendix D: Auction Procedures..........................................D-1
<PAGE>
GLOSSARY
"'AA' COMPOSITE COMMERCIAL PAPER RATE," on any Valuation Date, means (i)
the Interest Equivalent of the rate on commercial paper placed on behalf of
issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's or the
equivalent of such rating by another nationally recognized statistical rating
organization, as such rate is made available on a discount basis or otherwise by
the Federal Reserve Bank of New York for the Business Day immediately preceding
such date, or (ii) in the event that the Federal Reserve Bank of New York does
not make available such a rate, then the arithmetic average of the Interest
Equivalent of the rate on commercial paper placed on behalf of such issuers, as
quoted on a discount basis or otherwise by PaineWebber Incorporated or its
successors that are Commercial Paper Dealers, to the Auction Agent for the close
of business on the Business Day immediately preceding such date. If one of the
Commercial Paper Dealers does not quote a rate required to determine the "AA"
Composite Commercial Paper Rate, the "AA" Composite Commercial Paper Rate will
be determined on the basis of the quotation or quotations furnished by any
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the Fund to provide such rate or rates not being supplied by the
Commercial Paper Dealer. If the number of Dividend Period days shall be (i) 7 or
more but fewer than 49 days, such rate shall be the Interest Equivalent of the
30-day rate on such commercial paper; (ii) 49 or more but fewer than 70 days,
such rate shall be the Interest Equivalent of the 60-day rate on such commercial
paper; (iii) 70 or more days but fewer than 85 days, such rate shall be the
arithmetic average of the Interest Equivalent of the 60-day and 90-day rates on
such commercial paper; (iv) 85 or more days but fewer than 99 days, such rate
shall be the Interest Equivalent of the 90-day rate on such commercial paper;
(v) 99 or more days but fewer than 120 days, such rate shall be the arithmetic
average of the Interest Equivalent of the 90-day and 120-day rates on such
commercial paper; (vi) 120 or more days but fewer than 141 days, such rate shall
be the Interest Equivalent of the 120-day rate on such commercial paper; (vii)
141 or more days but fewer than 162 days, such rate shall be the arithmetic
average of the Interest Equivalent of the 120-day and 180-day rates on such
commercial paper; and (viii) 162 or more days but fewer than 183 days, such rate
shall be the Interest Equivalent of the 180-day rate on such commercial paper.
"ADDITIONAL DIVIDEND" has the meaning set forth on page ___ of this
Prospectus.
"AGENT MEMBER" means the member of the Securities Depository that will act
on behalf of a Beneficial Owner of one or more shares of Preferred Stock or on
behalf of a Potential Beneficial Owner.
"AMT" has the meaning set forth on page __ of this Prospectus.
"ANTICIPATION NOTES" means the following municipal obligations: revenue
anticipation notes, tax anticipation notes, tax and revenue anticipation notes,
grant anticipation notes and bond anticipation notes.
"APPLICABLE PERCENTAGE" has the meaning set forth on page __ of this
Prospectus.
"APPLICABLE RATE" means the rate per annum at which cash dividends are
payable on shares of Preferred Stock for any Dividend Period.
"AUCTION" means a periodic operation of the Auction Procedures.
"AUCTION AGENT" means Bankers Trust Company unless and until another
commercial bank, trust company or other financial institution appointed by a
resolution of the Fund's Board of Directors or a duly authorized committee
thereof enters into an agreement with the Board of Directors to follow the
Auction Procedures for the purpose of determining the Applicable Rate and to act
as transfer agent, registrar, dividend disbursing agent and redemption agent for
the shares of Preferred Stock.
"AUCTION AGENT AGREEMENT" means the agreement entered into between the Fund
and the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction Procedures for the purpose of determining the Applicable
Rate.
"AUCTION DATE" has the meaning set forth on page __ of this Prospectus.
"AUCTION PROCEDURES" means the procedures for conducting Auctions set forth
in "Appendix D" to the SAI.
"AVAILABLE SHARES OF PREFERRED STOCK" has the meaning specified in
Paragraph 3(d)(i) of the Auction Procedures.
"BENEFICIAL OWNER" means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or if applicable, the Auction Agent) as a holder
of shares of Preferred Stock or a Broker-Dealer that holds shares of Preferred
Stock for its own account.
"BID" has the meaning specified in Paragraph 3(b)(i) of the Auction
Procedures.
"BIDDER" has the meaning specified in Paragraph 3(b)(i) of the Auction
Procedures.
"BOARD OF DIRECTORS" OR "BOARD" means the Fund's Board of Directors and, to
the extent permitted by law, any committee thereof.
"BROKER-DEALER" means any broker-dealer, or other entity permitted by law
to perform the functions required of a Broker-Dealer in the Auction Procedures,
that has been selected by the Fund and has entered into a Broker-Dealer
Agreement with the Auction Agent that remains effective.
"BROKER-DEALER AGREEMENT" means an agreement entered into between the
Auction Agent and a Broker-Dealer, including PaineWebber Incorporated, pursuant
to which such Broker-Dealer agrees to follow the Auction Procedures.
"BUSINESS DAY" means a day on which the NYSE is open for trading and which
is not a Saturday, Sunday or other day on which banks in New York City are
authorized or obligated by law to close.
"CEDE" means Cede & Co., the nominee of the Securities Directory, and in
whose name the shares of Preferred Stock initially will be registered.
"CHARTER" means the Fund's Articles of Incorporation, as amended.
"COMMERCIAL PAPER DEALERS" means PaineWebber Incorporated and such other
commercial paper dealer or dealers as the Fund from time to time may appoint or,
in lieu thereof, their respective affiliates and successors.
"CURE DATE" has the meaning set forth on page __ of this Prospectus.
"DATE OF ORIGINAL ISSUE" means, with respect to each share of Preferred
Stock, the date on which such share first is issued by the Fund.
"DEPOSIT SECURITIES" means cash and municipal obligations rated at least A2
(having a remaining maturity of 12 months or less), P-1, VMIG-1 or MIG-1 by
Moody's or A (having a remaining maturity of 12 months or less), A-1+ or SP-1+
by S&P.
"DISCOUNT FACTOR" means a S&P Discount Factor.
"DISCOUNTED VALUE" of any asset of the Fund means with respect to an S&P
Eligible Asset, the quotient of the market value thereof divided by the
applicable S&P Discount Factor.
"DIVIDEND PAYMENT DATE" means any date on which dividends on shares of
Preferred Stock are payable as provided under "Description of
Preferred Stock-Dividends-General."
"DIVIDEND PERIODS" means any of the Initial Dividend Period, 7-Day Dividend
Periods or the Special Dividend Periods.
"DREYFUS" means The Dreyfus Corporation, the Fund's investment adviser.
"EXISTING HOLDER" means a Broker-Dealer or any such other person as may be
permitted by the Fund that is listed as the holder of record of shares of
Preferred Stock in the records of the Auction Agent.
"FITCH" means Fitch IBCA, Inc. or its successors.
"FUND" means Dreyfus Strategic Municipals, Inc., a Maryland corporation
that is the issuer of the shares of Preferred Stock.
"HOLD ORDER" has the meaning specified in Paragraph 3(b)(i) of the Auction
Procedures.
"INITIAL DIVIDEND PAYMENT DATE" means _________, 2000 for Series M
Preferred Stock, _________, 2000 for Series T Preferred Stock, _________, 2000
for Series W Preferred Stock, _________, 2000 for Series TH Preferred Stock
and _________, 2000 for Series F Preferred Stock.
"INITIAL DIVIDEND PERIOD" means, with respect to the shares of Preferred
Stock, the period from and including the Date of Original Issue to but excluding
the Initial Dividend Payment Date of the shares of Preferred Stock.
"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 financial
futures contract.
"INTEREST EQUIVALENT" means a yield on a 360-day basis of a discount basis
security which is equal to the yield on an equivalent interest-bearing security.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended.
"INVESTMENT ADVISERS ACT" means the Investment Advisers Act of 1940, as
amended from time to time.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended from time to time.
"INVESTMENT COMPANY ACT PREFERRED STOCK ASSET COVERAGE" has the meaning set
forth on page __ of this Prospectus.
"INVESTMENT COMPANY ACT CURE DATE" has the meaning set forth on page __ of
this Prospectus.
"IRS" means the United States Internal Revenue Service.
"LONG TERM DIVIDEND PERIOD" has the meaning specified in the definition of
"SPECIAL DIVIDEND PERIOD."
"MANDATORY REDEMPTION PRICE" has the meaning set forth on page __ of this
Prospectus.
"MARGINAL TAX RATE" means the maximum marginal federal individual income
tax rate applicable to an individual's or a corporation's ordinary income,
whichever is greater.
"MAXIMUM APPLICABLE RATE" has the meaning specified under "Description of
Preferred Stock--The Auction--Orders by Beneficial Owners, Potential Beneficial
Owners, Existing Holders and Potential Holders" in the Prospectus.
"MAXIMUM POTENTIAL ADDITIONAL DIVIDEND LIABILITY" has the meaning set forth
under "Preferred Stock Basic Maintenance Amount" below.
"MOODY'S" means Moody's Investors Service, Inc. or its successors.
"NON-CALL PERIOD" has the meaning set forth under "SPECIFIC REDEMPTION
PROVISIONS" below.
"NON-PAYMENT PERIOD" has the meaning set forth on page __ of this
Prospectus.
"NON-PAYMENT PERIOD RATE" has the meaning set forth on page __ of this
Prospectus.
"NORMAL DIVIDEND PAYMENT DATE" has the meaning set forth on page __ of this
Prospectus.
"NOTICE OF REVOCATION" has the meaning set forth on page __ of this
Prospectus.
"NOTICE OF SPECIAL DIVIDEND PERIOD" has the meaning set forth on page __ of
this Prospectus.
"OPTIONAL REDEMPTION PRICE" has the meaning set forth on page __ of this
Prospectus.
"ORDER" has the meaning specified in Paragraph 3(b)(i) of the Auction
Procedures.
"POTENTIAL BENEFICIAL OWNER" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of shares of Preferred Stock but
that wishes to purchase such shares, or that is a Beneficial Owner that wishes
to purchase additional shares of Preferred Stock.
"POTENTIAL HOLDER" means any Broker-Dealer or any such other person as may
be permitted by the Fund, including any Existing Holder, who may be interested
in acquiring shares of Preferred Stock (or, in the case of an Existing Holder,
additional shares of Preferred Stock).
"PREFERRED STOCK" means shares of preferred stock, par value $0.001 per
share, of the Fund.
"PREFERRED STOCK BASIC MAINTENANCE AMOUNT." The Preferred Stock Basic
Maintenance Amount as of any Valuation Date is defined as the dollar amount
equal to (i) the sum of (A) the product of the number of shares of Preferred
Stock outstanding on such Valuation Date multiplied by the sum of $25,000 and
any applicable redemption premium attributable to the designation of a Premium
Call Period; (B) the aggregate amount of cash dividends (whether or not earned
or declared) that will have accumulated for each share of Preferred Stock
outstanding to (but not including) the end of the current Dividend Period that
follows such Valuation Date in the event the then-current Dividend Period will
end within 49 calendar days of such Valuation Date or through the 49th day after
such Valuation Date in the event the then-current Dividend Period for the shares
of Preferred Stock will not end within 49 calendar days of such Valuation Date;
(C) in the event the then-current Dividend Period will end within 49 calendar
days of such Valuation Date, the aggregate amount of cash dividends that would
accumulate at the Maximum Applicable Rate applicable to a Dividend Period of 28
or fewer days on any shares of Preferred Stock outstanding from the end of such
Dividend Period through the 49th day after such Valuation Date, multiplied by
the S&P Volatility Factor determined from time to time by S&P (except that if
such Valuation Date occurs during a Non-Payment Period, the cash dividend for
purposes of calculation would accumulate at the then-current Non-Payment Period
Rate); (D) the amount of anticipated Fund expenses for the 90 days subsequent to
such Valuation Date; (E) the amount of the Fund's Maximum Potential Additional
Dividend Liability as of such Valuation Date; and (F) any current liabilities as
of such Valuation Date to the extent not reflected in any of (i) (A) through (i)
(E) (including, without limitation, and immediately upon determination, any
amounts due and payable by the Fund pursuant to repurchase agreements, and any
amounts payable for municipal obligations purchased as of such Valuation Date)
less (ii) either (A) the Discounted Value of any Fund assets, or (B) the face
value of any of the Fund's assets if such assets mature prior to or on the date
of redemption of the shares of Preferred Stock or payment of a liability and are
either securities issued or guaranteed by the United States Government or
Deposit Securities, in both cases irrevocably deposited by the Fund for the
payment of the amount needed to redeem the shares of Preferred Stock subject to
redemption or to satisfy any of (i) (B) through (i) (F). For purposes of the
foregoing, "Maximum Potential Additional Dividend Liability," as of any
Valuation Date, means the aggregate amount of Additional Dividends that would be
due if the Fund were to make Retroactive Taxable Allocations, with respect to
any fiscal year, estimated based upon dividends paid and the amount of
undistributed realized net capital gains and other taxable income earned by the
Fund, as of the end of the calendar month immediately preceding such Valuation
Date and assuming such Additional Dividends are fully taxable.
"PREFERRED STOCK BASIC MAINTENANCE CURE DATE" has the meaning set forth on
page __ of this Prospectus.
"PREFERRED STOCK BASIC MAINTENANCE REPORT" has the meaning set forth on
page __ of this Prospectus.
"PREMIUM CALL PERIOD" has the meaning set forth under "SPECIFIC REDEMPTION
PROVISIONS" below.
"RATING AGENCY" means a nationally recognized statistical rating
organization.
"REFERENCE RATE" has the meaning set forth on page __ of this Prospectus.
"REPRESENTATIVE" means PaineWebber Incorporated, or its successors.
"REQUEST FOR SPECIAL DIVIDEND PERIOD" has the meaning set forth on page __
of this Prospectus.
"RESPONSE" has the meaning set forth on page __ of this Prospectus.
"RETROACTIVE TAXABLE ALLOCATION" has the meaning set forth on page __ of
this Prospectus.
"RIC" means regulated investment company under the Internal Revenue Code.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., or its successors.
"S&P DISCOUNT FACTOR" has the meaning set forth on page __ of the SAI.
"S&P ELIGIBLE ASSETS" has the meaning set forth on page __ of the SAI.
"S&P EXPOSURE PERIOD" means the maximum period of time following a
Valuation Date, including the Valuation Date and the Preferred Stock Basic
Maintenance Cure Date, that the Fund has under the Charter to cure any failure
to maintain, as of such Valuation Date, a Discounted Value for its portfolio at
least equal to the Preferred Stock Basic Maintenance Amount.
"S&P VOLATILITY FACTOR" means ___% or such other potential dividend rate
increase factor as S&P advises the Fund in writing is applicable.
"SECURITIES DEPOSITORY" means Depository Trust and Clearing Corporation and
its successors and assigns or any successor securities depository selected by
the Fund that agrees to follow the procedures required to be followed by such
securities depository in connection with the shares of Preferred Stock.
"7-DAY DIVIDEND PERIOD" means a Dividend Period consisting of 7 days.
"SELL ORDER" has the meaning specified in Paragraph 3(b)(i) of the Auction
Procedures.
"SHORT TERM DIVIDEND PERIOD" has the meaning specified in the definition of
"SPECIAL DIVIDEND PERIOD" below.
"SPECIAL DIVIDEND PERIOD" means a Dividend Period consisting of a specified
number of days (other than seven), evenly divisible by seven and not fewer than
seven nor more than 364 (a "Short Term Dividend Period") or a Dividend Period
consisting of a specified period of one whole year or more but not greater than
five years (a "Long Term Dividend Period").
"SPECIFIC REDEMPTION PROVISIONS" means, with respect to a Special Dividend
Period, either, or any combination of, (i) a period (a "Non-Call Period")
determined by the Fund's Board of Directors, after consultation with the Auction
Agent and the Broker-Dealers, during which the shares of Preferred Stock subject
to such Dividend Period shall not be subject to redemption at the option of the
Fund and (ii) a period (a "Premium Call Period"), consisting of a number of
whole years and determined by the Fund's Board of Directors, after consultation
with the Auction Agent and the Broker-Dealers, during each year of which the
shares of Preferred Stock subject to such Dividend Period shall be redeemable at
the Fund's option at a price per share equal to $25,000 plus accumulated but
unpaid dividends plus a premium expressed as a percentage of $25,000, as
determined by the Fund's Board of Directors after consultation with the Auction
Agent and the Broker-Dealers.
"SUBMISSION DEADLINE" has the meaning specified in Paragraph 3(a)(x) of the
Auction Procedures.
"SUBMITTED BID" has the meaning specified in Paragraph 3(d)(i) of the
Auction Procedures.
"SUBMITTED HOLD ORDER" has the meaning specified in Paragraph 3(d)(i) of
the Auction Procedures.
"SUBMITTED ORDER" has the meaning specified in Paragraph 3(d)(i) of the
Auction Procedures.
"SUBMITTED SELL ORDER" has the meaning specified in Paragraph 3(d)(i) of
the Auction Procedures.
"SUBSEQUENT DIVIDEND PERIOD" means each Dividend Period after the Initial
Dividend Period.
"SUBSTITUTE RATING AGENCY" and "SUBSTITUTE RATING AGENCIES" shall mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by
PaineWebber Incorporated, or its respective affiliates and successors, after
consultation with the Fund, to act as a substitute Rating Agency or substitute
Rating Agencies, as the case may be, to determine the credit ratings of the
shares of Preferred Stock.
"SUFFICIENT CLEARING BIDS" has the meaning specified in Paragraph 3(d)(i)
of the Auction Procedures.
"TAXABLE EQUIVALENT OF THE SHORT-TERM MUNICIPAL OBLIGATIONS RATE" on any
date means 90% of the quotient of (A) the per annum rate expressed on an
interest equivalent basis equal to the Kenny S&P 30 Day High Grade Index (the
"Kenny Index"), or any successor index made available for the Business Day
immediately preceding such date but in any event not later than 8:30 a.m., New
York City time, on such date by Kenny Information Systems Inc. or any successor
thereto, based upon 30-day yield evaluations at par of bonds the interest on
which is excludable for federal income tax purposes under the Internal Revenue
Code of "high grade" component issuers selected by Kenny Information Systems
Inc. or any such successor from time to time in its discretion, which component
issuers shall include, without limitation, issuers of general obligation bonds
but shall exclude any bonds the interest on which constitutes a Preference Item,
divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a decimal);
provided, however, that if the Kenny Index is not made so available by 8:30
a.m., New York City time, on such date by Kenny Information Systems Inc. or any
successor, the Taxable Equivalent of the Short-Term Municipal Obligations Rate
shall mean the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the most recent Kenny Index so made available for any
preceding Business Day, divided by (B) 1.00 minus the marginal tax rate noted
above (expressed as a decimal). The Fund may not utilize a successor index to
the Kenny Index unless S&P provides the Fund with written confirmation that the
use of such successor index will not adversely affect the then-current S&P
rating of the shares of Preferred Stock.
"TAXABLE INVESTMENTS" has the meaning set forth on page __ of this
Prospectus.
"TREASURY BONDS" has the meaning set forth on page __ of the SAI.
"UNDERWRITING AGREEMENT" has the meaning set forth on page __ of this
Prospectus.
"U.S. TREASURY BILL RATE" on any date means (i) the Interest Equivalent of
the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York in its Composite 3:30 p.m. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on
any date means the Interest Equivalent of the yield as calculated by reference
to the arithmetic average of the bid price quotations of the actively traded
Treasury Bill with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by bid price quotations as of any time on
the Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the Auction
Agent.
"U.S. TREASURY NOTE RATE" on any date means (i) the yield as calculated by
reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 p.m. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related Dividend
Period, as determined by the bid price quotations as of any time on the Business
Day immediately preceding such date, obtained from at least three recognized
primary U.S. Government securities dealers selected by the Auction Agent.
"VALUATION DATE" has the meaning set forth on page __ of this Prospectus.
"VARIATION MARGIN" means, in connection with an outstanding financial
futures contract owned or sold by the Fund, 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 financial futures contract fluctuates.
"WINNING BID RATE" has the meaning specified in Paragraph 3(d)(i) of the
Auction Procedures.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 7, 2000
STATEMENT OF ADDITIONAL INFORMATION
JANUARY __, 2000
DREYFUS STRATEGIC MUNICIPALS, INC.
200 Park Avenue
New York, NY 10166
(800) 334-6899
2,280 Shares Series M
2,280 Shares Series T
2,280 Shares Series W
2,280 Shares Series TH
2,280 Shares Series F
AUCTION PREFERRED STOCK
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PAGE
General Information...........................................................2
Additional Information About Certain Portfolio Securities
and Investment Techniques....................................................2
Investment Restrictions......................................................11
Rating Agency Guidelines.....................................................13
Management of the Fund.......................................................18
Ownership of Fund Shares.....................................................25
Portfolio Trading............................................................25
Repurchase of Shares.........................................................26
Taxation.....................................................................28
Financial Statements.........................................................30
Appendix A: Ratings of Municipal Obligations...............................A-1
Appendix B: Tax Equivalent Yield Table.....................................B-1
Appendix C: Settlement Procedures..........................................C-1
Appendix D: Auction Procedures.............................................D-1
- -------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY THE
PROSPECTUS OF DREYFUS STRATEGIC MUNICIPALS, INC. (THE "FUND") DATED JANUARY __,
2000, AS SUPPLEMENTED FROM TIME TO TIME, WHICH IS INCORPORATED HEREIN BY
REFERENCE. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN
CONJUNCTION WITH THE PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE
BY CONTACTING YOUR FINANCIAL INTERMEDIARY OR CALLING THE FUND AT 1-800-334-6899.
Capitalized terms used in this Statement of Additional Information and
not otherwise defined have the meanings given them in the Fund's Prospectus.
[Left Side Margin on Cover Page]
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. THE FUND'S SHARES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE FUND'S SHARES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
GENERAL INFORMATION
The Fund is a diversified, closed-end management investment
company registered under the Investment Company Act. The Fund's investment
adviser is The Dreyfus Corporation ("Dreyfus"). The Fund's investment objective
is to maximize current income exempt from Federal income tax to the extent
consistent with the preservation of capital.
ADDITIONAL INFORMATION ABOUT CERTAIN PORTFOLIO SECURITIES
AND INVESTMENT TECHNIQUES
CERTAIN PORTFOLIO SECURITIES
The following information supplements and should be read in
conjunction with the Fund's Prospectus.
MUNICIPAL OBLIGATIONS. The Fund will invest at least 80% of the value
of its net assets (except when maintaining a temporary defensive position) in
municipal obligations. Municipal obligations are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multi-state agencies or authorities, the interest from which, in the opinion of
bond counsel to the issuer, is exempt from Federal income tax. Municipal
obligations generally include debt obligations issued to obtain funds for
various public purposes as well as certain industrial development bonds issued
by or on behalf of public authorities. Municipal obligations are classified as
general obligation bonds, revenue bonds and notes. General obligation bonds are
secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable from the revenue
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source, but not
from the general taxing power. Tax exempt industrial development bonds, in most
cases, are revenue bonds that do not carry the pledge of the credit of the
issuing municipality, but generally are guaranteed by the corporate entity on
whose behalf they are issued. Notes are short-term instruments which are
obligations of the issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other revenues.
Municipal obligations include municipal lease/purchase agreements which are
similar to installment purchase contracts for property or equipment issued by
municipalities. Municipal obligations bear fixed, floating or variable rates of
interest, which are determined in some instances by formulas under which the
municipal obligation's interest rate will change directly or inversely to
changes in interest rates or an index, or multiples thereof, in many cases
subject to a maximum and minimum. Certain municipal obligations are subject to
redemption at a date earlier than their stated maturity pursuant to call
options, which may be separated from the related municipal obligation and
purchased and sold separately.
The yields on municipal obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the municipal obligations market, size of a particular
offering, maturity of the obligation, and rating of the issue.
CERTAIN TAX EXEMPT OBLIGATIONS. The Fund may purchase floating and variable rate
demand notes and bonds, which are tax exempt obligations ordinarily having
stated maturities in excess of one year, but which permit the holder to demand
payment of principal at any time or at specified intervals. Variable rate demand
notes include master demand notes which are obligations that permit the Fund to
invest fluctuating amounts at varying rates of interest, pursuant to direct
arrangements between the Fund, as lender, and the borrower. These obligations
permit daily changes in the amount borrowed. Because these obligations are
direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there generally
is no established secondary market for these obligations, although they are
redeemable at face value, plus accrued interest. Accordingly, where these
obligations are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Each obligation purchased by
the Fund will meet the quality criteria established for the purchase of
municipal obligations.
TAX EXEMPT PARTICIPATION INTERESTS. The Fund may purchase from financial
institutions participation interests in municipal obligations (such as
industrial development bonds and municipal lease/purchase agreements). A
participation interest gives the Fund an undivided interest in the municipal
obligation in the proportion that the Fund's participation interest bears to the
total principal amount of the municipal obligation. These instruments may have
fixed, floating or variable rates of interest. If the participation interest is
unrated, it will be backed by an irrevocable letter of credit or guarantee of a
bank that the Fund's Board has determined meet prescribed quality standards for
banks, or the payment obligation otherwise will be collateralized by U.S.
Government securities. For certain participation interests, the Fund will have
the right to demand payment, on not more than seven days' notice, for all or any
part of the Fund's participation interest in the municipal obligation, plus
accrued interest. As to these instruments, the Fund intends to exercise its
right to demand payment only upon a default under the terms of the municipal
obligation, as needed to provide liquidity to meet redemptions, or to maintain
or improve the quality of its investment portfolio. Municipal lease obligations
or installment purchase contract obligations (collectively, "lease obligations")
have special risks not ordinarily associated with municipal obligations.
Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a lease
obligation ordinarily is backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease obligations are secured by the
leased property, disposition of the property in the event of foreclosure might
prove difficult. The staff of the SEC currently considers certain lease
obligations to be illiquid. Determination as to the liquidity of such securities
is made in accordance with guidelines established by the Fund's Board. Pursuant
to such guidelines, the Board has directed Dreyfus to monitor carefully the
Fund's investment in such securities with particular regard to: (1) the
frequency of trades and quotes for the lease obligation; (2) the number of
dealers willing to purchase or sell the lease obligation and the number of other
potential buyers; (3) the willingness of dealers to undertake to make a market
in the lease obligation; (4) the nature of the marketplace trades, including the
time needed to dispose of the lease obligation, the method of soliciting offers
and the mechanics of transfer; and (5) such other factors concerning the trading
market for the lease obligation as Dreyfus may deem relevant. In addition, in
evaluating the liquidity and credit quality of a lease obligation that is
unrated, the Fund's Board has directed Dreyfus to consider: (a) whether the
lease can be cancelled; (b) what assurance there is that the assets represented
by the lease can be sold; (c) the strength of the lessee's general credit (e.g.,
its debt, administrative, economic, and financial characteristics); (d) the
likelihood that the municipality will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to the
operations of the municipality (e.g., the potential for an "event of
nonappropriation"); (e) the legal recourse in the event of failure to
appropriate; and (f) such other factors concerning credit quality as Dreyfus may
deem relevant.
TENDER OPTION BONDS. The Fund may purchase tender option bonds. A tender option
bond is a municipal obligation (generally held pursuant to a custodial
arrangement) having a relatively long maturity and bearing interest at a fixed
rate substantially higher than prevailing short-term tax exempt rates, that has
been coupled with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which such institution grants the
security holders the option, at periodic intervals, to tender their securities
to the institution and receive the face value thereof. As consideration for
providing the option, the financial institution receives periodic fees equal to
the difference between the municipal obligation's fixed coupon rate and the
rate, as determined by a remarketing or similar agent at or near the
commencement of such period, that would cause the securities, coupled with the
tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term tax exempt rate. Dreyfus, on
behalf of the Fund, will consider on an ongoing basis the creditworthiness of
the issuer of the underlying municipal obligations, of any custodian and of the
third party provider of the tender option. In certain instances and for certain
tender option bonds, the option may be terminable in the event of a default in
payment of principal or interest on the underlying municipal obligations and for
other reasons. The Fund will purchase tender option bonds only when it is
satisfied that the custodial and tender option arrangements, including the fee
payment arrangements, will not adversely affect the tax exempt status of the
underlying municipal obligations and that payment of any tender fees will not
have the effect of creating taxable income for the Fund. Based on the tender
option bond agreement, the Fund expects to be able to value the tender option
bond at par; however, the value of the instrument will be monitored to assure
that it is valued at fair value.
CUSTODIAL RECEIPTS. The Fund may purchase custodial receipts representing the
right to receive certain future principal and interest payments on municipal
obligations which underlie the custodial receipts. A number of different
arrangements are possible. In a typical custodial receipt arrangement, an issuer
or a third party owner of municipal obligations deposits such obligations with a
custodian in exchange for two classes of custodial receipts. The two classes
have different characteristics, but, in each case, payments on the two classes
are based on payments received on the underlying municipal obligations. One
class has the characteristics of a typical auction rate security, where at
specified intervals its interest rate is adjusted, and ownership changes, based
on an auction mechanism. This class's interest rate generally is expected to be
below the coupon rate of the underlying municipal obligations and generally is
at a level comparable to that of municipal obligations of similar quality and
having a maturity equal to the period between interest rate adjustments. The
second class bears interest at a rate that exceeds the interest rate typically
borne by a security of comparable quality and maturity; this rate also is
adjusted, but in this case inversely to changes in the rate of interest of the
first class. In no event will the aggregate interest paid with respect to the
two classes exceed the interest paid by the underlying municipal obligations.
The value of the second class and similar securities should be expected to
fluctuate more than the value of a municipal obligation of comparable quality
and maturity and their purchase by the Fund should increase the volatility of
its net asset value and, thus, its price per share. These custodial receipts are
sold in private placements. The Fund also may purchase directly from issuers,
and not in a private placement, municipal obligations having characteristics
similar to custodial receipts. These securities may be issued as a part of a
multi-class offering and the interest rate on certain classes may be subject to
a cap or floor.
STAND-BY COMMITMENTS. The Fund may acquire "stand-by commitments" with respect
to municipal obligations held in its portfolio. Under a stand-by commitment, the
Fund obligates a broker, dealer or bank to repurchase, at the Fund's option,
specified securities at a specified price and, in this respect, stand-by
commitments are comparable to put options. The exercise of a stand-by
commitment, therefore, is subject to the ability of the seller to make payment
on demand. The Fund will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The Fund may pay for stand-by commitments if such action is
deemed necessary, thus increasing to a degree the cost of the underlying
municipal obligation and similarly decreasing such security's yield to
investors. Gains realized in connection with stand-by commitments will be
taxable. The Fund also may acquire call options on specific municipal
obligations. The Fund generally would purchase these call options to protect the
Fund from the issuer of the related municipal obligation redeeming, or other
holder of the call option from calling away, the municipal obligation before
maturity. The sale by the Fund of a call option that it owns on a specific
municipal obligation could result in the receipt of taxable income by the Fund.
RATINGS OF MUNICIPAL OBLIGATIONS. Under normal market conditions, at least 80%
of the value of the Fund's net assets will consist of municipal obligations. At
least 50% of the value of the Fund's net assets will consist of municipal
obligations considered investment grade by Moody's, S&P or Fitch (the "Rating
Agencies") in the case of bonds, and in the two highest rating categories of a
Rating Agency in the case of short-term obligations having or deemed to have
maturities of less than one year. The Fund may invest the remainder of its net
assets in municipal obligations which, in the case of bonds, are considered
below investment grade by the Rating Agencies, including those rated no lower
than C, but it currently is the intention of the Fund to invest such remainder
of its assets primarily in bonds rated no lower than Ba by Moody's and BB by
S&P and Fitch. The Fund also may invest in securities which, while not rated,
are determined by Dreyfus to be of comparable quality to the rated securities in
which the Fund may invest; for purposes of the 50% requirement described in this
paragraph, such unrated securities will be considered to have the rating so
determined. See "Rating Agency Guidelines."
The average distribution of investments (at value) in municipal
obligations by ratings for the fiscal year ended September 30, 1999, computed on
a monthly basis, was as follows:
<PAGE>
PERCENTAGE
FITCH OR MOODY'S OR S&P OF VALUE
- ----- ------- --- ---------
AAA Aaa AAA ___%
AA Aa AA ___%
A A A ___%
BBB Baa BBB ___%
BB Ba BB ___%
B B B ___%
F-1+/F-1 VMIG1/MIG1, P-1 SP-1+,SP-1,
A1+/A1 ___%
Not Rated Not Rated Not Rated ___%
-------
100.00%
======
Subsequent to its purchase by the FUnd, an issue or rated municipal
obligations may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require the sale of such
municipal obligations by the Fund, but Dreyfus will consider such event in
determining whether the Fund should continue to hold the municipal obligations.
To the extent that the ratings given by the Rating Agencies for municipal
obligations may change as a result of changes in such organizations or their
rating systems, the Fund will attempt to use comparable ratings as standards for
its investments in accordance with the investment policies contained in the
Prospectus and this Statement of Additional Information. The ratings of the
Rating Agencies represent their opinions as to the quality of the municipal
obligations which they undertake to rate. It should be emphasized, however, that
ratings are relative and subjective and are not absolute standards of quality.
Although these ratings may be an initial criterion for selection of portfolio
investments, Dreyfus also will evaluate these securities and the
creditworthiness of the issuers of such securities.
ZERO COUPON SECURITIES. The Fund may invest in zero coupon securities
which are debt securities issued or sold at a discount from their face value
which do not entitle the holder to any periodic payment of interest prior to
maturity or a specified redemption date (or cash payment date). The amount of
the discount varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of the security and perceived
credit quality of the issuer. Zero coupon securities also may take the form of
debt securities that have been stripped of their unmatured interest coupons, the
coupons themselves and receipts or certificates representing interests in such
stripped debt obligations and coupons. The market prices of zero coupon
securities generally are more volatile than the market prices of securities that
pay interest periodically and are likely to respond to a greater degree to
changes in interest rates than non-zero coupon securities having similar
maturities and credit qualities. Federal income tax law requires the holder of a
zero coupon security or of certain pay-in-kind bonds to accrue income with
respect to these securities prior to the receipt of cash payments. To maintain
its qualification as a regulated investment company and avoid liability for
Federal income taxes, the Fund may be required to distribute such income accrued
with respect to these securities and may have to dispose of portfolio securities
under disadvantageous circumstances in order to generate case to satisfy these
distribution requirements.
TAXABLE INVESTMENTS. From time to time, on a temporary basis other
than for temporary defensive purposes (but not to exceed 20% of the value of the
Fund's net assets) or for temporary defensive purposes, the Fund may invest in
taxable short-term investments ("Taxable Investments") consisting of: notes of
issuers having, at the time of purchase, a quality rating within the two highest
grades of Moody's, S&P or Fitch; obligations of the U.S. Government, its
agencies or instrumentalities; commercial paper rated not lower than P-2 by
Moody's, A-2 by S&P or F-2 by Fitch; certificates of deposit of U.S. domestic
banks, including foreign branches of domestic banks, with assets of $1 billion
or more; time deposits; bankers' acceptances and other short-term bank
obligations; and repurchase agreements in respect of any of the foregoing.
Dividends paid by the Fund that are attributable to income earned by the Fund
from Taxable Investments will be taxable to investors. See "Taxation." Under
normal market conditions, the Fund anticipates that not more than 5% of the
value of its total assets will be invested in any one category of Taxable
Investments.
<PAGE>
INVESTMENT TECHNIQUES
The following information supplements and should be read in
conjunction with the Fund's Prospectus. The Fund's use of certain of the
investment techniques described below may give rise to taxable income. The
Fund's ability to use some of these techniques, such as investing in futures,
engaging in options transactions and lending portfolio securities is limited as
a condition to S&P's rating shares of the Fund's Preferred Stock "AAA." See
"Rating Agency Guidelines."
LENDING PORTFOLIO SECURITIES. The Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to borrow
securities to complete certain transactions. The Fund continues to be entitled
to payments in amounts equal to the interest or other distributions payable on
the loaned securities, which affords the Fund an opportunity to earn interest on
the amount of the loan and on the loaned securities' collateral. Loans of
portfolio securities may not exceed 30% of the value of the Fund's total assets,
and the Fund will receive collateral consisting of cash, U.S. Government
securities or irrevocable letters of credit which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Such loans are terminable by the Fund at any time upon
specified notice. The Fund might experience risk of loss if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement with
the Fund. In connection with its securities lending transactions, the Fund may
return to the borrower or a third party which is unaffiliated with the Fund, and
which is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned. The rating agency
guidelines prohibit the Fund from lending portfolio securities. See "Rating
Agency Guidelines."
DERIVATIVES. The Fund may invest in, or enter into, derivatives, such
as options and futures, for a variety of reasons, including to hedge certain
market risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide a
cheaper, quicker or more specifically focused way for the Fund to invest than
"traditional" securities would. The rating agency guidelines for the Preferred
Stock limit the use of derivatives. See "Rating Agency Guidelines."
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular derivative and the
portfolio as a whole. Derivatives permit the Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities. However, derivatives may entail investment
exposures that are greater than their cost would suggest, meaning that a small
investment in derivatives could have a large potential impact on the Fund's
performance.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter derivatives.
Exchange-traded derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such derivatives. This guarantee usually
is supported by a daily variation margin system operated by the clearing agency
in order to reduce overall credit risk. As a result, unless the clearing agency
defaults, there is relatively little counterparty credit risk associated with
derivatives purchased on an exchange. By contrast, no clearing agency guarantees
over-the-counter derivatives. Therefore, each party to an over-the-counter
derivative bears the risk that the counterparty will default. Accordingly,
Dreyfus will consider the creditworthiness of counterparties to over-the-counter
derivatives in the same manner as it would review the credit quality of a
security to be purchased by the Fund. Over-the-counter derivatives are less
liquid than exchange-traded derivatives since the other party to the transaction
may be the only investor with sufficient understanding of the derivative to be
interested in bidding for it.
FUTURES TRANSACTIONS--IN GENERAL. The Fund may enter into futures contracts in
U.S. domestic markets. Engaging in these transactions involves risk of loss to
the Fund which could adversely affect the value of the Fund's net assets.
Although the Fund intends to purchase or sell futures contracts only if there is
an active market for such contracts, no assurance can be given that a liquid
market will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified periods during the
trading day. Futures contract prices could move to the limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and potentially subjecting the Fund to
substantial losses.
Successful use of futures by the Fund also is subject to Dreyfus's
ability to predict correctly movements in the direction of the relevant market,
and, to the extent the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the securities being hedged and
the price movements of the futures contract. For example, if the Fund uses
futures to hedge against the possibility of a decline in the market value of
securities held in its portfolio and the prices of such securities instead
increase, the Fund will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. The Fund may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, the Fund may be required to segregate permissible
liquid assets to cover its obligations relating to its transactions in
derivatives. To maintain this required cover, the Fund may have to sell
portfolio securities at disadvantageous prices or times since it may not be
possible to liquidate a derivative position at a reasonable price. In addition,
the segregation of such assets will have the effect of limiting the Fund's
ability otherwise to invest those assets.
SPECIFIC FUTURES TRANSACTIONS. The Fund may purchase and sell interest rate
futures contracts. An interest rate future obligates the Fund to purchase or
sell an amount of a specific debt security at a future date at a specific price.
OPTIONS--IN GENERAL. The Fund may purchase call and put options and may write
(i.e., sell) covered call and put option contracts. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, the
underlying security or securities at the exercise price at any time during the
option period, or at a specific date. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security or securities at the exercise price at any time during the
option period, or at a specific date.
A covered call option written by the Fund is a call option with
respect to which the Fund owns the underlying security or otherwise covers the
transaction by segregating permissibly liquid assets. A put option written by
the Fund is covered when, among other things, the Fund segregates permissible
liquid assets having a value equal to or greater than the exercise price of the
option to fulfill the obligation undertaken. The principal reason for writing
covered call and put options is to realize, through the receipt of premiums, a
greater return than would be realized on the underlying securities alone. The
Fund receives a premium from writing covered call or put options which it
retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow, or other unforeseen events, at times have rendered
certain of the clearing facilities inadequate and resulted in the institution of
special procedures, such as trading rotations, restrictions on certain types of
orders or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Successful use by the Fund of options will be subject to Dreyfus's
ability to predict correctly movements in interest rates. To the extent
Dreyfus's predictions are incorrect, the Fund may incur losses.
FUTURE DEVELOPMENTS. The Fund may take advantage of opportunities in
the area of options and futures contracts and options on futures contracts and
any other derivatives which are not presently contemplated for use by the Fund
or which are not currently available but which may be developed, to the extent
such opportunities are both consistent with the Fund's investment objective and
legally permissible for the Fund. Before entering into such transactions or
making any such investment, the Fund will provide investors with appropriate
notice.
FORWARD COMMITMENTS. The Fund may purchase or sell municipal
obligations and other securities on a forward commitment, when-issued or delayed
delivery basis, which means that delivery and payment take place a number of
days after the date of the commitment to purchase. The payment obligation and
the interest rate receivable on a forward commitment or when-issued security are
fixed when the Fund enters into the commitment, but the Fund does not make
payment until it receives delivery from the counterparty. The Fund will commit
to purchase such securities only with the intention of actually acquiring the
securities, but the Fund may sell these securities before the settlement date if
it is deemed advisable. The Fund will segregate permissible liquid assets at
least equal at all times to the amount of the Fund's purchase commitments. No
additional purchase commitments will be made if more than 20% of the Fund's net
assets would be so committed.
Municipal obligations and other securities purchased on a forward
commitment or when-issued basis are subject to changes in value (generally
changing in the same way, i.e., appreciating when interest rates decline and
depreciating when interest rates rise) based upon the public's perception of the
creditworthiness of the issuer and changes, real or anticipated, in the level of
interest rates. Securities purchased on a when-issued basis may expose the Fund
to risks because they may experience such fluctuations before their actual
delivery. Purchasing securities on a forward commitment or when-issued basis can
involve the additional risk that the yield available in the market when the
delivery takes place actually may be higher than that obtained in the
transaction itself. Purchasing securities on a forward commitment or when-issued
basis when the Fund is fully or almost fully invested may result in greater
potential fluctuation in the value of the Fund's net assets and its net asset
value per share.
INVESTMENT CONSIDERATION AND RISKS
INVESTING IN MUNICIPAL OBLIGATIONS. The Fund may invest more than 25%
of the value of its total assets in municipal obligations which are related in
such a way that an economic, business or political development or change
affecting one such security also would affect the other securities; for example,
securities the interest upon which is paid from revenues of similar types of
projects, or securities whose issuers are located in the same state. As a
result, the Fund may be subject to greater risk as compared to a fund that does
not follow this practice.
Certain municipal lease/purchase obligations in which the Fund may
invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease/purchase obligations are secured by the leased
property, disposition of the leased property in the event of foreclosure might
prove difficult. In evaluating the credit quality of a municipal lease/purchase
obligation that is unrated, Dreyfus will consider, on an ongoing basis, a number
of factors including the likelihood that the issuing municipality will
discontinue appropriating funding for the leased property.
Certain provisions in the Internal Revenue Code relating to the
issuance of municipal obligations may reduce the volume of municipal obligations
qualifying for Federal tax exemption. One effect of these provisions could be to
increase the cost of the municipal obligations available for purchase by the
Fund and thus reduce available yield. Shareholders should consult their tax
advisers concerning the effect of these provisions on an investment in the Fund.
Proposals that may restrict or eliminate the income tax exemption for interest
on municipal obligations may be introduced in the future. If any such proposal
were enacted that would reduce the availability of municipal obligations for
investment by the Fund so as to adversely affect Fund shareholders, the Fund
would reevaluate its investment objective and policies and submit possible
changes in the Fund's structure to shareholders for their consideration. If
legislation were enacted that would treat a type of municipal obligation as
taxable, the Fund would treat such security as a permissible Taxable Investment
within the applicable limits set forth herein.
LOWER RATED BONDS. The Fund may invest up to 50% of its net assets in
higher yielding (and, therefore, higher risk) debt securities, such as those
rated below investment grade by the Rating Agencies (commonly known as junk
bonds). They may be subject to greater risks with respect to the issuing entity
and to greater market fluctuations than certain lower yielding, higher rated
municipal obligations. See "Appendix" for a general description of the Rating
Agencies' ratings of municipal obligations. Although ratings may be useful in
evaluating the safety of interest and principal payments, they do not evaluate
the market value risk of these bonds. The Fund will rely on Dreyfus's judgment,
analysis and experience in evaluating the creditworthiness of an issuer.
You should be aware that the market values of many of these bonds tend
to be more sensitive to economic conditions than are higher rated securities.
These bonds generally are considered by the Rating Agencies to be, on balance,
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation and generally will
involve more credit risk than securities in the higher rating categories.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold only
to a limited number of dealers or institutional investors. To the extent a
secondary trading market for these bonds does exist, it generally is not as
liquid as the secondary market for higher rated securities. The lack of a liquid
secondary market may have an adverse impact on market price and yield and the
Fund's ability to dispose of particular issues when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Fund to obtain accurate market quotations for purposes of valuing the Fund's
portfolio and calculating its net asset value. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of these securities. In such cases, judgment may play a
greater role in valuation because less reliable, objective data may be
available.
These bonds may be particularly susceptible to economic downturns. It
is likely that any economic recession would disrupt severely the market for such
securities and have an adverse impact on the value of such securities, and could
adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon which would increase the incidence of default
for such securities.
The Fund may acquire these bonds during an initial offering. Such
securities may involve special risks because they are new issues. The Fund has
no arrangement with any persons concerning the acquisition of such securities,
and Dreyfus will review carefully the credit and other characteristics pertinent
to such new issues.
The credit risk factors pertaining to lower rated securities also
apply to lower rated zero coupon bonds and pay-in-kind bonds, in which the Fund
may invest up to 5% of its net assets. Zero coupon securities and pay-in-kind or
delayed interest bonds carry an additional risk in that, unlike bonds which pay
interest throughout the period to maturity, the Fund will realize no cash until
the cash payment date unless a portion of such securities are sold and, if the
issuer defaults, the Fund may obtain no return at all on its investment. See
"Taxation."
SIMULTANEOUS INVESTMENTS. Investment decisions for the Fund are made
independently from those of other investment companies advised by Dreyfus. If,
however, such other investment companies desire to invest in, or dispose of, the
same securities as the Fund, available investments or opportunities for sales
will be allocated equitably to each investment company. In some cases, this
procedure may adversely affect the size of the position obtained for or disposed
of by the Fund or the price paid or received by the Fund.
INVESTMENT RESTRICTIONS
The Fund's investment objective, its policy to invest at least 80% of
its net assets in municipal obligations and the following investment
restrictions have been adopted by the Fund as fundamental policies that cannot
be changed without the affirmative vote of the holders of a majority (as defined
in the Investment Company Act) of the Fund's outstanding voting securities,
voting together as a single class, and of the Fund's outstanding shares of
Preferred Stock and any other preferred stock, voting as a separate class. All
other investment policies or practices are considered by the Fund not to be
fundamental and accordingly may be changed without shareholder approval. For
purposes of the Investment Company Act, "majority" means (a) 67% or more of the
Fund's outstanding voting securities present at a meeting, if the holders of
more than 50% of the Fund's outstanding voting securities are present or
represented by proxy, or (b) more than 50% of the Fund's outstanding voting
securities, whichever is less. The Fund may not:
1. Purchase securities other than municipal obligations and Taxable
Investments or as provided in Investment Restriction No. 6 or otherwise in the
Fund's Prospectus.
2. Borrow money, except to the extent permitted under the Investment
Company Act. For purposes of this investment restriction, the entry into
options, futures contracts, including those relating to indexes, and options on
futures contracts or indexes shall not constitute borrowing.
3. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with writing covered put and call
options and the purchase of securities on a when issued or delayed-delivery
basis and collateral arrangements with respect to options, futures contracts,
including those relating to indexes, and options on futures contracts or indexes
and collateral arrangements with respect to initial or variation margin for
futures contracts.
4. Sell securities short or purchase securities on margin, except for
such short-term credits as are necessary for the clearance of transactions, but
the Fund may make margin deposits in connection with transactions in options,
futures and options on futures.
5. Underwrite any issue of securities, except to the extent that the
purchase of municipal obligations may be deemed to be an underwriting.
6. Purchase, hold or deal in real estate or oil and gas interests, but
the Fund may invest in municipal obligations secured by real estate or interests
therein.
7. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to indexes, and options on futures
contracts or indexes, as described in the Fund's Prospectus.
8. Lend any funds or other assets except through the purchase of
municipal obligations or Taxable Investments. However, the Fund may lend its
portfolio securities in an amount not to exceed 30% of the value of its total
assets as described in the Fund's Prospectus or this Statement of Additional
Information. Any loans of portfolio securities will be made according to
guidelines established by the SEC and the Fund's Board of Directors.
9. Issue any senior security (as such term is defined in Section 18(f)
of the Investment Company Act) other than preferred stock. The Fund's permitted
borrowings and transactions in futures and options, to the extent permitted
under the Investment Company Act, are not considered senior securities for
purposes of this investment restriction.
10. Invest more than 5% of its assets in the securities of any one
issuer, except that up to 25% of the value of the Fund's total assets may be
invested, and securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities may be purchased, without regard to such
limitations.
11. Invest more than 25% of its total assets in the securities of
issuers in any single industry; provided that there shall be no such limitation
on the purchase of municipal obligations and obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
12. Purchase securities of other investment companies except (a) in
the open market where no commission except the ordinary broker's commission is
paid, which purchases are limited to a maximum of (i) 3% of the total voting
stock of any one investment company, (ii) 5% of the Fund's net assets with
respect to any one investment company and (iii) 10% of the Fund's net assets in
the aggregate, or (b) those received as part of a merger or consolidation.
For purposes of Investment Restriction No. 11, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as an
"industry."
The Fund has no intention to file a voluntary application for relief under
federal law or any similar application under state law for so long as the Fund
is solvent and does not foresee becoming insolvent.
If a percentage restriction set forth above is adhered to at the time
an investment is made, a later change in percentage resulting from a change in
values or assets will not constitute a violation of such restriction.
RATING AGENCY GUIDELINES
S&P AAA Rating Guidelines. The Discounted Value of the Fund's S&P
Eligible Assets is calculated on each Valuation Date. See in the Prospectus
"Description of Preferred Stock--Asset Maintenance--Preferred Stock Basic
Maintenance Amount." S&P Eligible Assets include cash, Receivables for Municipal
Obligations Sold and municipal obligations eligible for consideration under
S&P's current guidelines. For purposes of calculating the Discounted Value of
the Fund's portfolio under current S&P guidelines, the fair market value of
municipal obligations eligible for consideration under such guidelines must be
discounted by the applicable S&P Discount Factor set forth in the table below.
The Discounted Value of a municipal obligation eligible for consideration under
S&P guidelines is the fair market value thereof divided by the S&P Discount
Factor. The S&P Discount Factor used to discount a particular municipal
obligation will be determined by reference to (a) the rating by S&P or another
Rating Agency on such municipal obligation and (b) the S&P Exposure Period. The
S&P Exposure Period is the maximum period of time following a Valuation Date,
including the Valuation Date and the Preferred Stock Basic Maintenance Cure
Date, that the Fund has to cure any failure to maintain, as of such Valuation
Date, a Discounted Value for its portfolio at least equal to the Preferred Stock
Basic Maintenance Amount.
S&P Discount Factors applicable to municipal obligations for a range
of S&P Exposure Periods are set forth below:
S&P DISCOUNT FACTORS RATING CATEGORY
------------------------------------
EXPOSURE PERIOD AAA AA A BBB Unrated
- --------------- ---- -- - --- -------
45 Business Days............ 190% 195% 210% 250% 220%
25 Business Days............ 170 175 190 230 220
10 Business Days............ 155 160 175 215 220
7 Business Days............. 150 155 170 210 220
3 Business Days............. 130 135 150 190 220
* Eligible Assets not rated by S&P or rated less than BBB by S&P and not rated
at least the equivalent of an S&P A rating by another Rating Agency.
Since the S&P Exposure Period currently applicable to the Fund is
three Business Days, the S&P Discount Factors currently applicable to municipal
obligations eligible for consideration under S&P guidelines will be determined
by reference to the factors set forth opposite the exposure period line entitled
"3 Business Days." 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 in 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, such short-term municipal
obligations rated by Moody's but not rated by S&P having a demand feature
exercisable in 30 days or less must be backed by a letter of credit, liquidity
facility or guarantee from a bank or other financial institution having a
short-term rating of at least A-1+ from S&P; and further provided that such
short-term municipal obligations rated by Moody's but not rated by S&P 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,
options or 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 (1)(c) of
the following paragraph, 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 another Rating Agency. "Receivables for Municipal Obligations Sold," for
purposes of calculating S&P Eligible Assets as of any Valuation Date, means the
book value of receivables for municipal obligations sold as of or before such
Valuation Date if the receivables are due within five Business Days of the
Valuation Date. For purposes of the foregoing, Anticipation Notes rated SP-1+
or, if not rated by S&P, rated VMIG-1 by Moody's, which do not mature or have a
demand feature exercisable in 30 days and which do not have a long-term rating,
will be considered to be short-term municipal obligations. In calculating the
Discounted Value of the Fund's portfolio (1) the S&P Discount Factors will be
applied to futures and Inverse Floaters and (2) an S&P Discount Factor of 388%
will be applied to municipal obligations rated AAA by S&P which are not interest
bearing or do not pay interest at least semi-annually.
The S&P guidelines impose certain minimum issue size, issuer and
geographical diversification and other requirements for purposes of determining
S&P Eligible Assets:
(1) To be considered S&P Eligible Assets, municipal obligations
must:
(a) be interest bearing and pay interest at least
semi-annually;
(b) be payable with respect to principal and interest in
U.S. dollars;
(c) be 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 Rating Agency, be rated at least A by such agency;
(d) not be private placements (except in the case of inverse
floaters);
(e) not be subject to a covered call or covered put option
written by the Fund; and
(f) be part of an issue 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), be issued
by an issuer with a total of at least $50 million of securities
outstanding.
(2) Municipal obligations (excluding escrow bonds described
below) of any one issuer or guarantor (excluding bond insurers) will be
considered S&P Eligible Assets only to the extent the fair market value of such
obligations does not exceed 10% of the aggregate fair market value of the S&P
Eligible Assets, provided that 2% is added to the applicable S&P Discount Factor
for every 1% by which the fair market value of such municipal obligations
exceeds 5% of the aggregate fair market value of the S&P Eligible Assets, and
provided that municipal obligations (excluding escrow bonds) not rated or rated
less than BBB by S&P or not rated at least A by another Rating Agency with
respect to any one issuer or guarantor (excluding bond insurers) will be
considered S&P Eligible Assets only to the extent the fair market value of such
municipal obligations does not exceed 5% of the aggregate fair market value of
S&P Eligible Assets.
(3) Municipal obligations not rated at least BBB by S&P or not
rated by S&P, or not rated at least A by another Rating Agency, will be
considered S&P Eligible Assets only to the extent the fair market value of such
municipal obligations does not exceed 20% of the aggregate fair market value of
S&P Eligible Assets; provided however, that if the fair market value of such
municipal obligations exceeds 20% of the aggregate fair market value of S&P
Eligible Assets, a portion of such municipal obligations (selected by the Fund)
will not be considered S&P Eligible Assets, so that the fair market value of
such municipal obligations (excluding such portion) does not exceed 20% of the
aggregate fair market value of S&P Eligible Assets.
(4) Municipal obligations not rated at least BBB by S&P or not
rated by S&P, but rated at least A by another Rating Agency, will be considered
S&P Eligible Assets only to the extent the fair market value of such municipal
obligations does not exceed 50% of the aggregate fair market value of S&P
Eligible Assets; provided however, that if the fair market value of such
municipal obligations exceeds 50% of the aggregate fair market value of S&P
Eligible Assets; a portion of such municipal obligations (selected by the Fund)
will not be considered S&P Eligible Assets, so that the fair market value of
such municipal obligations (excluding such portion) does not exceed 50% of the
aggregate fair market value of S&P Eligible Assets.
(5) Long-term municipal obligations (excluding escrow bonds)
issued by issuers in any one state or territory will be considered S&P Eligible
Assets only to the extent the fair market value of such municipal obligations
does not exceed 25% of the aggregate fair market value of S&P Eligible Assets.
(6) Municipal obligations which are not interest bearing or do
not pay interest at least semi-annually will be considered S&P Eligible Assets
if rated AAA by S&P.
Escrow bonds (defeased bonds) may comprise 100% of the Fund's S&P
Eligible Assets. Escrow bonds are 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
another Rating Agency, or (iv) have been determined to be economically defeased
by another Rating Agency and assigned a rating no lower than the rating that is
such Rating Agency's equivalent of S&P's AAA rating.
Inverse floaters will qualify as S&P Eligible Assets provided that the
ratio of aggregate dollar amount of floating rate instruments to inverse
floating rate instruments issued by the same issuer does not exceed a ratio of
one-to-one at their time of original issuance. Leveraged inverse floaters will
not qualify as S&P Eligible Assets unless the leveraged bond has only one reset
remaining before its maturity.
The Fund may include municipal obligations as S&P Eligible Assets
pursuant to guidelines and restrictions to be established by S&P, provided that
S&P advises the Fund in writing that such action will not adversely affect its
then-current rating on the shares of Preferred Stock.
As discussed herein, the Fund may engage in options or futures
transactions. For so long as any shares of Preferred Stock are rated by S&P, the
Fund will not purchase or sell financial futures contracts, write, purchase or
sell options on financial futures contracts or write put options (except covered
put options) or call options (except covered call options) on portfolio
securities unless it receives written confirmation from S&P that engaging in
such transactions will not impair the ratings then assigned to the shares of
Preferred Stock by S&P, except that the Fund may purchase or sell financial
futures contracts based on the Bond Buyer Municipal Bond Index (the "Municipal
Index") or United States Treasury Bonds or Notes ("Treasury Bonds") and write,
purchase or sell put and call options on such contracts (collectively "S&P
Hedging Transactions"), subject to the following limitations:
(i) the Fund will not engage in any S&P Hedging Transaction based
on the Municipal Index (other than transactions that terminate a
financial futures contract or option held by the Fund by the Fund's
taking an opposite position thereto ("Closing Transactions")), that
would cause the Fund at the time of such transaction to own or have
sold the least of (A) more than 1,000 outstanding financial futures
contracts based on the Municipal Index, (B) outstanding financial
futures contracts based on the Municipal Index exceeding in number 25%
of the quotient of the fair market value of the Fund's total assets
divided by $1,000 or (C) outstanding financial futures contracts based
on the Municipal Index exceeding in number 10% of the average number
of daily traded financial futures contracts based on the Municipal
Index in the 30 days preceding the time of effecting such transaction
as reported by THE WALL STREET JOURNAL;
(ii) the Fund will not engage in any S&P Hedging Transaction
based on Treasury Bonds (other than Closing Transactions) that would
cause the Fund at the time of such transaction to own or have sold the
lesser of (A) outstanding financial futures contracts based on
Treasury Bonds and on the Municipal Index exceeding in number 25% of
the quotient of the fair market value of the Fund's total assets
divided by $100,000 ($200,000 in the case of the two-year United
States Treasury Note) or (B) outstanding financial futures contracts
based on Treasury Bonds exceeding in number 10% of the average number
of daily traded financial futures contracts based on Treasury Bonds in
the 30 days preceding the time of effecting such transaction as
reported by THE WALL STREET JOURNAL;
(iii) the Fund will engage in Closing Transactions to close out
any outstanding financial futures contract that the Fund owns or has
sold or any outstanding option thereon owned by the Fund in the event
(A) the Fund does not have S&P Eligible Assets with an aggregate
Discounted Value equal to or greater than the Preferred Stock Basic
Maintenance Amount on two consecutive Valuation Dates and (B) the Fund
is required to pay Variation Margin on the second such Valuation Date;
(iv) the Fund will engage in a Closing Transaction to close out
any outstanding financial futures contract or option thereon in the
month before the delivery month under the terms of such financial
futures contract or option thereon unless the Fund holds the
securities deliverable under such terms; and
(v) when the Fund writes a financial futures contract or an
option thereon, it will either segregate an amount of cash, cash
equivalents or high grade (rated A or better by S&P) fixed-income
securities that, together with the amount of Initial Margin and
Variation Margin held in the account of or on behalf of the Fund's
broker with respect to such financial futures contract or option,
equals the fair market value of the financial futures contract or
option, or, in the event the Fund writes a financial futures contract
or option thereon that requires delivery of an underlying security, it
will hold such underlying security in its portfolio.
For purposes of determining whether the Fund has S&P Eligible Assets
with a Discounted Value that equals or exceeds the Preferred Stock Basic
Maintenance Amount, the Discounted Value of cash or securities held for the
payment of Initial Margin or Variation Margin will be zero and the aggregate
Discounted Value of S&P Eligible Assets will be reduced by an amount equal to
(i) 30% of the aggregate settlement value, as marked to market, of any
outstanding financial futures contracts based on the Municipal Index that are
owned by the Fund plus (ii) 25% of the aggregate settlement value, as marked to
market, of any outstanding financial futures contracts based on Treasury Bonds
which contracts are owned by the Fund.
For so long as the shares of Preferred Stock are rated by S&P, the
Fund, unless it has received written confirmation from S&P that such action
would not impair the ratings then assigned to the shares of Preferred Stock by
S&P, will not (i) borrow money except for the purpose of clearing transactions
in portfolio securities (which borrowings under any circumstances will be
limited to the lesser of $10 million and an amount equal to 5% of the fair
market value of the Fund's assets at the time of such borrowings and which
borrowings will be repaid within 60 days and not be extended or renewed and will
not cause the aggregate Discounted Value of S&P Eligible Assets to be less than
the Preferred Stock Basic Maintenance Amount), (ii) engage in short sales of
securities, (iii) lend any securities, (iv) issue any class or series of stock
ranking prior to or on a parity with the shares of Preferred Stock with respect
to the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of the Fund, (v) reissue any shares of Preferred Stock
previously purchased or redeemed by the Fund, (vi) merge or consolidate into or
with any other corporation or entity, (vii) change the Fund's pricing service or
(vii) engage in reverse repurchase agreements.
For so long as the shares of Preferred Stock are rated by S&P, the
Fund will not purchase or sell financial futures contracts, write, purchase or
sell options on financial futures contracts or write put options (except covered
put options) or call options (except covered call options) on portfolio
securities unless it receives written confirmation from S&P that engaging in
such transactions will not impair the ratings then assigned to the shares of
Preferred Stock by S&P, except that the Fund may engage in S&P Hedging
Transactions subject to the limitations described herein.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER. Dreyfus serves as the Fund's investment adviser.
Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A., which is a
wholly-owned subsidiary of Mellon Financial Corporation ("Mellon"). Mellon is a
publicly owned multibank holding company incorporated under Pennsylvania law in
1971 and registered under the Federal Bank Holding Company Act of 1956, as
amended. Mellon provides a comprehensive range of financial products and
services in domestic and selected international markets. Mellon is among the
twenty-five largest bank holding companies in the United States based on total
assets.
Dreyfus provides investment management services pursuant to a
management agreement between Dreyfus and the Fund (the "Management Agreement"),
which is subject to annual approval by (i) the Fund's Board or (ii) vote of a
majority (as defined in the Investment Company Act) of the outstanding voting
securities of the Fund, provided that in either event the continuance also is
approved by a majority of the Board members who are not "interested persons" (as
defined in the Investment Company Act) of the Fund or Dreyfus, by vote cast in
person at a meeting called for the purpose of voting on such approval. The
Management Agreement is terminable without penalty, on 60 days' notice, by the
Fund's Board or by a vote of the holders of a majority of the Fund's outstanding
voting shares, or, upon not less than 90 days' notice, by Dreyfus. The
Management Agreement will terminate automatically in the event of its assignment
(as defined in the Investment Company Act).
The following persons are officers and/or directors of Dreyfus:
Christopher M. Condron, Chairman of the Board and Chief Executive Officer;
Stephen E. Canter, President, Chief Operating Officer, Chief Investment Officer
and a director; Thomas F. Eggers, Vice Chairman--Institutional; Lawrence S.
Kash, Vice Chairman and a director; J. David Officer, Vice Chairman and a
director; Ronald P. O'Hanley III, Vice Chairman; William T. Sandalls, Jr.,
Executive Vice President; Mark N. Jacobs, Vice President, General Counsel and
Secretary; Diane P. Durnin, Vice President--Product Development; Patrice M.
Kozlowski, Vice President--Corporate Communications; Mary Beth Leibig, Vice
President--Human Resources; Andrew S. Wasser, Vice President--Information
Systems; Theodore A. Schachar, Vice President; Wendy Strutt, Vice President;
Richard Terres, Vice President; William H. Maresca, Controller; James Bitetto,
Assistant Secretary; Steven F. Newman, Assistant Secretary; and Mandell L.
Berman, Burton C. Borgelt, Steven G. Elliott, Martin C. McGuinn, Richard W. Sabo
and Richard F. Syron, directors.
Dreyfus manages the Fund's investments in accordance with the stated
policies of the Fund, subject to the approval of the Fund's Board. Dreyfus is
responsible for investment decisions, and provides the Fund with portfolio
managers who are authorized by the Board to execute purchases and sales of
securities. The Fund's portfolio managers are A. Paul Disdier, Joseph P. Darcy,
Richard J. Moynihan, Jill C. Shaffro, Samuel J. Weinstock and Monica S.
Wieboldt. Dreyfus also maintains a research department with a professional staff
of portfolio managers and securities analysts who provide research services for
the Fund as well as for other funds advised by Dreyfus.
Dreyfus maintains office facilities on behalf of the Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. Dreyfus also may make such advertising and promotional
expenditures, using its own resources, as it from time to time deemed
appropriate.
EXPENSES. All expenses incurred in the operation of the Fund are borne
by the Fund, except to the extent specifically assumed by Dreyfus. The expenses
borne by the Fund include: taxes, interest, brokerage fees and commissions, if
any, and other expenses in any way related to the execution, recording and
settlement of portfolio securities transactions, fees of Board members who are
not officers, directors, employees or holders of 5% or more of the outstanding
voting securities of Dreyfus, SEC fees, state Blue Sky qualification fees,
advisory fees, charges of custodians, transfer and dividend disbursing agents'
fees, certain insurance premiums, industry association fees, outside auditing
and legal expenses, costs of independent pricing services, costs of maintaining
the Fund's corporate existence, expenses of reacquiring shares, expenses in
connection with the Fund's Dividend Reinvestment and Cash Purchase Plan, costs
of maintaining the required books and accounts (including the costs of
calculating the net asset value of the Fund's shares), costs attributable to
investor services (including, without limitation, telephone and personnel
expenses), costs of shareholders' reports and corporate meetings, costs of
preparing, printing and mailing share certificates, proxy statements and
prospectuses, and any extraordinary expenses. The Management Agreement provides
for an expense reimbursement from Dreyfus should the Fund's aggregate expenses,
exclusive of taxes, interest on borrowings, brokerage and extraordinary
expenses, in any full fiscal year exceed the lesser of (1) the expense
limitation of any state having jurisdiction over the Fund or (2) 2% of the first
$10 million, 1 1/2% of the next $20 million and 1% of the excess over $30
million of the average value of the Fund's net assets. All fees and expenses are
accrued and deducted before the declaration of dividends to investors.
As compensation for Dreyfus's services, the Fund has agreed to pay
Dreyfus a monthly management fee at the annual rate of 0.75% of the value of the
Fund's average weekly net assets. For the fiscal years ended September 30, 1997,
1998 and 1999, the investment advisory fees payable by the Fund amounted to
$4,243,739, $4,390,050, and $4,353,807, respectively.
DIRECTORS AND OFFICERS. Directors and officers of the Fund, together
with information as to their principal business operations during at least the
last five years, are shown below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING THE PAST FIVE
NAME, ADDRESS AND AGE POSITION WITH THE FUND YEARS
- ------------------------------ ------------------------ ------------------------------------------
<S> <C> <C>
Joseph S. DiMartino Chairman of the Board Since January 1995, he has been Chairman
200 Park Avenue of the Board of various funds in the Dreyfus
New York, NY 10166 Family of Funds. He also is a director of
Age: 56 The Muscular Dystrophy Association,
Career Blazers, Inc. (formerly,
Staffing Resources, Inc.), a temporary
placement agency, HealthPlan Services
Corporation, a provider of marketing,
administrative and risk management services
to health and other benefit programs,
Carlyle Industries, Inc. (formerly, Belding
Heminway Company, Inc.), a button packager
and distributor, and Century Business
Services, Inc. (formerly, International
Alliances Services, Inc.), a provider of
various outsourcing functions for small and
medium sized companies. For more than five
years prior to January 1995, he was
President, a director and, until August
1994, Chief Operating Officer of Dreyfus and
Executive Vice President and a director of
Dreyfus Service Corporation, a wholly-owned
subsidiary of Dreyfus. From August 1994
until December 31, 1994, he was a director
of Mellon.
David W. Burke Director Board member of various funds in the
Box 654 Dreyfus Family of Funds. Chairman of the
Eastham, MA 02642 Broadcasting Board of Governors, an
Age: 63 independent board within the United States
Information Agency, from August 1994 to
November 1998. From August 1994 to December
1994, Mr. Burke was a consultant to Dreyfus,
and from October 1990 to August 1994, he was
Vice President and Chief Administrative
Officer of Dreyfus. From 1977 to 1990, Mr.
Burke was involved in the management of
national television news, as Vice President
and Executive Vice President of ABC News,
and subsequently as President of CBS News.
Hodding Carter, III Director Since February 1998, he has been President and Chief
Knight Foundation Executive Officer of the John S. and James L. Knight
1 South Biscayne Boulevard Foundation. From 1985 to 1998, he was President and
Suite 3800 Chairman of MainStreet TV, a television production company.
Miami, FL 33131 From 1995 to 1998, he was Knight Professor of Public
Age: 64 Affairs Journalism at the University of Maryland. From 1980
to 1991 he was "OpEd" Columnist for The Wall Street
Journal. From 1985 to 1986, he was editor and chief
correspondent of "Capitol Journal," a weekly Public
Broadcasting System ("PBS") series on Congress. From 1981
to 1984, he was anchorman and chief correspondent for
PBS' "Inside Story," a regularly scheduled half-hour
critique of press performance. From 1977 to July 1,
1980, Mr. Carter served as Assistant Secretary of State
for Public Affairs and as Department of State spokesman.
Ehud Houminer Director Since July 1991, he has been Professor and Executive-in-
c/o Columbia Business Residence at the Columbia Business School, Columbia
School University. Since January 1996, he has been Principal of
Columbia University Lear, Yavitz, and Associates, a management
Uris Hall, Room 526 consultant firm. He also is a director of Avnet Inc. and
New York, NY 10027 SuperSol, Inc.
Age: 59
Richard C. Leone Director President of The Century Foundation (formerly, The
41 East 70th Street Twentieth Century Fund, Inc.), a tax exempt research
New York, NY 10021 foundation engaged in the studies of economic, foreign
Age: 59 policy and domestic issues. Mr. Leone also is a director
of Dynex, Inc. From April 1990 to March 1994, he was
Chairman, and from April 1988 to March 1994, a Commissioner
of The Port Authority of New York and New Jersey.
From January 1986 to January 1989, he was Managing Director
of Dillon, Reed & Co., Inc.
Hans C. Mautner Director Vice Chairman and a Director of Simon Property, Group,
305 East 47th Street Inc., a real estate investment company and also a Director
New York, NY 10017 of Cornerstone Properties. From 1977 to 1998, he was
Age: 62 Chairman, Trustee and Chief Executive Officer of Corporate
Property Investors, which merged into Simon Property
Group, Inc. in September 1998. Since January 1986,
he has been a Director of Julius Baer Investment
Management, Inc., a wholly-owned subsidiary of Julius
Baer Securities, Inc.
Robin A. Pringle Director Since March 1996, she has been President of the Boisi Family
621 South Plymouth Court Foundation, a private family foundation located
Chicago, IL 60605 in New York City devoted to youths and higher
Age: 36 education. Also, she has been Assistant
to the Chief Executive Officer of The Beacon Group,
LLC, a private equity firm and advisory
partnership. Since 1993, she has been Vice President, and
from March 1992 to October 1993, she was Executive
Director of One-to-One Partnership, Inc., a national
non-profit organization that seeks to promote
mentoring and economic empowerment for at-risk youths.
From June 1986 to February 1992, she was an investment
banker with Goldman, Sachs & Co.
John E. Zuccotti Director Since November 1996, he has been Chairman and Chief
One Liberty Plaza Executive Officer of World Financial Properties, Inc. Mr.
New York, NY 10006 Properties, Inc. Mr. Zuccotti also is a
Age: 62 Director of Starrett Housing Corporation, a construction,
development and management of real estate properties
corporation and Capstone Pharmacy Services, Inc. From
1990 to November 1996, he was President and Chief
Executive Officer of Olympia & York Companies (U.S.A.)
and a member of its Board of Directors since the inception
of the Board on July 27, 1993. From 1986 to 1990, he was a
partner in the law firm of Brown & Wood, and from 1978
to 1986, he was a partner in the law firm of Tufo &
Zuccotti. He was First Deputy Mayor of the City of New
York from December 1975 to June 1977, and Chairman of the
City Planning Commission for the City of New York
from 1973 to 1975.
Marie E. Connolly President and Treasurer President, Chief Executive Officer, Chief
200 Park Avenue Compliance Officer and a Director of
New York, NY 10166 Premier Mutual Fund Services, Inc.,
Age: 42 and Funds Distributor, Inc.,
the ultimate parent of which is
Boston Institutional Group, Inc., and an
officer of other investment companies
advised or administered by Dreyfus.
Margaret W. Chambers Vice President and Senior Vice President and General Counsel
200 Park Avenue Secretary of Funds Distributor, Inc., and an officer of
New York, NY 10166 other investment companies advised or administered
Age: 40 by Dreyfus. From August 1996 to March 1998,
she was Vice President and Assistant General
Counsel for Loomis, Sayles & Company, L.P.
From January 1986 to July 1996, she was an
associate with the law firm of Ropes & Gray.
Frederick C. Dey Vice President and Vice President, New Business Development of Funds
60 State Street Assistant Treasurer Distributor, Inc., since September 1994, and an officer
Boston, MA 02109 and Assistant Secretary of other investment companies advised or administered
Age: 37 by Dreyfus.
Stephanie D. Pierce Vice President, Assistant Vice President of Premier Mutual Fund Services, Inc.
200 Park Avenue Secretary and Assistant and Funds Distributor, Inc., and an officer of
New York, NY 10166 Treasurer other investment companies advised or administered
Age: 31 by Dreyfus. From April 1997 to March 1998, she was
employed as a Relationship Manager with
Citibank, N.A. From August 1995 to April
1997, she was an Assistant Vice President
with Hudson Valley Bank, and from September
1990 to August 1995, she was Second Vice
President with Chase Manhattan Bank.
John P. Covino Vice President and Vice President and Treasury Group Manager of Treasury
60 State Street Assistant Treasurer Servicing and Administration of Funds Distributor,
Boston, MA 02109 Inc., since December 1998, and an officer of other
Age: 36 investment companies advised or administered by Dreyfus.
From December 1995 to November 1998, he was employed
by Fidelity Investments where he held multiple
positions in their Institutional Brokerage Group.
Prior to joining Fidelity, he was employed by SunGard
Brokerage Systems.
Mary A. Nelson Vice President and Vice President of Premier Mutual Fund Services,
200 Park Avenue Assistant Treasurer Inc. and Funds Distributor, Inc., and an officer of
New York, NY 10166 other investment companies advised or administered by
Age: 35 Dreyfus. From September 1989 to July 1994, she was an
Assistant Vice President and Client Manager for The
Boston Company, Inc.
George A. Rio Vice President and Executive Vice President and Client Service
60 State Street Assistant Treasurer Director of Funds Distributor, Inc., and an officer
Boston, MA 02109 of other investment companies advised or administered
Age: 44 by Dreyfus. From June 1995 to March 1998,
he was Senior Vice President and Senior Key Account
Manager for Putnam Mutual Funds. From May 1994 to June
1995, he was Director of Business Development for
First Data Corporation. From September 1983 to May
1994, he was Senior Vice President and Manager of
Client Services and Director of Internal Audit at The
Boston Company, Inc.
Joseph F. Tower, III Vice President and Senior Vice President, Treasurer, Chief
200 Park Avenue Assistant Treasurer Financial Officer and a Director of Premier Mutual
New York, NY 10166 Fund Services, Inc. and Funds Distributor, Inc.,
Age: 37 and an officer of other investment companies advised
or administered by Dreyfus.
Douglas C. Conroy Vice President and Assistant Vice President of Funds
200 Park Avenue Assistant Secretary Distributor, Inc., and an officer of other
New York, NY 10166 investment companies advised or
Age: 30 administered by Dreyfus. From April 1993
to January 1995, he was a Senior Fund
Accountant for Investors Bank & Trust
Company.
Karen Jacoppo-Wood Vice President and Vice President and Senior Counsel of Funds
60 State Street Assistant Secretary Distributor, Inc., since February 1997, and an
Boston, MA 02109 officer of other investment companies advised or
Age: 32 administered by Dreyfus. From June 1994 to January
1996, she was Manager of SEC Registration at Scudder,
Stevens & Clark, Inc.
Christopher J. Kelley Vice President and Vice President and Senior Associate General
200 Park Avenue Assistant Secretary Counsel of Premier Mutual FUnd Services, Inc.
New York, NY 10166 and Funds Distributor, Inc., and an officer of
Age: 34 other investment companies advised or administered by
Dreyfus. From April 1994 to July 1996, he
was Assistant Counsel at Forum Financial
Group.
Kathleen K. Morrissey Vice President and Vice President and Assistant Secretary of
200 Park Avenue Assistant Secretary Funds Distributor, Inc., and an officer of
New York, NY 10166 other investment companies advised or
Age: 27 administered by Dreyfus. From July 1994 to
November 1995, she was a Fund Accountant for
Investors Bank & Trust Company.
Elba Vasquez Vice President and Assistant Vice President of Funds
200 Park Avenue Assistant Secretary Distributor, Inc., and an officer of other
New York, NY 10166 investment companies advised or
Age: 38 administered by Dreyfus. From March 1990
to May 1996, she was employed by U.S. Trust
Company of New York. As an officer of U.S.
Trust, she held various sales and marketing
positions.
</TABLE>
The Fund has as audit committee comprised of its Board members who are
not "interested persons" (as defined in the Investment Company Act) of the Fund
(which currently is comprised of all of the Fund's Board members), the function
of which is to routinely review financial statements and other audit-related
matters as they arise throughout the year. The Fund has no standing nominating
or compensation committee or any committee performing similar functions.
The Fund typically pays the Directors an annual retainer and a per
meeting fee and reimburses them for their expenses. The Chairman of the Board
receives an additional 25% in annual retainer and per meeting fees. The Fund
does not pay any other remuneration to its Directors and officers and the Fund
has no bonus, pension, profit-sharing or retirement plan.
The aggregate amount of compensation paid to each Director by the Fund
for its fiscal year ended September 30, 1999, and the aggregate amount of
compensation paid to each such Director by all other funds in the Dreyfus Family
of Funds for which such Director is a Board member (the number of which is set
forth in parenthesis next to each Director's total compensation)* for the year
ended December 31, 1998, was as follows:
<PAGE>
AGGREGATE TOTAL COMPENSATION FROM
COMPENSATION THE FUND AND FUND COMPLEX
NAME OF DIRECTOR AND FUND FROM THE FUND** PAID TO DIRECTOR
- ------------------------- --------------- -------------------------
Joseph S. DiMartino $ $619,660 (187)
David W. Burke $ $233,500 (62)
Hodding Carter, III $ $ 32,500 (7)
Ehud Houminer $ $ 62,250 (21)
Richard C. Leone $ $ 35,500 (7)
Hans C. Mautner $ $ 29,500 (7)
Robin A. Pringle $ $ 38,500 (7)
John E. Zuccotti $ $ 32,500 (7)
- -------------------
* Represents the number of separate portfolios comprising the investment
companies in the Fund Complex, including the Fund, for which the Director
is a Board member.
** Amount does not include reimbursed expenses for attending Board meetings,
which amounted to $____ for all Directors as a group.
OWNERSHIP OF FUND SHARES
As of December __, 1999, the Board members and officers of the Fund
as a group owned less than 1% of the outstanding shares of the Fund.
As of December __, 1999, the following persons owned of record, more
than 5% of the outstanding shares of the Fund: [To come]
PORTFOLIO TRADING
Portfolio securities ordinarily are purchased from and sold to parties
acting as either principal or agent. Newly-issued securities ordinarily are
purchased directly from the issuer or from an underwriter; other purchases and
sales usually are placed with those dealers from which it appears that the best
price or execution will be obtained. Usually no brokerage commissions, as such,
are paid by the Fund for such purchases and sales, although the price paid
usually includes an undisclosed compensation to the dealer acting as agent. The
prices paid to underwriters of newly-issued securities usually include a
concession paid by the issuer to the underwriter, and purchases of after-market
securities from dealers ordinarily are executed at a price between the bid and
asked price.
Transactions are allocated to various dealers by the Fund's portfolio
managers in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected for research, statistical or
other services to enable Dreyfus to supplement its own research and analysis
with the views and information of other securities firms, and also may be
selected based upon their sales of shares of funds advised by Dreyfus or its
affiliates.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by Dreyfus in advising other funds it
advises and, conversely, research services furnished to Dreyfus by brokers in
connection with other funds Dreyfus advises may be used by Dreyfus in advising
the Fund. Although it is not possible to place a dollar value on these services,
it is Dreyfus's opinion that the receipt and study of such services should not
reduce the expenses of its research department.
Generally, the Fund will not purchase securities for short-term
trading profits. However, the Fund may dispose of securities without regard to
the time they have been held when such actions, for defensive or other reasons,
appear advisable to Dreyfus. (The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities for the
particular fiscal year by the monthly average of the value of the portfolio
securities owned by the Fund during the particular fiscal year. For purposes of
determining this rate, all securities whose maturities at the time of
acquisition are one year or less are excluded.) The annual rate of the Fund's
total portfolio turnover for the years ended September 30, 1999, 1998 and 1997,
was 27.05%, 20.95% and 16.66%, respectively.
The Fund paid no brokerage commissions during the fiscal years ended
September 30, 1999, 1998, and 1997.
REPURCHASE OF SHARES
So long as any shares of the Fund's preferred stock are outstanding,
the Fund may not purchase, redeem or otherwise acquire any shares of its common
stock unless (i) all accrued preferred stock dividends have been paid and (ii)
at the time of such purchase, redemption or acquisition, the net asset value of
the Fund's portfolio (determined after deducting the acquisition price of the
common stock) is at least 200% of the liquidation value of the outstanding
preferred stock (expected to equal the original purchase price per share plus
any accrued and unpaid dividends thereon).
Subject to its investment limitations, the Fund may borrow to finance
the repurchase of its shares. Interest on any borrowing to finance share
repurchase transactions or the accumulation of cash by the Fund in anticipation
of share repurchases or tenders will reduce the Fund's net income. Any share
repurchase or tender offer that might be approved by the Board of Directors
would have to comply with the Securities and Exchange Act of 1934 and the
Investment Company Act and the rules and regulations thereunder.
The repurchase by the Fund of its shares of common stock at prices
below net asset value will result in an increase in the net asset value of those
shares that remain outstanding. However, there can be no assurance that share
repurchases or tenders at or below net asset value will result in the shares of
common stock trading at a price equal to their net asset value. Nevertheless,
the fact that the shares of common stock may be the subject of repurchase or
tender offers at net asset value from time to time, or that the Fund may be
converted to an open-end investment company, may reduce any spread between
market price and net asset value that might otherwise exist.
Before deciding whether to take any action in response to a discount
from net asset value, the Board would consider all relevant factors, including
the extent and duration of the discount, the liquidity of the Fund's portfolio,
the impact of any action that might be taken on the Fund or its shareholders,
and market considerations. Based on these considerations, even if shares of the
common stock should trade at a discount, the Board of Directors may determine
that, in the interest of the Fund and its shareholders, no action should be
taken.
<PAGE>
TAXATION
The Fund has qualified and intends to continue to so qualify as a
registered investment company (RIC) under the Internal Revenue Code.
Accordingly, the Fund intends to satisfy certain requirements relating to
sources of its income and diversification of its assets and to distribute
substantially all of its net investment income (including tax-exempt income) and
net capital gains in accordance with the timing requirements imposed by the
Internal Revenue Code, so as to maintain its RIC status. By doing so, the Fund
will avoid any federal income tax on any income and gains it distributes to its
shareholders. If the Fund failed to qualify as a RIC for any taxable year, it
would be taxed on the full amount of its taxable income for that year without
being able to deduct the distributions it makes to its shareholders and the
shareholders would treat all distributions, including those that otherwise would
qualify as "exempt-interest dividends" (described below), as dividends (that is,
ordinary income) to the extent of the Fund's earnings and profits.
To avoid incurring a federal excise tax obligation, the Fund must
distribute (or be deemed to have distributed) each calendar year at least an
amount equal to the sum of (i) 98% of its ordinary income (not including
tax-exempt income) for that year, (ii) 98% of its capital gain net income (which
is the excess of its realized capital gains over its realized capital losses),
generally computed on the basis of the one-year period ending on October 31 of
that year, after reduction by any available capital loss carryforwards and (iii)
100% of certain other amounts.
The Fund's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. The Fund may be required to liquidate securities that it might
otherwise have continued to hold in order to generate cash to enable it to
distribute that income to Fund shareholders and thereby remain qualified for
treatment as a RIC and avoid imposition of the income and excise taxes described
above.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Internal Revenue Code. In order for the Fund to be able to pay
exempt-interest dividends, at least 50% of the Fund's total assets at the close
of each quarter of its taxable year must consist of obligations the interest on
which is exempt from regular federal income tax under Internal Revenue Code
Section 103(a). The portion of exempt-interest dividends attributable to
interest on certain municipal obligations is treated as a tax preference item
for purposes of the AMT. Furthermore, exempt-interest dividends are included in
determining what portion, if any, of a person's social security and railroad
retirement benefits will be includible in gross income subject to regular
federal income tax. Shareholders are required to report exempt-interest
dividends on their federal income tax returns.
The Fund will designate distributions made to holders of shares of
common stock and to holders of shares of preferred stock, including the shares
of Preferred Stock, in accordance with each class's proportionate share of each
item of Fund income (such as tax-exempt interest, net capital gains and other
taxable income).
A portion of exempt-interest dividends paid by the Fund will not be
tax-exempt to any shareholder who is a "substantial user" of the facilities
financed by tax-exempt obligations held by the Fund or "related persons" of such
substantial users.
Any recognized gain or other income attributable to market discount on
long-term tax-exempt municipal obligations (i.e., obligations with a term of
more than one year) other than, in general, at their original issue, is taxable
as ordinary income. Such an obligation generally is treated as acquired at a
market discount if purchased after its original issue at a price less than (i)
the stated principal amount payable at maturity, in the case of an obligation
that does not have original issue discount, or (ii) in the case of an obligation
that does have original issue discount, the sum of the issue price and any
original issue discount that accrued before the obligation was purchased,
subject to a de minimis exclusion.
Some of the Fund's investment practices are subject to special
provisions of the Internal Revenue Code that, among other things, may defer the
use of certain losses of the Fund and affect the holding period of the
securities held by the Fund and the character of the gains or losses realized by
the Fund. These provisions also may require the Fund to recognize income or gain
without receiving cash with which to make distributions in the amounts necessary
to satisfy the requirements for maintaining RIC status and for avoiding income
and excise taxes. The Fund will monitor its transactions and may make certain
tax elections in order to mitigate the effect of these rules and prevent
disqualification of the Fund as a RIC.
On a sale or exchange of shares of Preferred Stock, the holder will
recognize taxable gain or loss equal to the difference between the holder's
adjusted basis for the shares of Preferred Stock and the amount realized. Any
such gain or loss will be treated as capital gain or loss if the shares of
Preferred Stock are capital assets in the holder's hands and as long-term
capital gain or loss if the shares of Preferred Stock are held for more than one
year. Any loss realized on the sale or exchange of shares of Preferred Stock
held by a shareholder for six months or less will be disallowed to the extent
the shareholder has received exempt-interest dividends with respect to those
shares of Preferred Stock, and any such loss that exceeds the disallowed amount
will be treated as a long-term capital loss to the extent of any distribution of
net capital gain with respect to those shares of Preferred Stock. In addition, a
loss realized on a sale of shares of Preferred Stock will be disallowed to the
extent the shareholder acquires other shares of Preferred Stock within the
period beginning 30 days before, and ending 30 days after, the sale.
Taxable dividends (including capital gain dividends) payable by the
Fund to individuals and certain other non-corporate shareholders who have not
provided the Fund with their correct taxpayer identification number ("TIN") and
certain certifications required by the Internal Revenue Service ("IRS"), as well
as shareholders with respect to whom the Fund has received certain notifications
from the IRS are subject to "backup" withholding of federal income tax at a rate
of 31%. An individual's TIN is generally his or her social security number.
Taxable distributions to individuals and certain other non-corporate
shareholders, including those who have not provided their correct taxpayer
identification number and other required certifications, may be subject to
"backup" federal income tax withholding at the rate of 31%.
Investments in shares of Preferred Stock are not appropriate for
non-U.S. investors or as a Retirement Plan investment.
The exemption of interest income for federal income tax purposes does
not necessarily result in exemption under the income or other tax laws of any
state or local taxing authority. Shareholders of the Fund may be exempt from
state and local taxes on distributions of tax-exempt interest income derived
from obligations of the state and/or municipalities of the state in which they
are resident, but taxable generally on income derived from obligations of other
jurisdictions. The Fund will report annually to shareholders the percentages
representing the proportionate ratio of its net tax-exempt income earned in each
state.
The foregoing discussion does not address the special tax rules
applicable to certain classes of investors, such as non-U.S. investors,
insurance companies and financial institutions. Shareholders should consult
their own tax advisers with respect to special tax rules that may apply to their
particular situations, as well as the state or local tax consequences of
investing in the Fund and any proposed tax law changes.
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS. __________ are the Fund's independent auditors
providing audit and tax return preparation services and assistance and
consultation in connection with the review of various SEC filings. The address
of __________ is __________________________. The financial statements on the
year ended September 30, 1999 incorporated by reference in this SAI have been so
incorporated and the financial highlights included in the Prospectus have been
so included, in reliance upon the report of __________ given on their authority
as experts in auditing and accounting.
INCORPORATION BY REFERENCE. The Fund's Annual Report for the fiscal
year ended September 30, 1999 (the "Report"), which either accompanies this SAI
or has previously been provided to the person to whom this SAI is being sent, is
incorporated herein by reference with respect to all information. The Fund will
furnish, without charge, a copy of the Report upon written request to Dreyfus
Strategic Municipals, Inc., 200 Park Avenue, New York, New York 10166; or upon
phone request by calling (800) 334-6899.
<PAGE>
APPENDIX A
RATINGS OF MUNICIPAL OBLIGATIONS
Description of certain S&P, Moody's and Fitch ratings:
S&P
MUNICIPAL ISSUE RATINGS DEFINITIONS
An S&P issue credit rating is a current opinion of the creditworthiness of an
obligor with respect to a specific financial obligation, a specific class of
financial obligations, or a specific financial program. It takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation. The issue credit rating is not a
recommendation to purchase, sell, or hold a financial obligation, inasmuch as it
does not comment as to market price or suitability for a particular investor.
Issue credit ratings are based on current information furnished by the obligors
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any credit rating and may, on occasion, rely
on unaudited financial information. Credit ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
Issue credit ratings can be either long term or short term. Short-term ratings
are generally assigned to those obligations considered short term in the
relevant market. In the U.S., for example, that means obligations with an
original maturity of no more than 365 days--including commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an obligor
with respect to put features on long-term obligations. The result is a dual
rating, in which the short-term ratings address the put feature, in addition to
the usual long-term rating. Medium-term notes are assigned long-term ratings.
LONG-TERM ISSUE CREDIT RATINGS
Issue credit ratings are based in varying degrees, on the following
considerations:
o Likelihood of payment--capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;
o Nature of and provisions of the obligation; and
o Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk. As such,
they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above.
AAA
An obligation rated 'AAA' has the highest rating assigned by S&P. The obligor's
capacity to meet its financial commitment on the obligation is extremely strong.
AA
An obligation rated 'AA' differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A
An obligation rated 'A' is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB
An obligation rated 'BBB' exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC, AND C
Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB
An obligation rated 'BB' is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions, which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B
An obligation rated 'B' is more vulnerable to nonpayment than obligations rated
'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC
An obligation rated 'CCC' is currently vulnerable to nonpayment and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC
An obligation rated 'CC' is currently highly vulnerable to nonpayment.
C
The 'C' rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D
An obligation rated 'D' is in payment default. The 'D' rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-)
The ratings from 'AA' to 'CCC' may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
c
The 'c' subscript is used to provide additional information to investors that
the bank may terminate its obligation to purchase tendered bonds if the
long-term credit rating of the issuer is below an investment-grade level and/or
the issuer's bonds are deemed taxable.
p
The letter 'p' indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project financed by the debt being
rated and indicates that payment of debt service requirements is largely or
entirely dependent upon the successful, timely completion of the project. This
rating, however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of or the risk of default upon
failure of such completion. The investor should exercise his own judgment with
respect to such likelihood and risk.
*
Continuance of the ratings is contingent upon S&P receipt of an executed copy of
the escrow agreement or closing documentation confirming investments and cash
flows.
r
The 'r' highlights derivative, hybrid, and certain other obligations that S&P
believes may experience high volatility or high variability in expected returns
as a result of noncredit risks. Examples of such obligations are securities with
principal or interest return indexed to equities, commodities, or currencies;
certain swaps and options; and interest-only and principal-only mortgage
securities. The absence of an 'r' symbol should not be taken as an indication
that an obligation will exhibit no volatility or variability in total return.
N.R.
Not rated.
Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS
Under present commercial bank regulations issued by the Comptroller of the
Currency, bonds rated in the top four categories ('AAA', 'AA', 'A', 'BBB',
commonly known as investment-grade ratings) generally are regarded as eligible
for bank investment. Also, the laws of various states governing legal
investments impose certain rating or other standards for obligations eligible
for investment by savings banks, trust companies, insurance companies, and
fiduciaries in general.
SHORT-TERM ISSUE CREDIT RATINGS
NOTES
An S&P note ratings reflects the liquidity factors and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment:
o Amortization schedule--the larger the final maturity relative to other
maturities, the more likely it will be treated as a note; and
o Source of payment--the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.
Note rating symbols are as follows:
SP-1
Strong capacity to pay principal and interest. An issue determined to possess a
very strong capacity to pay debt service is given a plus (+) designation.
SP-2
Satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
SP-3
Speculative capacity to pay principal and interest.
ISSUER CREDIT RATING DEFINITIONS
An S&P Issuer Credit Rating is a current opinion of an obligor's overall
financial capacity (its creditworthiness) to pay its financial obligations. This
opinion focuses on the obligor's capacity and willingness to meet its financial
commitments as they come due It does not apply to any specific financial
obligation, as it does not take into account the nature of and provisions of the
obligation, its standing in bankruptcy or liquidation, statutory preferences, or
the legality and enforceability of the obligation. In addition, it does not take
into account the creditworthiness of the guarantors, insurers, or other forms of
credit enhancement on the obligation. The Issuer Credit Rating is not a
recommendation to purchase, sell or hold a financial obligation issued by an
obligor, as it does not comment on market price or suitability for a particular
investor.
CREDITWATCH AND RATING OUTLOOKS
An S&P rating evaluates default risk over the life of a debt issue,
incorporating an assessment of all future events to the extent they are known or
considered likely. But S&P also recognizes the potential for future performance
to differ from initial expectations. Rating outlooks and CreditWatch listings
address this possibility by focusing on the scenarios that could result in a
rating change.
CreditWatch highlights potential changes in ratings of bonds, short-term, and
other fixed-income securities. Issues appear on CreditWatch when an event or
deviation from an expected trend has occurred or is expected and additional
information is necessary to take a rating action. Such rating reviews normally
are completed within 90 days, unless the outcome of a specific event is pending.
A listing does not mean a rating change is inevitable. However, in some cases,
it is certain that a rating change will occur and only the magnitude of the
change is unclear.
Wherever possible, a range of alternative ratings that could result is shown.
CreditWatch is not intended to include all issues under review, and rating
changes will occur without the issue appearing on CreditWatch. An issuer cannot
automatically appeal a CreditWatch listing, but analysts are sensitive to issuer
concerns and the fairness of the process.
A rating outlook is assigned to all long-term debt issues--except for structured
finance--and also assesses potential for change. Outlooks have a longer time
frame than CreditWatch listings and incorporate trends or risks with less
certain implications for credit quality. An outlook is not necessarily a
precursor of a rating change or a CreditWatch listing.
CreditWatch designations and outlooks may be "positive," which indicates a
rating may be raised, or "negative," which indicates a rating may be lowered.
"Developing" is used for those unusual situations in which future events are so
unclear that the rating potentially may be raised or lowered. "Stable" is the
outlook assigned when ratings are not likely to be changed, but should not be
confused with expected stability of the company's financial performance.
COMMERCIAL PAPER
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from 'A' for the
highest-quality obligations to 'D' for the lowest. These categories are as
follows:
A-1
This designation indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2
Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
'A-1'.
A-3
Issues carrying this designation have an adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B
Issues rated 'B' are regarded as having only speculative capacity for timely
payment.
C
This rating is assigned to short-term debt obligations with a doubtful capacity
for payment.
D
Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments of principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
VARIABLE-RATE DEMAND BONDS
S&P assigns "dual" ratings to all debt issues that have a put option or demand
feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and interest
as due, and the second rating addresses only the demand feature. The long-term
debt rating symbols are used for bonds to denote the long-term maturity and the
commercial paper rating symbols for the put option (for example, 'AAA/A-1+').
With short-term demand debt, note rating symbols are used with the commercial
paper rating symbols (for example, 'SP-1+/A-1+').
Moody's
Moody's
MUNICIPAL BOND RATINGS
Aaa
Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what generally are known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds rated A possess many favorable investment attributes and are to
be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa
Bonds rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba
Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate, and therefore not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B
Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa
Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca
Bonds rated Ca present obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C
Bonds rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category. The
modifier 1 indicates a ranking for the security in the higher end of a rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates a ranking in the lower end of a rating category.
MUNICIPAL NOTE RATINGS
Moody's ratings for state municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand feature is
not rated, as NR. Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with no
or limited legal recourse to the issuer in the event the demand is not met.
Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's
assigns a MIG or VMIG rating, all categories define an investment grade
situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
COMMERCIAL PAPER RATING
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be evidenced
by leading market positions in well established industries, high rates of return
on funds employed, conservative capitalization structures with moderate reliance
on debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a wide range of financial markets and assured sources of alternative
liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Fitch
MUNICIPAL BOND RATINGS
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The ratings take
into consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
<PAGE>
CCC
Bonds rated CCC have certain identifiable characteristics, which, if
not remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA category covering 12-36 months.
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+
EXCEPTIONALLY STRONG CREDIT QUALITY. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
VERY STRONG CREDIT QUALITY. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2
GOOD CREDIT QUALITY. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
<PAGE>
APPENDIX B
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must
earn at various income brackets to produce after-tax yields equivalent to those
of tax-exempt bonds yielding from 4% to 6% under the regular federal income tax
law and tax rates applicable to individuals for 1999.
<TABLE>
<CAPTION>
MARGINAL A FEDERAL TAX-EXEMPT YIELD OF:
TAXABLE INCOME* INCOME TAX 4.00% 4.50% 5.00% 5.50% 6.00%
SINGLE RETURN JOINT RETURN BRACKET IS EQUITABLE TO A FULLY TAXABLE YIELD OF:
- ------------- ------------ ---------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Up to $25,750 Up to $43,050 15.00% 4.71% 5.29% 5.88% 6.47% 7.06%
$25,751 - $62,450 $43,051 - $104,050 28.00 5.56 6.25 6.94 7.64 8.33
$62,451 - $130,250 $104,051 - $158,550 31.00 5.80 6.52 7.25 7.97 8.70
$130,251 - $283,150 $158,551 - $283,150 36.00 6.25 7.03 7.81 8.59 9.38
Over $283,150 Over $283,150 39.60 6.62 7.45 8.28 9.11 9.93
- ---------------
* Net amounts subject to federal personal income tax after deductions and
exemptions.
</TABLE>
The above indicated federal income tax brackets do not take into
account the effect of a reduction in the deductibility of itemized deductions
for individual taxpayers with adjusted gross income in excess of $126,600. The
tax brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $126,600 and joint filers
with adjusted gross income in excess of $189,950. The effective tax brackets and
equivalent taxable yields of those taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield. No assurance can be given that the Fund will
achieve any specific tax-exempt yield. While it is expected that the Fund will
invest principally in obligations the interest from which is exempt from federal
income tax, other income received by the Fund may be taxable. The table does not
take into account state or local taxes, if any, payable on Fund distributions.
The interest earned on certain "private activity bonds," while exempt from
federal income tax, is treated as a tax preference item which could subject the
recipient to the federal alternative minimum tax ("AMT"). The illustrations
assume that the AMT is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax-equivalent yields
set forth above. Investors should consult their tax advisers for additional
information.
<PAGE>
APPENDIX C
SETTLEMENT PROCEDURES
The following summary of Settlement Procedures sets forth the
procedures expected to be followed in connection with the settlement of each
Auction and will be incorporated by reference in the Auction Agent Agreement and
each Broker-Dealer Agreement. Nothing contained in this Appendix C constitutes a
representation by the Fund that in each Auction each party referred to herein
actually will perform the procedures described herein to be performed by the
party. Capitalized terms used herein shall have the respective meanings
specified in the glossary of the Fund's Prospectus or Appendix D hereto, as the
case may be.
(a) On each Auction Date, the Auction Agent shall notify by telephone
or through the Auction Agent's Processing System the Broker-Dealers that
participated in the Auction held on such Auction Date and submitted an Order on
behalf of any Beneficial Owner or Potential Beneficial Owner of:
(i) the Applicable Rate fixed for the next succeeding Dividend
Period;
(ii) whether Sufficient Clearing Bids existed for the
determination of the Applicable Rate;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer")
submitted a Bid or a Sell Order on behalf of a Beneficial Owner, the number of
shares, if any, of shares of preferred stock to be sold by such Beneficial
Owner;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted
a Bid on behalf of a Potential Beneficial Owner, the number of shares, if any,
of shares of preferred stock to be purchased by such Potential Beneficial Owner;
(v) if the aggregate number of shares of preferred stock to be
sold by all Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid
or a Sell Order exceeds the aggregate number of shares of preferred stock to be
purchased by all Potential Beneficial Owners on whose behalf such Broker-Dealer
submitted a Bid, the name or names of one or more Buyer's Broker-Dealers (and
the name of the Agent Member, if any, of each such Buyer's Broker-Dealer)
acting for one or more purchasers of such excess number of shares of preferred
stock and the number of such shares to be purchased from one or more Beneficial
Owners on whose behalf such Broker-Dealer acted by one or more Potential
Beneficial Owners on whose behalf each of such Buyer's Broker-Dealers acted;
(vi) if the aggregate number of shares of preferred stock to be
purchased by all Potential Beneficial Owners on whose behalf such Broker-Dealer
submitted a Bid exceeds the aggregate number of shares of preferred stock to be
sold by all Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid
or a Sell Order, the name or names of one or more Seller's Broker-Dealers (and
the name of the Agent Member, if any, of each such Seller's Broker-Dealer)
acting for one or more sellers of such excess number of shares of preferred
stock and the number of such shares to be sold to one or more Potential
Beneficial Owners on whose behalf such Broker-Dealer acted by one or more
Beneficial Owners on whose behalf each of such Seller's Broker-Dealers acted;
and
(vii) the Auction Date of the next succeeding Auction with
respect to the shares of preferred stock.
(b) On each Auction Date, each Broker-Dealer that submitted an Order
on behalf of any Beneficial Owner or Potential Beneficial Owner shall:
(i) in the case of a Broker-Dealer that is a Buyer's
Broker-Dealer, instruct each Potential Beneficial Owner on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in part, to
instruct such Potential Beneficial Owner's Agent Member to pay to such
Broker-Dealer (or its Agent Member) through the Securities Depository the amount
necessary to purchase the number of shares of preferred stock to be purchased
pursuant to such Bid against receipt of such shares and advise such Potential
Beneficial Owner of the Applicable Rate for the next succeeding Dividend Period;
(ii) in the case of a Broker-Dealer that is a Seller's
Broker-Dealer, instruct each Beneficial Owner on whose behalf such Broker-Dealer
submitted a Sell Order that was accepted, in whole or in part, or a Bid that was
accepted, in whole or in part, to instruct such Beneficial Owner's Agent Member
to deliver to such Broker-Dealer (or its Agent Member) through the Securities
Depository the number of shares of preferred stock to be sold pursuant to such
Order against payment therefor and advise any such Beneficial Owner that will
continue to hold shares of preferred stock of the Applicable Rate for the next
succeeding Dividend Period;
(iii) advise each Beneficial Owner on whose behalf such
Broker-Dealer submitted a Hold Order of the Applicable Rate for the next
succeeding Dividend Period;
(iv) advise each Beneficial Owner on whose behalf such
Broker-Dealer submitted an Order of the Auction Date for the next succeeding
Auction; and
(v) advise each Potential Beneficial Owner on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in part, of the
Auction Date for the next succeeding Auction.
(c) On the basis of the information provided to it pursuant to (a)
above, each Broker-Dealer that submitted a Bid or a Sell Order on behalf of a
Potential Beneficial Owner or a Beneficial Owner shall, in such manner and at
such time or times as in its sole discretion it may determine, allocate any
funds received by it pursuant to (b)(i) above and any shares of preferred stock
received by it pursuant to (b)(ii) above among the Potential Beneficial Owners,
if any, on whose behalf such Broker-Dealer submitted Bids, the Beneficial
Owners, if any, on whose behalf such Broker-Dealer submitted Bids that were
accepted or Sell Orders, and any Broker-Dealer or Broker-Dealers identified to
it by the Auction Agent pursuant to (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Beneficial Owner and Beneficial Owner shall
instruct its Agent Member as provided in (b)(i) or (ii) above, as the case may
be;
(ii) each Seller's Broker-Dealer which is not an Agent Member of
the Securities Depository shall instruct its Agent Member to (A) pay through the
Securities Depository to the Agent Member of the Beneficial Owner delivering
shares to such Broker-Dealer pursuant to (b)(ii) above the amount necessary to
purchase such shares against receipt of such shares, and (B) deliver such shares
through the Securities Depository to a Buyer's Broker-Dealer (or its Agent
Member) identified to such Seller's Broker-Dealer pursuant to (a)(v) above
against payment therefor; and
(iii) each Buyer's Broker-Dealer which is not an Agent Member of
the Securities Depository shall instruct its Agent Member to (A) pay through the
Securities Depository to a Seller's Broker-Dealer (or its Agent Member)
identified pursuant to (a)(vi) above the amount necessary to purchase the shares
to be purchased pursuant to (b)(i) above against receipt of such shares, and (B)
deliver such shares through the Securities Depository to the Agent Member of the
purchaser thereof against payment therefor.
(e) On the day after the Auction Date:
(i) each Bidder's Agent Member referred to in (d)(i) above shall
instruct the Securities Depository to execute the transactions described in
(b)(i) or (ii) above, and the Securities Depository shall execute such
transactions;
(ii) each Seller's Broker-Dealer or its Agent Member shall
instruct the Securities Depository to execute the transactions described in
(d)(ii) above, and the Securities Depository shall execute such transactions;
and
(iii) each Buyer's Broker-Dealer or its Agent Member shall
instruct the Securities Depository to execute the transactions described in
(d)(iii) above, and the Securities Depository shall execute such transactions.
(f) If a Beneficial Owner selling shares of preferred stock in an
Auction fails to deliver such shares (by authorized book-entry), a Broker-Dealer
may deliver to the Potential Beneficial Owner on behalf of which it submitted a
Bid that was accepted a number of whole shares of preferred stock that is less
than the number of shares that otherwise was to be purchased by such Potential
Beneficial Owner. In such event, the number of shares of preferred stock to be
so delivered shall be determined solely by such Broker-Dealer. Delivery of such
lesser number of shares shall constitute good delivery. Notwithstanding the
foregoing terms of this paragraph (f), any delivery or non-delivery of shares
which shall represent any departure from the results of an Auction, as
determined by the Auction Agent, shall be of no effect unless and until the
Auction Agent shall have been notified of such delivery or non-delivery in
accordance with the provisions of the Auction Agent Agreement and the
Broker-Dealer Agreements.
<PAGE>
APPENDIX D
AUCTION PROCEDURES
The following procedures will be set forth in Article FIRST, paragraph
3 of the Fund's Articles Supplementary relating to the shares of Preferred Stock
and will be incorporated by reference in the Auction Agent Agreement and each
Broker-Dealer Agreement. The terms not defined below are defined in the
Prospectus, except that the term "Corporation" means the Fund. Nothing contained
in this Appendix D constitutes a representation by the Fund that in each Auction
each party referred to herein will actually perform the procedures described
herein to be performed by such party.
PARAGRAPH 3(a). CERTAIN DEFINITIONS.
As used in this Paragraph 3, the following terms shall have the
following meanings, unless the context otherwise requires:
(i) "Auction Date" shall mean the first Business Day preceding the
first day of a Dividend Period.
(ii) "Available Preferred Stock" shall have the meaning specified in
Paragraph 3(d)(i) below.
(iii) "Bid" shall have the meaning specified in Paragraph 3(b)(i)
below.
(iv) "Bidder" shall have the meaning specified in Paragraph 3(b)(i)
below.
(v) "Hold Order" shall have the meaning specified in Paragraph 3(b)(i)
below.
(vi) "Maximum Applicable Rate" for any Dividend Period will be the
Applicable Percentage of the Reference Rate. The Applicable Percentage will be
determined based on (i) the credit rating assigned on such date to such shares
by S&P (or if S&P shall not make such rating available, the equivalent of such
rating by a Substitute Rating Agency), and (ii) whether the Fund has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend that net capital gains or other taxable income
will be included in such dividend on shares of Preferred Stock as follows:
<TABLE>
<CAPTION>
APPLICABLE PERCENTAGE OF APPLICABLE PERCENTAGE OF
S&P CREDIT RATINGS REFERENCE RATE--NO NOTIFICATION REFERENCE RATE--NOTIFICATION
- ------------------ ------------------------------- ----------------------------
<S> <C> <C>
AA- or Higher 110% 150%
A- to A+ 125% 160%
BBB- to BBB+ 150% 250%
Below BBB- 200% 275%
</TABLE>
The Corporation shall take all reasonable action necessary to enable
S&P to provide a rating for the shares of Preferred Stock. If S&P shall not make
such a rating available, PaineWebber Incorporated or its affiliates and
successors, after consultation with the Corporation, shall select a nationally
recognized statistical rating organization to act as a Substitute Rating Agency.
(vii) "Order" shall have the meaning specified in Paragraph 3(b)(i)
below.
(viii) "Preferred Stock" shall mean the shares of preferred stock
being auctioned pursuant to Paragraph 3.
(ix) "Sell Order" shall have the meaning specified in Paragraph
3(b)(i) below.
(x) "Submission Deadline" shall mean 1:00 p.m., New York City time, on
any Auction Date or such other time on any Auction Date as may be specified by
the Auction Agent from time to time as the time by which each Broker-Dealer must
submit to the Auction Agent in writing all Orders obtained by it for the Auction
to be conducted on such Auction Date.
(xi) "Submitted Bid" shall have the meaning specified in Paragraph
3(d)(i) below.
(xii) "Submitted Hold Order" shall have the meaning specified in
Paragraph 3(d)(i) below.
(xiii) "Submitted Order" shall have the meaning specified in Paragraph
3(d)(i) below.
(xiv) "Submitted Sell Order" shall have the meaning specified in
Paragraph 3(d)(i) below.
(xv) "Sufficient Clearing Bids" shall have the meaning specified in
Paragraph 3(d)(i) below.
(xvi) "Winning Bid Rate" shall have the meaning specified in Paragraph
3(d)(i) below.
PARAGRAPH 3(b). ORDERS BY BENEFICIAL OWNERS, POTENTIAL BENEFICIAL OWNERS,
EXISTING HOLDERS AND POTENTIAL HOLDERS.
(i) Unless otherwise permitted by the Corporation, Beneficial Owners
and Potential Beneficial Owners may only participate in Auctions through their
Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as Existing Holders in respect of shares
subject to Orders submitted or deemed submitted to them by Beneficial Owners and
as Potential Holders in respect of shares subject to Orders submitted to them by
Potential Beneficial Owners. A Broker-Dealer also may hold shares of Preferred
Stock in its own account as a Beneficial Owner. A Broker-Dealer may thus submit
Orders to the Auction Agent as a Beneficial Owner or a Potential Beneficial
Owner and therefore participate in an Auction as an Existing Holder or Potential
Holder on behalf of both itself and its customers. On or prior to the Submission
Deadline on each Auction Date:
(A) each Beneficial Owner may submit to its Broker-Dealer
information as to:
(1) the number of outstanding shares of Preferred Stock, if
any, held by such Beneficial Owner which such Beneficial Owner desires to
continue to hold without regard to the Applicable Rate for the next succeeding
Dividend Period;
(2) the number of outstanding shares of Preferred Stock, if
any, held by such Beneficial Owner which such Beneficial Owner desires to
continue to hold, provided that the Applicable Rate for the next succeeding
Dividend Period shall not be less than the rate per annum specified by such
Beneficial Owner; and/or
(3) the number of outstanding shares of Preferred Stock, if
any, held by such Beneficial Owner which such Beneficial Owner offers to sell
without regard to the Applicable Rate for the next succeeding Dividend Period;
and
(B) each Broker-Dealer, using a list of Potential Beneficial
Owners that shall be maintained in good faith for the purpose of conducting a
competitive Auction, shall contact Potential Beneficial Owners, including
persons that are not Beneficial Owners, on such list to determine the number of
outstanding shares of Preferred Stock, if any, which each such Potential
Beneficial Owner offers to purchase, provided that the Applicable Rate for the
next succeeding Dividend Period shall not be less than the rate per annum
specified by such Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this Paragraph 3(b)(i) is hereinafter
referred to as an "Order," and each Beneficial Owner and each Potential
Beneficial Owner placing an Order, including a Broker-Dealer acting in such
capacity for its own account, is hereinafter referred to as a "Bidder"; an Order
containing the information referred to in clause (A)(1) of this Paragraph
3(b)(i) is hereinafter referred to as a "Hold Order"; an Order containing the
information referred to in clause (A)(2) or (B) of this Paragraph 3(b)(i) is
hereinafter referred to as a "Bid"; and an Order containing the information
referred to in clause (A)(3) of this Paragraph 3(b)(i) is hereinafter referred
to as a "Sell Order." Inasmuch as a Broker-Dealer participates in an Auction as
an Existing Holder or a Potential Holder only to represent the interests of a
Beneficial Owner or Potential Beneficial Owner, whether it be its customers or
itself, all discussion herein relating to the consequences of an Auction for
Existing Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented.
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of outstanding shares of Preferred Stock
specified in such Bid if the Applicable Rate determined on such Auction Date
shall be less than the rate per annum specified in such Bid; or
(2) such number or a lesser number of outstanding shares of
Preferred Stock to be determined as set forth in Paragraph 3(e)(i)(D) if the
Applicable Rate determined on such Auction Date shall be equal to the rate per
annum specified therein; or
(3) a lesser number of outstanding shares of Preferred Stock
to be determined as set forth in Paragraph 3(e)(ii)(C) if such specified rate
per annum shall be higher than the Maximum Applicable Rate and Sufficient
Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of outstanding shares of Preferred Stock
specified in such Sell Order; or
(2) such number or a lesser number of outstanding shares of
Preferred Stock to be determined as set forth in Paragraph 3(e)(ii)(C) if
Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable
offer to purchase:
(1) the number of outstanding shares of Preferred Stock
specified in such Bid if the Applicable Rate determined on such Auction Date
shall be higher than the rate per annum specified in such Bid; or
(2) such number or a lesser number of outstanding shares of
Preferred Stock to be determined as set forth in Paragraph 3(e)(i)(E) if the
Applicable Rate determined on such Auction Date shall be equal to the rate per
annum specified therein.
PARAGRAPH 3(c). SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT.
(i) Each Broker-Dealer shall submit in writing or through the Auction
Agent's Auction Processing System to the Auction Agent prior to the Submission
Deadline on each Auction Date all Orders obtained by such Broker-Dealer,
designating itself (unless otherwise permitted by the Corporation) as an
Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
shares subject to Orders submitted to it by Potential Beneficial Owners, and
specifying with respect to each Order:
(A) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Corporation);
(B) the aggregate number of outstanding shares of Preferred Stock
that are the subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of outstanding shares of Preferred Stock, if
any, subject to any Hold Order placed by such Existing Holder;
(2) the number of outstanding shares of Preferred Stock, if
any, subject to any Bid placed by such Existing Holder and the rate per annum
specified in such Bid; and
(3) the number of outstanding shares of Preferred Stock, if
any, subject to any Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate per
annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more than
three figures to the right of the decimal point, the Auction Agent shall round
such rate up to the next highest one-thousandth (0.001) of 1%.
(iii) If an Order or Orders covering all of the outstanding shares of
Preferred Stock held by an Existing Holder are not submitted to the Auction
Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold
Order (in the case of an Auction relating to a Dividend Period which is not a
Special Dividend Period) and a Sell Order (in the case of an Auction relating to
a Special Dividend Period) to have been submitted on behalf of such Existing
Holder covering the number of outstanding shares of Preferred Stock held by such
Existing Holder and not subject to Orders submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering in
the aggregate more than the number of outstanding shares of Preferred Stock held
by such Existing Holder are submitted to the Auction Agent, such Orders shall be
considered valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder
shall be considered valid up to and including the number of outstanding shares
of Preferred Stock held by such Existing Holder; provided that if more than one
Hold Order is submitted on behalf of such Existing Holder and the number of
shares of Preferred Stock subject to such Hold Orders exceeds the number of
outstanding shares of Preferred Stock held by such Existing Holder, the number
of shares of Preferred Stock subject to each of such Hold Orders shall be
reduced pro rata so that such Hold Orders, in the aggregate, cover exactly the
number of outstanding shares of Preferred Stock held by such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall be
considered valid, in the ascending order of their respective rates per annum if
more than one Bid is submitted on behalf of such Existing Holder, up to and
including the excess of the number of outstanding shares of Preferred Stock held
by such Existing Holder over the number of shares of Preferred Stock subject to
any Hold Order referred to in Paragraph 3(c)(iv)(A) above (and if more than one
Bid submitted on behalf of such Existing Holder specifies the same rate per
annum and together they cover more than the remaining number of shares that can
be the subject of valid Bids after application of Paragraph 3(c)(iv)(A) above
and of the foregoing portion of this Paragraph 3(c)(iv)(B) to any Bid or Bids
specifying a lower rate or rates per annum, the number of shares subject to each
of such Bids shall be reduced pro rata so that such Bids, in the aggregate,
cover exactly such remaining number of shares); and the number of shares, if
any, subject to Bids not valid under this Paragraph 3(c)(iv)(B) shall be treated
as the subject of a Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid up to and including
the excess of the number of outstanding shares of Preferred Stock held by such
Existing Holder over the number of shares of Preferred Stock subject to Hold
Orders referred to in Paragraph 3(c)(iv)(A) and Bids referred to in Paragraph
3(c)(iv)(B); provided that if more than one Sell Order is submitted on behalf of
any Existing Holder and the number of shares of Preferred Stock subject to such
Sell Orders is greater than such excess, the number of shares of Preferred Stock
subject to each of such Sell Orders shall be reduced pro rata so that such Sell
Orders, in the aggregate, cover exactly the number of shares of Preferred Stock
equal to such excess.
(v) If more than one Bid is submitted on behalf of any Potential
Holder, each Bid submitted shall be a separate Bid with the rate per annum and
number of shares of Preferred Stock therein specified.
(vi) 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.
PARAGRAPH 3(d). DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND
APPLICABLE RATE.
(i) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted to it by
the Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as
a "Submitted Order") and shall determine:
(A) the excess of the total number of outstanding shares of
Preferred Stock over the number of outstanding shares of Preferred Stock that
are the subject of Submitted Hold Orders (such excess being hereinafter referred
to as the "Available Preferred Stock");
(B) from the Submitted Orders whether the number of outstanding
shares of Preferred Stock that are the subject of Submitted Bids by Potential
Holders specifying one or more rates per annum equal to or lower than the
Maximum Applicable Rate exceeds or is equal to the sum of:
(1) the number of outstanding shares of Preferred Stock that
are the subject of Submitted Bids by Existing Holders specifying one or more
rates per annum higher than the Maximum Applicable Rate; and
(2) the number of outstanding shares of Preferred Stock that
are subject to Submitted Sell Orders (if such excess or such equality exists
(other than because the number of outstanding shares of Preferred Stock in
clauses (1) and (2) above are each zero because all of the outstanding shares of
Preferred Stock are the subject of Submitted Hold Orders), such Submitted Bids
by Potential Holders hereinafter being referred to collectively as "Sufficient
Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per annum
specified in the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying the
Winning Bid Rate and all other submitted Bids from Existing Holders specifying
lower rates per annum were rejected, thus entitling such Existing Holders to
continue to hold the shares of Preferred Stock that are the subject of such
Submitted Bids; and
(2) each Submitted Bid from Potential Holders specifying the
Winning Bid Rate and all other Submitted Bids from Potential Holders specifying
lower rates per annum were accepted, thus entitling the Potential Holders to
purchase the shares of Preferred Stock that are the subject of such Submitted
Bids, would result in the number of shares subject to all Submitted Bids
specifying the Winning Bid Rate or a lower rate per annum being at least equal
to the Available Preferred Stock.
(ii) Promptly after the Auction Agent has made the determinations
pursuant to Paragraph 3(d)(i), the Auction Agent shall advise the Corporation of
the Maximum Applicable Rate and, based on such determinations, the Applicable
Rate for the next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate
for the next succeeding Dividend Period shall be equal to the Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than because
all of the outstanding shares of Preferred Stock are the subject of Submitted
Hold Orders), that the Applicable Rate for the next succeeding Dividend Period
shall be equal to the Maximum Applicable Rate; or
(C) if all of the outstanding shares of Preferred Stock are the
subject of Submitted Hold Orders, that the Dividend Period next succeeding the
Auction automatically shall be the same length as the immediately preceding
Dividend Period, and the Applicable Rate for the next succeeding Dividend Period
shall be equal to 40% of the Reference Rate (or 60% of such rate if the Fund has
provided notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend that net capital gains or other taxable income
will be included in such dividend on shares of Preferred Stock) on the date of
the Auction.
PARAGRAPH 3(e). ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL
ORDERS AND ALLOCATION OF SHARES.
Based on the determinations made pursuant to Paragraph 3(d)(i), the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the
Auction Agent shall take such other action as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of Paragraph 3(e)(iii) and Paragraph 3(e)(iv), Submitted Bids and
Submitted Sell Orders shall be accepted or rejected in the following order of
priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be
accepted and the Submitted Bid of each of the Existing Holders specifying any
rate per annum that is higher than the Winning Bid Rate shall be accepted, thus
requiring each such Existing Holder to sell the outstanding shares of Preferred
Stock that are the subject of such Submitted Sell Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holder specifying
any rate per annum that is lower than the Winning Bid Rate shall be rejected,
thus entitling each such Existing Holder to continue to hold the outstanding
shares of Preferred Stock that are the subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders specifying
any rate per annum that is lower than the Winning Bid Rate shall be accepted;
(D) the Submitted Bid of each of the Existing Holders specifying
a rate per annum that is equal to the Winning Bid Rate shall be rejected, thus
entitling each such Existing Holder to continue to hold the outstanding shares
of Preferred Stock that are the subject of such Submitted Bid, unless the number
of outstanding shares of shares of Preferred Stock subject to all such Submitted
Bids shall be greater than the number of outstanding shares of Preferred Stock
("Remaining Shares") equal to the excess of the Available Preferred Stock over
the number of outstanding shares of Preferred Stock subject to Submitted Bids
described in Paragraph 3(e)(i)(B) and Paragraph 3(e)(i)(C), in which event the
Submitted Bids of each such Existing Holder shall be accepted, and each such
Existing Holder shall be required to sell outstanding shares of Preferred Stock,
but only in an amount equal to the difference between (1) the number of
outstanding shares of Preferred Stock then held by such Existing Holder subject
to such Submitted Bid and (2) the number of shares of Preferred Stock obtained
by multiplying (x) the number of Remaining Shares by (y) a fraction the
numerator of which shall be the number of outstanding shares of Preferred Stock
held by such Existing Holder subject to such Submitted Bid and the denominator
of which shall be the sum of the numbers of outstanding shares of Preferred
Stock subject to such Submitted Bids made by all such Existing Holders that
specified a rate per annum equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders specifying
a rate per annum that is equal to the Winning Bid Rate shall be accepted, but
only in an amount equal to the number of outstanding shares of Preferred Stock
obtained by multiplying (x) the difference between the Available Preferred Stock
and the number of outstanding shares of Preferred Stock subject to Submitted
Bids described in Paragraph 3(e)(i)(B), Paragraph 3(e)(i)(C) and Paragraph
3(e)(i)(D) by (y) a fraction the numerator of which shall be the number of
outstanding shares of Preferred Stock subject to such Submitted Bid and the
denominator of which shall be the sum of the number of outstanding shares of
Preferred Stock subject to such Submitted Bids made by all such Potential
Holders that specified rates per annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than
because all of the outstanding shares of Preferred Stock are subject to
Submitted Hold Orders), subject to the provisions of Paragraph 3(e)(iii),
Submitted Orders shall be accepted or rejected as follows in the following order
of priority and all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable Rate shall be
rejected, thus entitling such Existing Holder to continue to hold the
outstanding shares of Preferred Stock that are the subject of such Submitted
Bid;
(B) the Submitted Bid of each Potential Holder specifying any
rate per annum that is equal to or lower than the Maximum Applicable Rate shall
be accepted, thus requiring such Potential Holder to purchase the outstanding
shares of Preferred Stock that are the subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any
rate per annum that is higher than the Maximum Applicable Rate shall be accepted
and the Submitted Sell Orders of each Existing Holder shall be accepted, in both
cases only in an amount equal to the difference between (1) the number of
outstanding shares of Preferred Stock then held by such Existing Holder subject
to such Submitted Bid or Submitted Sell Order and (2) the number of shares of
Preferred Stock obtained by multiplying (x) the difference between the Available
Preferred Stock and the aggregate number of outstanding shares of Preferred
Stock subject to Submitted Bids described in Paragraph 3(e)(ii)(A) and Paragraph
3(e)(ii)(B) by (y) a fraction the numerator of which shall be the number of
outstanding shares of Preferred Stock held by such Existing Holder subject to
such Submitted Bid or Submitted Sell Order and the denominator of which shall be
the number of outstanding shares of Preferred Stock subject to all such
Submitted Bids and Submitted Sell Orders.
(iii) If, as a result of the procedures described in Paragraph 3(e)(i)
or Paragraph 3(e)(ii), any Existing Holder would be entitled or required to
sell, or any Potential Holder would be entitled or required to purchase, a
fraction of a share of Preferred Stock on any Auction Date, the Auction Agent
shall, in such manner as in its sole discretion it shall determine, round up or
down the number of shares of Preferred Stock to be purchased or sold by any
Existing Holder or Potential Holder on such Auction Date so that each
outstanding share of Preferred Stock purchased or sold by each Existing Holder
or Potential Holder on such Auction Date shall be a whole share of Preferred
Stock.
(iv) If, as a result of the procedures described in Paragraph 3(e)(i),
any Potential Holder would be entitled or required to purchase less than a whole
share of Preferred Stock on any Auction Date, the Auction Agent, in such manner
as in its sole discretion it shall determine, shall allocate shares of Preferred
Stock for purchase among Potential Holders so that only whole shares of
Preferred Stock are purchased on such Auction Date by any Potential Holder, even
if such allocation results in one or more of such Potential Holders not
purchasing any shares of Preferred Stock on such Auction Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell Orders
on behalf of Existing Holders or Potential Holders, the aggregate number of the
outstanding shares of Preferred Stock to be purchased and the aggregate number
of outstanding shares of Preferred Stock to be sold by such Potential Holders
and Existing Holders and, to the extent that such aggregate number of
outstanding shares to be purchased and such aggregate number of outstanding
shares to be sold differ, the Auction Agent shall determine to which other
Broker-Dealer or Broker-Dealers acting for one or more purchasers such
Broker-Dealer shall deliver, or from which other Broker-Dealer or Broker-Dealers
acting for one or more sellers such Broker-Dealer shall receive, as the case may
be, outstanding shares of Preferred Stock.
PARAGRAPH 3(f). MISCELLANEOUS.
The Corporation may interpret the provisions of this Paragraph 3 to
resolve any inconsistency or ambiguity, remedy any formal defect or make any
other change or modification that does not substantially adversely affect the
rights of Beneficial Owners of shares of Preferred Stock. A Beneficial Owner or
an Existing Holder (A) may sell, transfer or otherwise dispose of shares of
Preferred Stock only pursuant to a Bid or Sell Order in accordance with the
procedures described in this Paragraph 3 or to or through a Broker-Dealer,
provided that in the case of all transfers other than pursuant to Auctions such
Beneficial Owner or Existing Holder, its Broker-Dealer, if applicable, or its
Agent Member advises the Auction Agent of such transfer and (B) except as
otherwise required by law, shall have the ownership of the shares of Preferred
Stock held by it maintained in book entry form by the Securities Depository in
the account of its Agent Member, which in turn will maintain records of such
Beneficial Owner's beneficial ownership. Neither the Corporation nor any
affiliate shall submit an Order in any Auction. Any Beneficial Owner that is an
affiliate shall not sell, transfer or otherwise dispose of shares of Preferred
Stock to any person other than the Corporation. All of the outstanding shares of
Preferred Stock of a series shall be represented by a single certificate
registered in the name of the nominee of the Securities Depository unless
otherwise required by law or unless there is no Securities Depository. If there
is no Securities Depository, at the Corporation's option and upon its receipt of
such documents as it deems appropriate, any shares of Preferred Stock may be
registered in the stock register in the name of the Beneficial Owner thereof and
such Beneficial Owner thereupon will be entitled to receive certificates
therefor and required to deliver certificates thereof or upon transfer or
exchange thereof.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS:
Included in Part A of the Registration Statement:
Financial Highlights for each of the 10 years ended September 30,
1999
Included in Part B of the Registration Statement:
Incorporated by reference to Registrant's most recent Annual Report
to Shareholders dated September 30, 1999:
Portfolio of Investments, September 30, 1999 (audited)
Statement of Net Assets, September 30, 1999 (audited)
Statement of Operations for the year ended September 30, 1999
(audited)
Statement of Changes in Net Assets for the two years ended
September 30, 1999 (audited)
(2) EXHIBITS:
a. Articles of Incorporation, as amended, including the
Articles Supplementary Establishing and Fixing the Rights
and Preferences of the Preferred Stock
b. By-Laws
c. Not applicable.
d.1 Form of Auction Agent Agreement, including form of
request and acceptance letter related thereto
d.2 Form of of Broker-Dealer Agreement, including form of
request and acceptance letter related thereto
d.3 Form of Letter of Representation to Depository Trust
and Clearing Corporation relating to the Series A and
Series B Auction Preferred Stock
e. Dividend Reinvestment and Cash Purchase Plan
f. Not applicable.
g. Management Agreement
h. Form of Underwriting Agreement
i. Not applicable.
j. Custody Agreement
k. Not applicable.
l. Opinion and consent of Stroock & Stroock & Lavan LLP*
m. Not applicable.
n. Consent of __________________*
o. Not applicable.
p. Not applicable.
q. Not applicable.
r. Not applicable.
s. Power of Attorney
- ----------------
* To be filed by amendment.
ITEM 25. MARKETING ARRANGEMENTS
See Form of Underwriting Agreement filed herewith.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the approximate expenses
incurred in connection with the offerings of Registrant*:
Registration Fees. ....................................................$
Rating Agency Fees.....................................................$
Costs of Printing and Engraving .......................................$
Accounting Fees........................................................$
Legal Fees.............................................................$
Total.....................................................$
- ----------------
* To be filed by amendment.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Not applicable.
<PAGE>
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
as of
July 30, 1999
Common Stock, par value $0.001 per share 6,116
Auction Preferred Stock, par value
$0.001 per share -0-
ITEM 29. INDEMNIFICATION
Reference is made to Article SEVENTH of the Registrant's Articles of
Incorporation which are incorporated by reference to Exhibit 24(2)(a)
and to Section 2-418 of the Maryland General Corporation Law. The
application of these provisions is limited by Article VIII of the
Registrant's By-Laws, as amended, incorporated by reference to
Exhibit 24(2)(b), and by the following undertaking set forth in the
rules promulgated by the Securities and Exchange Commission:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in such Act and is, therefore,
unenforceable. In the event that a claim of indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in such Act and will be
governed by the final adjudication of such issue.
Reference is also made to the Underwriting Agreement which is
incorporated by reference to Exhibit 24(2)(h).
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
The Dreyfus Corporation ("Dreyfus") and subsidiary companies comprise
a financial service organization whose business consists primarily of
providing investment management services as the investment adviser and
manager for sponsored investment companies registered under the
Investment Company Act of 1940 and as an investment adviser to
institutional and individual accounts. Dreyfus also serves as sub-
investment adviser to and/or administrator of other investment
companies. Dreyfus Service Corporation, a wholly-owned subsidiary of
Dreyfus, serves primarily as a registered broker-dealer of shares of
investment companies sponsored by Dreyfus and of other investment
companies for which Dreyfus acts as investment adviser, sub-investment
adviser or administrator. Dreyfus Investment Advisors, Inc., another
wholly-owned subsidiary, provides investment management services to
various pension plans, institutions and individuals.
<TABLE>
<CAPTION>
Officers and Directors of Investment Adviser
<S> <C> <C> <C>
Name and Position
With Dreyfus Other Businesses Position Held Dates
Christopher M. Condron Franklin Portfolio Associates, LLC* Director 1/97 - Present
Chairman of the Board and
Chief Executive Officer
TBCAM Holdings, Inc.* Director 10/97 - Present
President 10/97 - 6/98
Chairman 10/97 - 6/98
The Boston Company Director 1/98 - Present
Asset Management, LLC* Chairman 1/98 - 6/98
President 1/98 - 6/98
The Boston Company President 9/95 - 1/98
Asset Management, Inc.* Chairman 4/95 - 1/98
Pareto Partners Partner Representative 11/95 - 5/97
271 Regent Street
London, England W1R 8PP
Franklin Portfolio Holdings, Inc.* Director 1/97 - Present
Certus Asset Advisors Corp.** Director 6/95 -Present
Mellon Capital Management Director 5/95 -Present
Corporation***
Mellon Bond Associates, LLP+ Executive Committee 1/98 - Present
Member
Mellon Bond Associates+ Trustee 5/95 -1/98
Mellon Equity Associates, LLP+ Executive Committee 1/98 - Present
Member
Mellon Equity Associates+ Trustee 5/95 - 1/98
Boston Safe Advisors, Inc.* Director 5/95 - Present
President 5/95 - Present
Mellon Bank, N.A. + Director 1/99 - Present
Chief Operating Officer 3/98 - Present
President 3/98 - Present
Vice Chairman 11/94 - 3/98
Mellon Financial Corporation+ Chief Operating Officer 1/99 - Present
President 1/99 - Present
Director 1/98 - Present
Vice Chairman 11/94 - 1/99
The Boston Company, Inc.* Vice Chairman 1/94 - Present
Director 5/93 - Present
Laurel Capital Advisors, LLP+ Exec. Committee 1/98 - 8/98
Member
Laurel Capital Advisors+ Trustee 10/93 - 1/98
Boston Safe Deposit and Trust Director 5/93 -Present
Company*
The Boston Company Financial President 6/89 - Present
Strategies, Inc. * Director 6/89 - Present
Mandell L. Berman Self-Employed Real Estate Consultant, 11/74 - Present
Director 29100 Northwestern Highway Residential Builder and
Suite 370 Private Investor
Southfield, MI 48034
Burton C. Borgelt DeVlieg Bullard, Inc. Director 1/93 - Present
Director 1 Gorham Island
Westport, CT 06880
Mellon Financial Corporation+ sDirector 6/91 - Present
Mellon Bank, N.A. + Director 6/91 - Present
Dentsply International, Inc. Director 2/81 - Present
570 West College Avenue
York, PA
Quill Corporation Director 3/93 - Present
Lincolnshire, IL
Stephen E. Canter Dreyfus Investment Chairman of the Board 1/97 - Present
President, Chief Operating Advisors, Inc.++ Director 5/95 - Present
Officer, Chief Investment President 5/95 - Present
Officer, and Director
Newton Management Limited Director 2/99 - Present
London, England
Mellon Bond Associates, LLP+ Executive Committee 1/99 - Present
Member
Mellon Equity Associates, LLP+ Executive Committee 1/99 - Present
Member
Franklin Portfolio Associates, LLC* Director 2/99 - Present
Franklin Portfolio Holdings, Inc.* Director 2/99 - Present
The Boston Company Asset Director 2/99 - Present
Management, LLC*
TBCAM Holdings, Inc.* Director 2/99 - Present
Mellon Capital Management Director 1/99 - Present
Corporation***
Founders Asset Management, LLC Member, Board of 12/97 - Present
2930 East Third Ave. Managers
Denver, CO 80206 Acting Chief Executive 7/98 - 12/98
Officer
The Dreyfus Trust Company+++ Director 6/ 95 - Present
Thomas F. Eggers Dreyfus Service Corporation++ Executive Vice President 4/96 - Present
Vice Chairman - Institutional Director 9/96 - Present
and Director
Founders Asset Management, LLC Member, Board of 2/99 - Present
2930 East Third Avenue Managers
Denver, CO 80206
Steven G. Elliott Mellon Financial Corporation+ Senior Vice Chairman 1/99 - Present
Director Chief Financial Officer 1/90 - Present
Vice Chairman 6/92 - 1/99
Treasurer 1/90 - 5/98
Mellon Bank, N.A.+ Senior Vice Chairman 3/98 - Present
Vice Chairman 6/92 - 3/98
Chief Financial Officer 1/90 - Present
Mellon EFT Services Corporation Director 10/98 - Present
Mellon Bank Center, 8th Floor
1735 Market Street
Philadelphia, PA 19103
Mellon Financial Services Director 1/96 - Present
Corporation #1 Vice President 1/96 - Present
Mellon Bank Center, 8th Floor
1735 Market Street
Philadelphia, PA 19103
Boston Group Holdings, Inc.* Vice President 5/93 - Present
APT Holdings Corporation Treasurer 12/87 - Present
Pike Creek Operations Center
4500 New Linden Hill Road
Wilmington, DE 19808
Allomon Corporation Director 12/87 - Present
Two Mellon Bank Center
Pittsburgh, PA 15259
Collection Services Corporation Controller 10/90 - 2/99
500 Grant Street Director 9/88 - 2/99
Pittsburgh, PA 15258 Vice President 9/88 - 2/99
Treasurer 9/88 - 2/99
Mellon Financial Company+ Principal Exec. Officer 1/88 - Present
Chief Financial Officer 8/87 - Present
Director 8/87 - Present
President 8/87 - Present
Mellon Overseas Investments Director 4/88 - Present
Corporation+ Chairman 7/89 - 11/97
President 4/88 - 11/97
Chief Executive Officer 4/88 - 11/97
Mellon International Investment Director 9/89 - 8/97
Corporation+
Mellon Financial Services Treasurer 12/87 - Present
Corporation # 5+
Mellon Financial Markets, Inc.+ Director 1/99 - Present
Mellon Financial Services Director 1/99 - Present
Corporation #17
Fort Lee, NJ
Mellon Mortgage Company Director 1/99 - Present
Houston, TX
Mellon Ventures, Inc. + Director 1/99 - Present
Lawrence S. Kash Dreyfus Investment Director 4/97 - Present
Vice Chairman Advisors, Inc.++
And Director
Dreyfus Brokerage Services, Inc. Chairman 11/97 - Present
401 North Maple Ave. Chief Executive Officer 11/97 - Present
Beverly Hills, CA
Dreyfus Service Corporation++ Director 1/95 - 2/99
President 9/96 - 3/99
Dreyfus Precious Metals, Inc.++ + Director 3/96 - 12/98
President 10/96 - 12/98
Dreyfus Service Director 12/94 - Present
Organization, Inc.++ President 1/97 - Present
Seven Six Seven Agency, Inc. ++ Director 1/97 - Present
Dreyfus Insurance Agency of Chairman 5/97 - Present
Massachusetts, Inc.++++ President 5/97 - Present
Director 5/97 - Present
The Dreyfus Trust Company+++ Chairman 1/97 - 1/99
President 2/97 - 1/99
Chief Executive Officer 2/97 - 1/99
Director 12/94 - Present
The Dreyfus Consumer Credit Chairman 5/97 - Present
Corporation++ President 5/97 - Present
Director 12/94 - Present
Founders Asset Management, LLC Member, Board of 12/97 - Present
2930 East Third Avenue Managers
Denver, CO. 80206
The Boston Company Advisors, Chairman 12/95 - Present
Inc. Chief Executive Officer 12/95 - Present
Wilmington, DE President 12/95 - Present
The Boston Company, Inc.* Director 5/93 - Present
President 5/93 - Present
Mellon Bank, N.A.+ Executive Vice President 6/92 - Present
Laurel Capital Advisors, LLP+ Chairman 1/98 - 8/98
Executive Committee 1/98 - 8/98
Member
Chief Executive Officer 1/98 - 8/98
President 1/98 - 8/98
Laurel Capital Advisors, Inc. + Trustee 12/91 - 1/98
Chairman 9/93 - 1/98
President and CEO 12/91 - 1/98
Boston Group Holdings, Inc.* Director 5/93 - Present
President 5/93 - Present
Martin G. McGuinn Mellon Financial Corporation+ Chairman 1/99 - Present
Director Chief Executive Officer 1/99 - Present
Director 1/98 - Present
Vice Chairman 1/90 - 1/99
Mellon Bank, N. A. + Chairman 3/98 - Present
Chief Executive Officer 3/98 - Present
Director 1/98 - Present
Vice Chairman 1/90 - 3/98
Mellon Leasing Corporation+ Vice Chairman 12/96 - Present
Mellon Bank (DE) National Director 4/89 - 12/98
Association
Wilmington, DE
Mellon Bank (MD) National Director 1/96 - 4/98
Association
Rockville, Maryland
Mellon Financial Vice President 9/86 - 10/97
Corporation (MD)
Rockville, Maryland
J. David Officer Dreyfus Service Corporation++ Executive Vice President 5/98 - Present
Vice Chairman Director 3/99 - Present
And Director
Dreyfus Insurance Agency of Director 5/98 - Present
Massachusetts, Inc.++++
Seven Six Seven Agency, Inc.++ Director 10/98 - Present
Mellon Residential Funding Corp. + Director 4/97 - Present
Mellon Trust of Florida, N.A. Director 8/97 - Present
2875 Northeast 191st Street
North Miami Beach, FL 33180
Mellon Bank, NA+ Executive Vice President 7/96 - Present
The Boston Company, Inc.* Vice Chairman 1/97 - Present
Director 7/96 - Present
Mellon Preferred Capital Director 11/96 - Present
Corporation*
RECO, Inc.* President 11/96 - Present
Director 11/96 - Present
The Boston Company Financial President 8/96 - Present
Services, Inc.* Director 8/96 - Present
Boston Safe Deposit and Trust Director 7/96 - Present
Company* President 7/96 - 1/99
Mellon Trust of New York Director 6/96 - Present
1301 Avenue of the Americas
New York, NY 10019
Mellon Trust of California Director 6/96 - Present
400 South Hope Street
Suite 400
Los Angeles, CA 90071
Mellon Bank, N.A.+ Executive Vice President 2/94 - Present
Mellon United National Bank Director 3/98 - Present
1399 SW 1st Ave., Suite 400
Miami, Florida
Boston Group Holdings, Inc.* Director 12/97 - Present
Dreyfus Financial Services Corp. + Director 9/96 - Present
Dreyfus Investment Services Director 4/96 - Present
Corporation+
Richard W. Sabo Founders Asset Management LLC President 12/98 - Present
Director 2930 East Third Avenue Chief Executive Officer 12/98 - Present
Denver, CO. 80206
Prudential Securities Senior Vice President 07/91 - 11/98
New York, NY Regional Director 07/91 - 11/98
Richard F. Syron American Stock Exchange Chairman 4/94 - Present
Director 86 Trinity Place Chief Executive Officer 4/94 - Present
New York, NY 10006
Ronald P. O'Hanley Franklin Portfolio Holdings, Inc.* Director 3/97 - Present
Vice Chairman
TBCAM Holdings, Inc.* Chairman 6/98 - Present
Director 10/97 - Present
The Boston Company Asset Chairman 6/98 - Present
Management, LLC* Director 1/98 - 6/98
The Boston Company Asset Director 2/97 - 12/97
Management, Inc. *
Boston Safe Advisors, Inc.* Chairman 6/97 - Present
Director 2/97 - Present
Pareto Partners Partner Representative 5/97 - Present
271 Regent Street
London, England W1R 8PP
Mellon Capital Management Director 5/97 -Present
Corporation***
Certus Asset Advisors Corp.** Director 2/97 - Present
Mellon Bond Associates+ Trustee 2/97 - Present
Chairman 2/97 - Present
Mellon Equity Associates+ Trustee 2/97 - Present
Chairman 2/97 - Present
Mellon-France Corporation+ Director 3/97 - Present
Laurel Capital Advisors+ Trustee 3/97 - Present
Mark N. Jacobs Dreyfus Investment Director 4/97 - Present
General Counsel, Advisors, Inc.++ Secretary 10/77 - 7/98
Vice President, and
Secretary The Dreyfus Trust Company+++ Director 3/96 - Present
The TruePenny Corporation++ President 10/98 - Present
Director 3/96 - Present
Dreyfus Service Director 3/97 - Present
Organization, Inc.++
William H. Maresca The Dreyfus Trust Company+++ Director 3/97 - Present
Controller
Dreyfus Service Corporation++ Chief Financial Officer 12/98 - Present
Dreyfus Consumer Credit Corp. ++ Treasurer 10/98 -Present
Dreyfus Investment Treasurer 10/98 - Present
Advisors, Inc. ++
Dreyfus-Lincoln, Inc. Vice President 10/98 - Present
4500 New Linden Hill Road
Wilmington, DE 19808
The TruePenny Corporation++ Vice President 10/98 - Present
Dreyfus Precious Metals, Inc. +++ Treasurer 10/98 - 12/98
The Trotwood Corporation++ Vice President 10/98 - Present
Trotwood Hunters Corporation++ Vice President 10/98 - Present
Trotwood Hunters Site A Corp. ++ Vice President 10/98 - Present
Dreyfus Transfer, Inc. Chief Financial Officer 5/98 - Present
One American Express Plaza,
Providence, RI 02903
Dreyfus Service Assistant Treasurer 3/93 - Present
Organization, Inc.++
Dreyfus Insurance Agency of Assistant Treasurer 5/98 - Present
Massachusetts, Inc.++++
William T. Sandalls, Jr. Dreyfus Transfer, Inc. Chairman 2/97 - Present
Executive Vice President One American Express Plaza,
Providence, RI 02903
Dreyfus Service Corporation++ Director 1/96 - Present
Executive Vice President 2/97 - Present
Chief Financial Officer 2/97-12/98
Dreyfus Investment Director 1/96 - Present
Advisors, Inc.++ Treasurer 1/96 - 10/98
Dreyfus-Lincoln, Inc. Director 12/96 - Present
4500 New Linden Hill Road President 1/97 - Present
Wilmington, DE 19808
Seven Six Seven Agency, Inc.++ Director 1/96 - 10/98
Treasurer 10/96 - 10/98
The Dreyfus Consumer Director 1/96 - Present
Credit Corp.++ Vice President 1/96 - Present
Treasurer 1/97 - 10/98
Dreyfus Partnership President 1/97 - 6/97
Management, Inc.++ Director 1/96 - 6/97
Dreyfus Service Organization, Director 1/96 - 6/97
Inc.++ Executive Vice President 1/96 - 6/97
Treasurer 10/96- Present
Dreyfus Insurance Agency of Director 5/97 - Present
Massachusetts, Inc.++++ Treasurer 5/97- Present
Executive Vice President 5/97 - Present
Diane P. Durnin Dreyfus Service Corporation++ Senior Vice President - 5/95 - 3/99
Vice President - Product Marketing and Advertising
Development Division
Patrice M. Kozlowski None
Vice President - Corporate
Communications
Mary Beth Leibig None
Vice President -
Human Resources
Theodore A. Schachar Dreyfus Service Corporation++ Vice President -Tax 10/96 - Present
Vice President - Tax
Dreyfus Investment Advisors, Inc.++ Vice President - Tax 10/96 - Present
Dreyfus Precious Metals, Inc. +++ Vice President - Tax 10/96 - 12/98
Dreyfus Service Organization, Inc.++ Vice President - Tax 10/96 - Present
Wendy Strutt None
Vice President
Richard Terres None
Vice President
Andrew S. Wasser Mellon Financial Corporation+ Vice President 1/95 - Present
Vice-President -
Information Systems
James Bitetto The TruePenny Corporation++ Secretary 9/98 - Present
Assistant Secretary
Dreyfus Service Corporation++ Assistant Secretary 8/98 - Present
Dreyfus Investment Assistant Secretary 7/98 - Present
Advisors, Inc.++
Dreyfus Service Assistant Secretary 7/98 - Present
Organization, Inc.++
Steven F. Newman Dreyfus Transfer, Inc. Vice President 2/97 - Present
Assistant Secretary One American Express Plaza Director 2/97 - Present
Providence, RI 02903 Secretary 2/97 - Present
Dreyfus Service Secretary 7/98 - Present
Organization, Inc.++ Assistant Secretary 5/98 - 7/98
_______________________________
* The address of the business so indicated is One Boston Place, Boston, Massachusetts, 02108.
** The address of the business so indicated is One Bush Street, Suite 450, San Francisco, California 94104.
*** The address of the business so indicated is 595 Market Street, Suite 3000, San Francisco, California 94105.
+ The address of the business so indicated is One Mellon Bank Center, Pittsburgh, Pennsylvania 15258.
++ The address of the business so indicated is 200 Park Avenue, New York, New York 10166.
+++ The address of the business so indicated is 144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144.
++++ The address of the business so indicated is 53 State Street, Boston, Massachusetts 02109.
</TABLE>
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
Accounts and records of the Fund are maintained at the offices
of The Dreyfus Corporation, 200 Park Avenue, New York, New
York 10166.
Boston Safe Deposit and Trust Company located at One Boston
Place, Boston, Massachusetts 02108, maintains all records in
its capacity as Custodian for the Registrant's assets. The
Bank of New York, located at 101 Barclay Street, New York, New
York 10286, maintains all records required in its capacity as
the Registrant's Transfer Agent, Dividend-Paying Agent and
Registrar.
ITEM 32. MANAGEMENT SERVICES
Not applicable
ITEM 33. UNDERTAKINGS
(1) Registrant undertakes to suspend offering of its Auction Preferred
Stock until it amends its prospectus if (a) subsequent to the effective date of
its Registration Statement, the net asset value declines more than 10 percent
from its net asset value as of the effective date of the Registration Statement,
or (b) the net asset value increases to an amount greater than its net proceeds
as stated in the prospectus.
(2) Not applicable
(3) Not applicable
(4) Not applicable
(5) (a) For purpose of determining any liability under the Securities
Act of 1933, as amended, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to Rule
497(h) under the Securities Act of 1933, shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(6) The registrant undertakes to send by first class mail or other
means designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, its Statement of Additional Information.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York, on the 7th day of
January, 2000.
DREYFUS MUNICIPAL INCOME, INC.
By: /s/ MARIE E. CONNOLLY*
------------------------------
Marie E. Connolly, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ MARIE E. CONNOLLY* President and Treasurer January 7, 2000
- ------------------------- (Principal Executive,
Marie E. Connolly Accounting and Financial
Officer)
/s/ JOSEPH S. DIMARTINO* Chairman of the Board January 7, 2000
- -------------------------
Joseph S. DiMartino
/s/ DAVID W. BURKE* Board member January 7, 2000
- -------------------------
David W. Burke
/s/ HODDING CARTER, III* Board member January 7, 2000
- -------------------------
Hodding Carter, III
/s/ EHUD HOUMINER* Board member January 7, 2000
- -------------------------
Ehud Houminer
/s/ RICHARDd C. LEONE* Board member January 7, 2000
- -------------------------
Richard C. Leone
/s/ HANS C. MAUTNER* Board member January 7, 2000
- -------------------------
Hans C. Mautner
/s/ ROBIN A. PRINGLE* Board member January 7, 2000
- -------------------------
Robin A. Pringle
/s/ JOHN E. ZUCCOTTI* Board member January 7, 2000
- -------------------------
John E. Zuccotti
*By: /s/ Stephanie D. Pierce
-------------------------
Stephanie D. Pierce
as attorney-in-fact
<PAGE>
FORM N-2/A
DREYFUS STRATEGIC MUNICIPALS, INC.
EXHIBIT INDEX
EXHIBIT NUMBER DOCUMENT DESCRIPTION
(a) Articles of Incorporation, as amended, including the
Articles Supplementary Establishing and Fixing the Rights
and Preferences of the Preferred Stock
(b) By-Laws
(d) (1) Form of Auction Agent Agreement, including form of
request and acceptance letter related thereto
(2) Form of Broker-Dealer Agreement, including form of
request and acceptance letter related thereto
(3) Form of Letter of Representation to Depository Trust and
Clearing Corporation relating to the Preferred Stock
(e) Dividend Reinvestment and cash Purchase Plan
(g) Management Agreement
(h) Form of Underwriting Agreement
(j) Custody Agreement
(s) Power of Attorney
EXHIBIT A
ARTICLES OF INCORPORATION
OF
DREYFUS STRATEGIC MUNICIPALS INC.
----------------------------
FIRST: The undersigned, David Stephens, whose address is 7 Hanover
Square, New York, New York 10004-2594, being at least eighteen years of age,
hereby acts as incorporator and forms a corporation under and by virtue of the
Maryland General Corporation Law.
SECOND: The name of the corporation (hereinafter called the
"corporation") is Dreyfus Strategic Municipals, Inc.
THIRD: The corporation is formed for the following purpose or
purposes:
(a) to conduct, operate and carry on the business of an
investment company;
(b) to subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, lend, write
options on, exchange, distribute or otherwise dispose of and deal in
and with securities of every nature, kind, character, type and form,
including without limitation of the generality of the foregoing, all
types of stocks, shares, futures contracts, bonds, debentures, notes,
bills and other negotiable or non-negotiable instruments, obligations,
evidences of interest, certificates of interest, certificates of
participation, certificates, interests, evidences of ownership,
guarantees, warrants, options or evidences of indebtedness issued or
created by or guaranteed as to principal and interest by any state or
local government or any agency or instrumentality thereof, by the
United States Government or any agency, instrumentality, territory,
district or possession thereof, by any foreign government or any
agency, instrumentality, territory, district or possession thereof, by
any corporation organized under the laws of any state, the United
States or any territory or possession thereof or under the laws of any
foreign country, bank certificates of deposit, bank time deposits,
bankers' acceptances and commercial paper; to pay for the same in cash
or by the issue of stock, including treasury stock, bonds or notes of
the corporation or otherwise; and to exercise any and all rights,
powers and privileges of ownership or interest in respect of any and
all such investments of every kind and description, including without
limitation, the right to consent and otherwise act with respect
thereto, with power to designate one or more persons, firms,
associations or corporations to exercise any of said rights, powers
and privileges in respect of any said instruments;
(c) to borrow money or otherwise obtain credit and to secure
the same by mortgaging, pledging or otherwise subjecting as security
the assets of the corporation;
(d) to issue, sell, repurchase, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in,
shares of stock of the corporation, including shares of stock of the
corporation in fractional denominations, and to apply to any such
repurchase, retirement, cancellation or acquisition of shares of stock
of the corporation any funds or property of the corporation whether
capital or surplus or otherwise, to the full extent now or hereafter
permitted by the laws of the State of Maryland.
(e) to conduct its business, promote its purposes and carry
on its operations in any and all of its branches and maintain offices
both within and without the State of Maryland, in any States of the
United States of America, in the District of Columbia and in any other
parts of the world; and
(f) to do all and everything necessary, suitable,
convenient, or proper for the conduct, promotion, and attainment of
any of the businesses and purposes herein specified or which at any
time may be incidental thereto or may appear conducive to or expedient
for the accomplishment of any of such businesses and purposes and
which might be engaged in or carried on by a corporation incorporated
or organized under the Maryland General Corporation Law, and to have
and exercise all of the powers conferred by the laws of the State of
Maryland upon corporations incorporated or organized under the
Maryland General Corporation Law.
The foregoing provisions of this Article THIRD shall be construed both
as purposes and powers and each as an independent purpose and power. The
foregoing enumeration of specific purposes and powers shall not be held to limit
or restrict in any manner the purposes and powers of the corporation, and the
purposes and powers herein specified shall, except when otherwise provided in
this Article THIRD, be in no wise limited or restricted by reference to, or
inference from, the terms of any provision of this or any other Article of these
Articles of Incorporation; provided, that the corporation shall not conduct any
business, promote any purpose, or exercise any power or privilege within or
without the State of Maryland which, under the laws thereof, the corporation may
not lawfully conduct, promote, or exercise.
FOURTH: The post office address of the principal office of the
corporation within the State of Maryland and of the resident agent of the
corporation within the State of Maryland, is The Corporation Trust Incorporated,
32 South Street, Baltimore, Maryland 21202.
FIFTH: (1) The total number of shares of stock which the
corporation has authority to issue is Five Hundred Million (500,000,000), all of
which are of a par value of one-tenth of one cent ($.001) each and are
designated as Common Stock.
(2) The aggregate par value of all the authorized shares of stock is
Five Hundred Thousand ($500,000) dollars.
(3) The board of directors of the corporation is authorized, from time
to time, to fix the price or the minimum price or the consideration or minimum
consideration for, and to issue, the shares of stock of the corporation.
(4) The board of directors of the Corporation is authorized, from time
to time, to classify or to reclassify, as the case may be, any unissued shares
of stock of the corporation.
(5) Notwithstanding any provisions of the Maryland General Corporation
Law requiring a greater proportion than a majority of the votes of stockholders
entitled to be cast in order to take or authorize any action, any such action
may be taken or authorized upon the concurrence of a majority of the outstanding
shares of the corporation, except as otherwise provided in these Articles of
Incorporation.
(6) The presence in person or by proxy of the holders of one-third of
the shares of stock of the corporation entitled to vote (without regard to
class) shall constitute a quorum at any meeting of the stockholders, except with
respect to any matter which, under applicable statutes or regulatory
requirements, requires approval by a separate vote of one or more classes of
stock, in which case the presence in person or by proxy of the holders of
one-third of the shares of stock of each class required to vote as a class on
the matter shall constitute a quorum.
(7) The corporation may issue shares of its stock in fractional
denominations to the same extent as its whole shares, and shares in fractional
denominations shall be shares of stock having proportionately to the respective
fractions represented thereby all the rights of whole shares, including, without
limitation, the right to vote, the right to receive dividends and distributions
and the right to participate upon liquidation of the corporation, but excluding
the right to receive a stock certificate evidencing a fractional share.
(8) No holder of any shares of any class of the corporation shall be
entitled as of right to subscribe for, purchase, or otherwise acquire any shares
of any class of the corporation which the corporation proposes to issue, or any
rights or options which the corporation proposes to issue or to grant for the
purchase of shares of any class of the corporation or for the purchase of any
shares, or any bonds, securities, or obligations of the corporation which are
convertible into or exchangeable for, or which carry any rights to subscribe
for, purchase, or otherwise acquire shares of any class of the corporation; and
any and all of such shares, bonds, securities or obligations of the corporation,
whether now or hereafter authorized or created, may be issued, or may be
reissued or transferred if the same have been reacquired and have treasury
status, and any and all of such rights and options may be granted by the Board
of Directors to such persons, firms, corporations and associations, and for such
lawful consideration, and on such terms, as the Board of Directors in its
discretion may determine, without first offering the same, or any thereof, to
any said holder.
SIXTH: (1) The number of directors of the corporation, until such
number shall be increased or decreased pursuant to the by-laws of the
corporation, is two. The number of directors shall never be less than the
minimum number prescribed by the Maryland General Corporation Law nor more than
twelve.
(2) The names of the persons who shall act as directors of the
corporation until the first annual meeting or until their successors are duly
chosen and qualify are as follows:
Joseph S. DiMartino
Richard J. Moynihan
(3) Beginning with the first annual meeting of stockholders held after
the initial public offering of the shares of the corporation (the "initial
annual meeting"), the board of directors of the corporation shall be divided
into three classes: Class I, Class II and Class III. The term of office of one
class of directors elected at the initial annual meeting shall expire each year.
At the initial annual meeting, directors of Class I shall be deemed to have been
elected to hold office for a term expiring at the next succeeding annual
meeting, directors of Class II shall be deemed to have been elected to hold
office for a term expiring at the second succeeding annual meeting and directors
of Class III shall be deemed to have been elected to hold office for a term
expiring at the third succeeding annual meeting. At each subsequent annual
meeting of stockholders, the directors chosen to succeed those whose terms are
expiring shall be identified as being of the same class as the directors whom
they succeed and shall be elected for a term expiring at the time of the third
succeeding annual meeting of stockholders, or thereafter in each case when their
respective successors are elected and qualified. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes by
resolution of the board of directors so as to maintain the number of directors
in each class as nearly equal as possible, but in no case shall a decrease in
the number of directors shorten the term of any incumbent director.
(4) Any vacancy occurring in the board of directors may be filled by a
majority of the directors in office. A new directorship resulting from an
increase in the number of directors shall be filled by a majority of the entire
board of directors.
(5) A director of the corporation may be removed from office only by
vote of the holders of at least seventy-five percent (75%) of the outstanding
shares of the corporation entitled to vote in an election of directors.
(6) The initial by-laws of the corporation shall be adopted by the
directors at their organizational meeting or by their informal written action,
as the case may be. Thereafter, the power to make, alter, and repeal the by-laws
of the corporation shall be vested in the board of directors of the corporation.
(7) Any determination made in good faith and by or pursuant to the
direction of the board of directors, as to: the amount of the assets, debts,
obligations, or liabilities of the corporation; the amount of any reserves or
charges set up and the propriety thereof; the time of or purpose for creating
such reserves or charges; the use, alteration or cancellation of any reserves or
charges (whether or not any debt, obligation or liability for which such
reserves or charges shall have been created shall have been paid or discharged
or shall be then or thereafter required to be paid or discharged); the value of
any investment or fair value of any other asset of the corporation; the number
of shares of the corporation outstanding; the estimated expense to the
corporation in connection with purchases of its shares; the ability to liquidate
investments in orderly fashion; the extent to which it is practicable to deliver
a cross-section of the portfolio of the corporation in payment for any such
shares, or as to any other matters relating to the issue, sale, purchase and/or
other acquisition or disposition of investments or shares of the corporation, or
the determination of the net asset value of shares of the corporation shall be
final and conclusive, and shall be binding upon the corporation and all holders
of its shares, past, present and future, and shares of the corporation are
issued and sold on the condition and understanding that any and all such
determinations shall be binding as aforesaid.
SEVENTH: (1) To the maximum extent permitted by the Maryland General
Corporation Law as from time to time amended, the corporation shall indemnify
its currently acting and its former directors, officers, and employees and those
persons who, at the request of the corporation serve or have served another
corporation, partnership joint venture, trust or other enterprise in one or more
of such capacities. The indemnification provided for herein shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any statute, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(2) Anything herein contained to the contrary notwithstanding, no
officer or director of the corporation shall be indemnified for any liability to
the corporation or its security holders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
EIGHTH: (1) Notwithstanding any other provision of these Articles of
Incorporation, the affirmative vote of the holders of at least seventy-five
percent (75%) of the outstanding shares of the corporation shall be required to
approve, adopt or authorize any of the following:
(a) a merger or consolidation or statutory share exchange of
the corporation with or into another corporation;
(b) a sale of all or substantially all of the assets of the
corporation (other than in the regular course of the corporation's
investment activities); or
(c) a liquidation or dissolution of the corporation;
unless such action previously has been approved, adopted or authorized by the
affirmative vote of two-thirds of the total number of directors fixed in
accordance with the by-laws, in which case the affirmative vote of a majority of
the outstanding shares of the corporation shall be required.
(2) In addition to the voting requirements imposed by law or by any
other provision of these Articles of Incorporation, the provisions set forth in
this Article EIGHTH, and the provision of these Articles of Incorporation
setting forth the maximum number of directors at twelve, may not be amended,
altered or repealed in any respect, nor may any provision inconsistent with this
Article EIGHTH be adopted, unless such action is approved by the affirmative
vote of the holders of at least seventy-five percent (75%) of the outstanding
shares of the corporation.
NINTH: Notwithstanding any other provision of these Articles of
Incorporation, at any time prior to September 30, 1997 the affirmative voice of
the holders of at least seventy-five percent (75%) of the outstanding shares of
the corporation shall be required to approve, adopt or authorize an amendment to
these Articles of Incorporation to make the shares of the corporation redeemable
securities (as defined in the Investment Company Act of 1940), unless such
action previously has been approved, adopted or authorized by the affirmative
vote of two-thirds of the total number of directors fixed in accordance with the
by-laws, in which case the affirmative vote of a majority of the outstanding
shares of the corporation shall be required.
TENTH: All persons who shall acquire stock or other securities of
the corporation shall acquire the same subject to the provisions of the
corporation's Charter, as from time to time amended.
ELEVENTH: From time to time any of the provisions of the Charter of
the corporation may be amended, altered or repealed, including amendments which
alter the contract rights of any class of stock outstanding, and other
provisions authorized by the Maryland General Corporation Law at the time in
force may be added or inserted in the manner and at the time prescribed by said
Law, and all rights at any time conferred upon the stockholders of the
corporation by its Charter are granted subject to the provisions of this
Article.
IN WITNESS WHEREOF, I have adopted and signed these Articles of
Incorporation and do hereby acknowledge that the adoption and signing are my
act.
Dated: July 20, 1987
/s/ DAVID STEPHENS
----------------------------------
David Stephens, Incorporator
<PAGE>
ARTICLES OF AMENDMENT
DREYFUS STRATEGIC MUNICIPALS, INC., a Maryland corporation having its
principal office in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The charter of the Corporation is amended by striking
paragraph of Article EIGHTH of the Articles of Incorporation and inserting in
lieu thereof the following:
"(2) In addition the voting requirements imposed by law or
by any other provision of these Articles of Incorporation,
the provisions set forth in this Article EIGHTH and in
Article NINTH, and the provision of these Articles of
Incorporation setting forth the maximum number of directors
at twelve, may not be amended, altered or repealed in any
respect, nor may any provision inconsistent with this
Article EIGHTH or Article NINTH or said provision relating
to the number of directors be adopted, unless such action is
approved by the affirmative vote of the holders of at least
seventy-five percent (75%) of the outstanding shares of the
corporation."
SECOND: The Board of Directors of the Corporation by a unanimous
written consent dated as of July 20, 1987, duly adopted a resolution setting
forth the foregoing amendment to the charter and declaring that the amendment
was advisable. The Corporation has no stockholders.
The Vice President acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that to the best of his knowledge,
information and belief the matters and facts set forth in these Articles with
respect to the authorization and approval of the amendment of the Corporation's
charter are true in all material respects and that this statement is made under
the penalties of perjury.
<PAGE>
IN WITNESS WHEREOF, Dreyfus Strategic Municipals, Inc. has caused this
instrument to be filed in its name and on its behalf by its Vice President,
Stanley F. Druckenmiller, and witnessed by its Secretary, Daniel C. Maclean, on
the 23rd day of July, 1987.
DREYFUS STRATEGIC MUNICIPALS, INC.
By: /s/ STANLEY F. DRUCKENMILLER
----------------------------------
Stanley F. Druckenmiller, Vice President
ATTEST:
/s/ DANIEL C. MACLEAN
- -------------------------------
Daniel C. Maclean, Secretary
<PAGE>
DREYFUS STRATEGIC MUNICIPALS, INC.
ARTICLES OF AMENDMENT
Dreyfus Strategic Municipals, Inc., a Maryland corporation having its
principal office in the State of Maryland at 32 South Street, Baltimore,
Maryland (hereinafter called the ("Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland (hereinafter called the
"Department") that:
FIRST: The charter of the Corporation is hereby amended by striking
out Article SEVENTH of the Articles of Incorporation and inserting in lieu
thereof the following:
"SEVENTH: (1) To the fullest extent that limitations on the
liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of
the corporation shall have any liability to the corporation
or its stockholders for damages. This limitation on
liability applies to events occurring at the time a person
serves as a director or officer of the corporation whether
or not such person is a director or officer at the time of
any proceeding in which liability is asserted.
(2) The corporation shall indemnify and advance expenses to
its currently acting and its former directors to the fullest
extent that indemnification of directors is permitted by the
Maryland General Corporation Law. The corporation shall
indemnify and advance expenses to its officers to the same
extent as its directors and to such further extent as is
consistent with law. The board of directors may, through a
by-law, resolution or agreement, make further provisions for
indemnification of directors, officers, employees and agents
to the fullest extent permitted by the Maryland General
Corporation Law.
(3) No provision of this Article SEVENTH shall be effective
to protect or purport to protect any director or officer of
the corporation against any liability to the corporation or
its stockholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross-negligence
or reckless disregard of the duties involved in the conduct
of his office.
(4) References to the Maryland General Corporation Law in
this Article SEVENTH are to the law as from time to time
amended. No amendment to the Articles of Incorporation of
the corporation shall affect any right of any person under
this Article SEVENTH based on any event, omission or
proceeding prior to such amendment."
SECOND: The Board of Directors of the Corporation duly adopted a
resolution in which was set forth the foregoing amendment to the charter,
declaring that the said amendment of the charter as proposed was advisable.
THIRD: Said amendment has been consented to and approved by the
stockholders of the Corporation at the annual meeting of shareholders held on
August 25, 1988.
IN WITNESS WHEREOF, Dreyfus Strategic Municipals, Inc. has caused
these Articles to be signed in its name and on its behalf by its President and
witnessed by its Secretary on September 15, 1988.
DREYFUS STRATEGIC MUNICIPALS, INC.
By: /s/ RICHARD J. MOYNIHAN
--------------------------------
Richard J. Moynihan, President
Witness:
/s/ DANIEL C. MACLEAN
- --------------------------------
Daniel C. Maclean, Secretary
<PAGE>
The undersigned, President of Dreyfus Strategic Municipals, Inc., who
executed on behalf of said Corporation the foregoing Articles of Amendment, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing Articles of Amendment to be the
corporate act of said Corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
/s/ RICHARD J. MOYNIHAN
-------------------------------
Richard J. Moynihan, President
EXHIBIT B
BY-LAWS
OF
DREYFUS STRATEGIC MUNICIPALS, INC.
(A Maryland Corporation)
-----------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing shares
of stock shall set forth thereon the statements prescribed by Section 2-211 of
the Maryland General Corporation Law ("General Corporation Law") and by any
other applicable provision of law and shall be signed by the Chairman of the
Board or the President or a Vice President and countersigned by the Secretary or
an Assistant Secretary or the Treasurer or an Assistant Treasurer and may be
sealed with the corporate seal. The signatures of any such officers may be
either manual or facsimile signatures and the corporate seal may be either
facsimile or any other form of seal. In case any such officer who has signed
manually or by facsimile any such certificate ceases to be such officer before
the certificate is issued, it nevertheless may be issued by the corporation with
the same effect as if the officer had not ceased to be such officer as of the
date of its issue.
No certificate representing shares of stock shall be issued for any
share of stock until such share is fully paid, except as otherwise authorized in
Section 2-206 of the General Corporation Law.
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Board of Directors may require, in its discretion, the owner
of any such certificate or the owner's legal representative to give bond, with
sufficient surety, to the corporation to indemnify it against any loss or claim
that may arise by reason of the issuance of a new certificate.
2. SHARE TRANSFERS. Upon compliance with provisions restricting the
transferability of shares of stock, if any, transfers of shares of stock of the
corporation shall be made only on the stock transfer books of the corporation by
the record holder thereof or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation or with a
transfer agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares of stock properly endorsed and the payment of all
taxes due thereon.
3. RECORD DATE FOR STOCKHOLDERS. The Board of Directors may fix, in
advance, a date as the record date for the purpose of determining stockholders
entitled to notice of, or to vote at, any meeting of stockholders, or
stockholders entitled to receive payment of any dividend or the allotment of any
rights or in order to make a determination of stockholders for any other proper
purpose. Such date, in any case, shall be not more than 90 days, and in case of
a meeting of stockholders not less than 10 days, prior to the date on which the
meeting or particular action requiring such determination of stockholders is to
be held or taken. In lieu of fixing a record date, the Board of Directors may
provide that the stock transfer books shall be closed for a stated period but
not to exceed 20 days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of, or to vote at, a meeting of
stockholders, such books shall be closed for at least 10 days immediately
preceding such meeting. If no record date is fixed and the stock transfer books
are not closed for the determination of stockholders: (1) The record date for
the determination of stockholders entitled to notice of, or to vote at, a
meeting of stockholders shall be at the close of business on the day on which
the notice of meeting is mailed or the day 30 days before the meeting, whichever
is the closer date to the meeting; and (2) The record date for the determination
of stockholders entitled to receive payment of a dividend or an allotment of any
rights shall be at the close of business on the day on which the resolution of
the Board of Directors declaring the dividend or allotment of rights is adopted,
provided that the payment or allotment date shall not be more than 60 days after
the date on which the resolution is adopted.
4. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share of stock" or "shares of stock" or "stockholder" or
"stockholders" refers to an outstanding share or shares of stock and to a holder
or holders of record of outstanding shares of stock when the corporation is
authorized to issue only one class of shares of stock and said reference also is
intended to include any outstanding share or shares of stock and any holder or
holders of record of outstanding shares of stock of any class or series upon
which or upon whom the Charter confers such rights where there are two or more
classes or series of shares or upon which or upon whom the General Corporation
Law confers such rights notwithstanding that the Charter may provide for more
than one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder.
5. STOCKHOLDER MEETINGS.
TIME. The annual meeting of stockholders shall be held on the
date fixed, from time to time, by the directors, within the thirty-one day
period commencing with the first day of June (or if said day be a legal holiday,
then on the next succeeding day not a legal holiday), for the election of
directors and the transaction of any business within the powers of the
corporation. Special meetings shall be held on the date or dates fixed by the
directors.
PLACE. Annual meetings and special meetings shall be held at such
place, either within the State of Maryland or at such other place within the
United States, and at such date or dates as the directors from time to time may
fix.
NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER OF NOTICE. Written or
printed notice of all meetings shall be given by the Secretary and shall state
the time and place of the meeting. The notice of a special meeting shall state
in all instances the purpose or purposes for which the meeting is called.
Written or printed notice of any meeting shall be given to each stockholder
either by mail or by presenting it to the stockholder personally or by leaving
it at his or her residence or usual place of business not less than ten days and
not more than 90 days before the date of the meeting, unless any provisions of
the General Corporation Law shall prescribe a different elapsed period of time,
to each stockholder at his or her address appearing on the books of the
corporation or the address supplied by the stockholder for the purpose of
notice. If mailed, notice shall be deemed to be given when deposited in the
United States mail addressed to the stockholder at his or her post office
address as it appears on the records of the corporation with postage thereon
prepaid. Whenever any notice of the time, place or purpose of any meeting of
stockholders is required to be given under the provisions of these by-laws or of
the General Corporation Law, a waiver thereof in writing, signed by the
stockholder and filed with the records of the meeting, whether before or after
the holding thereof, or actual attendance or representation at the meeting shall
be deemed equivalent to the giving of such notice to such stockholder. The
foregoing requirements of notice also shall apply, whenever the corporation
shall have any class of stock which is not entitled to vote, to holders of stock
who are not entitled to vote at the meeting, but who are entitled to notice
thereof and to dissent from any action taken thereat.
STATEMENT OF AFFAIRS. The President of the corporation or, if the
Board of Directors shall determine otherwise, some other executive officer
thereof, shall prepare or cause to be prepared annually a full and correct
statement of the affairs of the corporation, including a balance sheet and a
financial statement of operations for the preceding fiscal year, which shall be
submitted at the annual meeting and filed within 20 days thereafter at the
principal office of the corporation in the State of Maryland.
QUORUM. At any meeting of stockholders, the presence in person or
by proxy of stockholders entitled to cast one-third of the votes thereat shall
constitute a quorum. In the absence of a quorum, the stockholders present in
person or by proxy, by majority vote and without notice other than by
announcement, may adjourn the meeting from time to time, but not for a period
exceeding 120 days after the original record date until a quorum shall attend.
ADJOURNED MEETINGS. A meeting of stockholders convened on the
date for which it was called (including one adjourned to achieve a quorum as
provided in the paragraph above) may be adjourned from time to time without
further notice to a date not more than 120 days after the original record date,
and any business may be transacted at any adjourned meeting which could have
been transacted at the meeting as originally called.
CONDUCT OF MEETING. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting: the President, the Chairman of the Board, a Vice President
or, if none of the foregoing is in office and present and acting, by a chairman
to be chosen by the stockholders. The Secretary of the corporation or, in his or
her absence, an Assistant Secretary, shall act as secretary of every meeting,
but if neither the Secretary nor an Assistant Secretary is present the chairman
of the meeting shall appoint a secretary of the meeting.
PROXY REPRESENTATION. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether for the purposes of determining the
stockholder's presence at a meeting, or whether by waiving notice of any
meeting, voting or participating at a meeting, expressing consent or dissent
without a meeting or otherwise. Every proxy shall be executed in writing by the
stockholder or by his or her duly authorized attorney-in-fact or be in such
other form as may be permitted by the Maryland General Corporation Law,
including documents conveyed by electronic transmission and filed with the
Secretary of the corporation. A copy, facsimile transmission or other
reproduction of the writing or transmission may be substituted for the original
writing or transmission for any purpose for which the original transmission
could be used. No unrevoked proxy shall be valid after 11 months from the date
of its execution, unless a longer time is expressly provided therein. The
placing of a stockholder's name on a proxy pursuant to telephonic or
electronically transmitted instructions obtained pursuant to procedures
reasonably designed to verify that such instructions have been authorized by
such stockholder shall constitute execution of such proxy by or on behalf of
such stockholder.
INSPECTORS OF ELECTION. The directors, in advance of any meeting,
may, but need not, appoint one or more inspectors to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath to execute faithfully the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum and the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting
or any stockholder, the inspector or inspectors, if any, shall make a report in
writing of any challenge, question or matter determined by him or them and
execute a certificate of any fact found by him or them.
VOTING. Each share of stock shall entitle the holder thereof to
one vote, except in the election of directors, at which each said vote may be
cast for as many persons as there are directors to be elected. Except for
election of directors, a majority of the votes cast at a meeting of
stockholders, duly called and at which a quorum is present, shall be sufficient
to take or authorize action upon any matter which may come before a meeting,
unless more than a majority of votes cast is required by the corporation's
Articles of Incorporation. A plurality of all the votes cast at a meeting at
which a quorum is present shall be sufficient to elect a director.
6. INFORMAL ACTION. Any action required or permitted to be taken
at a meeting of stockholders may be taken without a meeting if a consent in
writing, setting forth such action, is signed by all the stockholders entitled
to vote on the subject matter thereof and any other stockholders entitled to
notice of a meeting of stockholders (but not to vote thereat) have waived in
writing any rights which they may have to dissent from such action and such
consent and waiver are filed with the records of the corporation.
ARTICLE II
BOARD OF DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed under the direction of a Board of Directors. The
use of the phrase "entire board" herein refers to the total number of directors
which the corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. Each director shall be a natural person
of full age. A director need not be a stockholder, a citizen of the United
States or a resident of the State of Maryland. The initial Board of Directors
shall consist of two persons. Thereafter, the number of directors constituting
the entire board shall never be less than three or the number of stockholders,
whichever is less. At any regular meeting or at any special meeting called for
that purpose, a majority of the entire Board of Directors may increase or
decrease the number of directors, provided that the number thereof shall never
be less than three or the number of stockholders, whichever is less, nor more
than twelve and further provided that the tenure of office of a director shall
not be affected by any decrease in the number of directors.
3. ELECTION AND TERM. The first Board of Directors shall consist of
the directors named in the Articles of Incorporation and shall hold office until
the first annual meeting of stockholders or until their successors have been
elected and qualified. Beginning with the first annual meeting of stockholders
held after the initial public offering of the shares of the corporation (the
"initial annual meeting"), the Board of Directors shall be divided into three
classes, as nearly equal in number as the then total number of directors
constituting the entire Board permits, with the term of office of one class
expiring each year. At the initial annual meeting, directors of the first class
shall be deemed to have been elected to hold office for a term expiring at the
next succeeding annual meeting, directors of the second class shall be deemed to
have been elected to hold office for a term expiring at the second succeeding
annual meeting and directors of the third class shall be deemed to have been
elected to hold office for a term expiring at the third succeeding annual
meeting. In the interim between annual meetings of stockholders or special
meetings of stockholders called for the election of directors, newly created
directorships and any vacancies in the Board of Directors, other than vacancies
resulting from the removal of directors by the stockholders, may be filled by
the Board of Directors. Newly created directorships filled by the Board of
Directors shall be by action of a majority of the entire Board of Directors. All
other vacancies to be filled by the Board of Directors may be filled by a
majority of the remaining members of the Board of Directors, although such
majority is less than a quorum thereof. Any director elected by the stockholders
of the corporation to fill a vacancy shall be in the same class and have the
same remaining term as that of the predecessor. Any director elected by the
Board of Directors to fill a vacancy shall serve until the next annual meeting
of stockholders and until his successor is elected and qualifies. No decrease in
the number of directors shall shorten the term of any incumbent director.
4. MEETINGS.
TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors conveniently may assemble.
PLACE. Meetings shall be held at such place within or without the
State of Maryland as shall be fixed by the Board.
CALL. No call shall be required for regular meetings for which
the time and place have been fixed. Special meetings may be called by or at the
direction of the President or of a majority of the directors in office.
NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. Whenever any notice of
the time, place or purpose of any meeting of directors or any committee thereof
is required to be given under the provisions of the General Corporation Law or
of these by-laws, a waiver thereof in writing, signed by the director or
committee member entitled to such notice and filed with the records of the
meeting, whether before or after the holding thereof, or actual attendance at
the meeting shall be deemed equivalent to the giving of such notice to such
director or such committee member.
QUORUM AND ACTION. A majority of the entire Board of Directors
shall constitute a quorum except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute a
quorum, provided such majority shall constitute at least one-third of the entire
Board and, in no event, less than two directors. A majority of the directors
present, whether or not a quorum is present, may adjourn a meeting to another
time and place. Except as otherwise specifically provided by the Articles of
Incorporation, the General Corporation Law or these by-laws, the action of a
majority of the directors present at a meeting at which a quorum is present
shall be the action of the Board of Directors.
CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, or the President or any other director chosen by the Board,
shall preside at all meetings.
5. REMOVAL OF DIRECTORS. Any or all of the directors may be removed
for cause or without cause by the stockholders, who may elect a successor or
successors to fill any resulting vacancy or vacancies for the unexpired term of
the removed director or directors.
6. COMMITTEES. The Board of Directors may appoint from among its
members an Executive Committee and other committees composed of one or more
directors and may delegate to such committee or committees, in the intervals
between meetings of the Board of Directors, any or all of the powers of the
Board of Directors in the management of the business and affairs of the
corporation to the extent permitted by law. In the absence of any member of any
such committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
7. INFORMAL ACTION. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if a written consent to such action is signed by all members
of the Board of Directors or any such committee, as the case may be, and such
written consent is filed with the minutes of the proceedings of the Board or any
such committee.
Members of the Board of Directors or any committee designated thereby
may participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
ARTICLE III
OFFICERS
The corporation may have a Chairman of the Board and shall have a
President, a Secretary and a Treasurer, who shall be elected by the Board of
Directors, and may have such other officers, assistant officers and agents as
the Board of Directors shall authorize from time to time. Any two or more
offices, except those of President and Vice President, may be held by the same
person, but no person shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law to be executed,
acknowledged or verified by two or more officers.
Any officer or agent may be removed by the Board of Directors
whenever, in its judgment, the best interests of the corporation will be served
thereby.
ARTICLE IV
PRINCIPAL OFFICE - RESIDENT AGENT - STOCK LEDGER
The address of the principal office of the corporation in the State of
Maryland prescribed by the General Corporation Law is 300 East Lombard Street,
c/o The Corporation Trust Incorporated, Baltimore, Maryland 21202. The name and
address of the resident agent in the State of Maryland prescribed by the General
Corporation Law are: The Corporation Trust Incorporated, 300 East Lombard
Street, Baltimore, Maryland 21202.
The corporation shall maintain, at its principal office in the State
of Maryland prescribed by the General Corporation Law or at the business office
or an agency of the corporation, an original or duplicate stock ledger
containing the names and addresses of all stockholders and the number of shares
of each class held by each stockholder. Such stock ledger may be in written form
or any other form capable of being converted into written form within a
reasonable time for visual inspection.
The corporation shall keep at said principal office in the State of
Maryland the original or a certified copy of the by-laws, including all
amendments thereto, and shall duly file thereat the annual statement of affairs
of the corporation prescribed by Section 2-313 of the General Corporation Law.
ARTICLE V
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the
corporation and shall be in such form and contain such other words and/or
figures as the Board of Directors shall determine or the law require.
ARTICLE VI
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be
subject to change, by the Board of Directors.
ARTICLE VII
CONTROL OVER BY-LAWS
The power to make, alter, amend and repeal the by-laws is vested
exclusively in the Board of Directors of the corporation.
ARTICLE VIII
INDEMNIFICATION
1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall
indemnify its directors to the fullest extent that indemnification of directors
is permitted by the General Corporation Law. The corporation shall indemnify its
officers to the same extent as its directors and to such further extent as is
consistent with law. The corporation shall indemnify its directors and officers
who while serving as directors or officers also serve at the request of the
corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan to the fullest extent consistent with law.
The indemnification and other rights provided by this Article shall continue as
to a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person. This
Article shall not protect any such person against any liability to the
corporation or any stockholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office
("disabling conduct").
2. ADVANCES. Any current or former director or officer of the
corporation seeking indemnification within the scope of this Article shall be
entitled to advances from the corporation for payment of the reasonable expenses
incurred by him in connection with the matter as to which he is seeking
indemnification in the manner and to the fullest extent permissible under the
General Corporation Law. The person seeking indemnification shall provide to the
corporation a written affirmation of his good faith belief that the standard of
conduct necessary for indemnification by the corporation has been met and a
written undertaking to repay any such advance if it should ultimately be
determined that the standard of conduct has not been met. In addition, at least
one of the following additional conditions shall be met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
corporation for his or her undertaking; (b) the corporation is insured against
losses arising by reason of the advance; or (c) a majority of a quorum of
directors of the corporation who are neither "interested persons" as defined in
Section 2(a)(19) of the Investment Company Act of 1940, as amended, nor parties
to the proceeding ("disinterested non-party directors"), or independent legal
counsel, in a written opinion, shall have determined, based on a review of facts
readily available to the corporation at the time the advance is proposed to be
made, that there is reason to believe that the person seeking indemnification
will ultimately be found to be entitled to indemnification.
3. PROCEDURE. At the request of any person claiming indemnification
under this Article, the Board of Directors shall determine, or cause to be
determined, in a manner consistent with the General Corporation Law, whether the
standards required by this Article have been met. Indemnification shall be made
only following: (a) a final decision on the merits by a court or other body
before whom the proceeding was brought that the person to be indemnified was not
liable by reason of disabling conduct or (b) in the absence of such a decision,
a reasonable determination, based upon a review of the facts, that the person to
be indemnified was not liable by reason of disabling conduct by (i) the vote of
a majority of a quorum of disinterested non-party directors or (ii) an
independent legal counsel in a written opinion.
4. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Employees and agents who
are not officers or directors of the corporation may be indemnified, and
reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940, as amended.
5. OTHER RIGHTS. The Board of Directors may make further provision
consistent with law for indemnification and advance of expenses to directors,
officers, employees and agents by resolution, agreement or otherwise. The
indemnification provided by this Article shall not be deemed exclusive of any
other right, with respect to indemnification or otherwise, to which those
seeking indemnification may be entitled under any insurance or other agreement
or resolution of stockholders or disinterested non-party directors or otherwise.
6. AMENDMENTS. References in this Article are to the General
Corporation Law and to the Investment Company Act of 1940 as from time to time
amended. No amendment of the by-laws shall affect any right of any person under
this Article based on any event, omission or proceeding prior to the amendment.
Dated: July 20, 1987
Amended: August 20, 1999
EXHIBIT D(1)
AUCTION AGENT AGREEMENT
between
DREYFUS STRATEGIC MUNICIPALS, INC.
and
BANKERS TRUST COMPANY
Dated as of January ___, 2000
Relating to
AUCTION PREFERRED STOCK
of
DREYFUS STRATEGIC MUNICIPALS, INC.
<PAGE>
TABLE OF CONTENTS
Page
I. DEFINITIONS AND RULES OF CONSTRUCTION....................................1
1.1 Terms Defined by Reference to the Articles Supplementary..............1
1.2 Terms Defined Herein..................................................1
1.3 Rules of Construction.................................................2
II. THE AUCTION.............................................................3
2.1 Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.................................................3
2.2 Preparation for Each Auction; Maintenance of Registry of Existing
Holders...............................................................3
2.3 Auction Schedule......................................................6
2.4 Notice of Auction Results.............................................7
2.5 Broker-Dealers........................................................7
2.6 Ownership of Shares of APS and Submission of Bids by the Fund and
its Affiliates........................................................8
2.7 Access to and Maintenance of Auction Records..........................8
III. THE AUCTION AGENT AS PAYING AGENT......................................9
3.1 The Paying Agent......................................................9
3.2 The Fund's Notices to the Paying Agent................................9
3.3 The Fund to Provide Funds for Dividends, Redemptions and Additional
Dividends.............................................................9
3.4 Disbursing Dividends, Redemption Price and Additional Dividends......10
IV. THE PAYING AGENT AS TRANSFER AGENT AND REGISTRAR.......................10
4.1 Original Issue of Stock Certificates.................................10
4.2 Registration of Transfer or Exchange of Shares.......................11
4.3 Removal of Legend....................................................11
4.4 Lost, Stolen or Destroyed Stock Certificates.........................11
4.5 Disposition of Canceled Certificates; Record Retention...............12
4.6 Stock Register.......................................................12
4.7 Return of Funds......................................................12
V. REPRESENTATIONS AND WARRANTIES..........................................13
5.1 Representations and Warranties of the Fund...........................13
5.2 Representations and Warranties of the Auction Agent..................14
VI. THE AUCTION AGENT......................................................14
6.1 Duties and Responsibilities..........................................14
6.2 Rights of the Auction Agent..........................................14
6.3 Auction Agent's Disclaimer...........................................15
6.4 Compensation, Expenses and Indemnification...........................15
VII. MISCELLANEOUS.........................................................15
7.1 Term of Agreement....................................................15
7.2 Communications.......................................................16
7.3 Entire Agreement.....................................................17
7.4 Benefits.............................................................17
7.5 Amendment; Waiver....................................................17
7.6 Successors and Assigns...............................................18
7.7 Severability.........................................................18
7.8 Execution in Counterparts............................................18
7.9 Governing Law........................................................18
<PAGE>
THIS AUCTION AGENT AGREEMENT, dated as of January __, 2000, is between
DREYFUS STRATEGIC MUNICIPALS, INC., a Maryland corporation (the "Fund"), and
BANKERS TRUST COMPANY, a New York corporation.
The Fund proposes to issue 2,280 shares of Series M preferred stock,
2,280 shares of Series T preferred stock, 2,280 shares of Series W preferred
stock, 2,280 shares of Series TH preferred stock and 2,280 shares of Series F
preferred stock, par value $.001 per share, liquidation preference $25,000 per
share (the "APS"), pursuant to the Fund's Articles Supplementary (as defined
below). The Fund desires that Bankers Trust Company perform certain duties as
agent in connection with each Auction of shares of APS (in such capacity, the
"Auction Agent"), and as the transfer agent, registrar, dividend disbursing
agent and redemption agent with respect to the shares of APS (in such capacity,
the "Paying Agent"), upon the terms and conditions of this Agreement, and the
Fund hereby appoints Bankers Trust Company as said Auction Agent and Paying
Agent in accordance with those terms and conditions (hereinafter generally
referred to as the "Auction Agent," except in Sections 3 and 4 below).
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Fund and the Auction Agent agree as follows:
I. DEFINITIONS AND RULES OF CONSTRUCTION.
1.1 Terms Defined by Reference to the Articles Supplementary.
Capitalized terms not defined herein shall have the respective meanings
specified in the Articles Supplementary.
1.2 Terms Defined Herein. As used herein and in the Settlement
Procedures (as defined below), the following terms shall have the following
meanings, unless the context otherwise requires:
(a) "Affiliate" means any Person made known to the Auction Agent
to be controlled by, in control of, or under common control with, the Fund or
its successors.
(b) "Agent Member" of any Person means such Person's agent member
of the Securities Depository that will act on behalf of a Bidder.
(c) "Articles Supplementary" means the Articles Supplementary of
the Fund, establishing the powers, preferences and rights of the APS.
(d) "Auction" has the meaning specified in Section 2.1 hereof.
(e) "Auction Procedures" means the Auction Procedures that are
set forth in Article THIRD, paragraph 10 of the Articles Supplementary.
(f) "Authorized Officer" means each Managing Director, Vice
President, Assistant Vice President, Assistant Secretary and Assistant Treasurer
of the Auction Agent and every other officer or employee of the Auction Agent
designated as an "Authorized Officer" for purposes hereof in a communication to
the Fund.
(g) "Broker-Dealer Agreement" means each agreement between the
Auction Agent and a Broker-Dealer substantially in the form attached hereto as
Exhibit A.
(h) "Fee Schedule" means the separate writing to be signed by the
Fund and the Auction Agent setting forth the details of the compensation to be
paid to the Auction Agent for all services rendered by it under this Agreement
and under the Broker-Dealer Agreement.
(i) "Fund Officer" means the President, each Vice President, the
Secretary, the Treasurer, each Assistant Secretary and each Assistant Treasurer
of the Fund and every other officer or employee of the Fund designated as a
"Fund Officer" for purposes hereof in a notice from the Fund to the Auction
Agent.
(j) "Holder" shall be a holder of record of one or more shares of
APS, listed as such in the stock register maintained by the Paying Agent
pursuant to Section 4.6 hereof.
(k) "Settlement Procedures" means the Settlement Procedures
attached as Exhibit A to the Broker-Dealer Agreement.
1.3 Rules of Construction.
Unless the context or use indicates another or different meaning or
intent, the following rules shall apply to the construction of this Agreement:
(a) Words importing the singular number shall include the plural
number and vice versa.
(b) The captions and headings herein are solely for convenience
of reference and shall not constitute a part of this Agreement nor shall they
affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other words of
similar import refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be to
New York City time.
II. THE AUCTION.
2.1 Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
(a) The Articles Supplementary provide that the Applicable Rate
on shares of each series of APS, as the case may be, for each Dividend Period
therefor after the Initial Dividend Period shall be the rate per annum that a
commercial bank, trust company or other financial institution appointed by the
Fund advises results from implementation of the Auction Procedures. The Board of
Directors of the Fund has adopted a resolution appointing Bankers Trust Company
as Auction Agent for purposes of the Auction Procedures. The Auction Agent
hereby accepts such appointment and agrees that, on each Auction Date, it shall
follow the procedures set forth in this Section 2 and the Auction Procedures for
the purpose of determining the Applicable Rate for the APS for the next Dividend
Period therefor. Each periodic operation of such procedures is hereinafter
referred to as an "Auction."
(b) All of the provisions contained in the Auction Procedures and
in the Settlement Procedures are incorporated herein by reference in their
entirety and shall be deemed to be a part hereof to the same extent as if such
provisions were set forth fully herein.
2.2 Preparation for Each Auction; Maintenance of Registry of Existing
Holders.
(a) Pursuant to Section 2.5 hereof, the Fund shall not designate
any Person to act as a Broker-Dealer without the prior written approval of the
Auction Agent (which approval shall not be withheld unreasonably). As of the
date hereof, the Fund shall provide the Auction Agent with a list of the
Broker-Dealers previously approved by the Auction Agent and shall cause to be
delivered to the Auction Agent for execution by the Auction Agent a
Broker-Dealer Agreement signed by each such Broker-Dealer. The Auction Agent
shall keep such list current and accurate and shall indicate thereon, or on a
separate list, the identity of each Existing Holder, if any, whose most recent
Order was submitted by a Broker-Dealer on such list and resulted in such
Existing Holder continuing to hold or purchasing shares of APS. Not later than
five Business Days prior to any Auction Date for which any change in such list
of Broker-Dealers is to be effective, the Fund shall notify the Auction Agent in
writing of such change and, if any such change is the addition of a
Broker-Dealer to such list, the Fund shall cause to be delivered to the Auction
Agent for execution by the Auction Agent a Broker-Dealer Agreement signed by
such Broker-Dealer. The Auction Agent shall have entered into a Broker-Dealer
Agreement with each Broker-Dealer prior to the participation of any such
Broker-Dealer in any Auction.
(b) In the event that the Auction Date for any Auction shall be
changed after the Auction Agent shall have given the notice referred to in
clause (vii) of paragraph (a) of the Settlement Procedures, the Auction Agent,
by such means as the Auction Agent deems practicable, shall give notice of such
change to the Broker-Dealers not later than the earlier of 9:15 A.M. on the new
Auction Date or 9:15 A.M. on the old Auction Date.
(c) The provisions contained in Article THIRD, paragraph 2 of the
Articles Supplementary concerning Special Dividend Periods and the notification
of a Special Dividend Period will be followed by the Fund and, to the extent
applicable, the Auction Agent, and the provisions contained therein are
incorporated herein by reference in their entirety and shall be deemed to be a
part of this Agreement to the same extent as if such provisions were set forth
fully herein.
(d) (i) Except as otherwise provided in Article THIRD, paragraph
2 of the Articles Supplementary, whenever the Fund intends to include any net
capital gains or other income subject to regular Federal income tax in any
dividend on shares of APS, the Fund will notify the Auction Agent of the amount
to be so included at least five Business Days prior to the Auction Date on which
the Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from the Fund, in turn it will notify each
Broker-Dealer, who, on or prior to such Auction Date, in accordance with its
Broker-Dealer Agreement, will notify its Beneficial Owners and Potential
Beneficial Owners believed to be interested in submitting an Order in the
Auction to be held on such Auction Date. Whenever the Fund includes any
additional amounts in a dividend as provided in Article THIRD, paragraph 2 of
the Articles Supplementary, the Fund will notify the Auction Agent of such
additional amounts to be so included in such dividend at least five Business
Days prior to the applicable Dividend Payment Date. Whenever the Auction Agent
receives such notice from the Fund, in turn it will notify the Securities
Depository and each Broker-Dealer, who, on or prior to the applicable Dividend
Payment Date, in accordance with its Broker-Dealer Agreement, will notify its
Beneficial Owners.
(ii) If the Fund makes a Retroactive Taxable Allocation, the
Fund, within 90 days (and generally within 60 days) after the end of its fiscal
year for which a Retroactive Taxable Allocation is made, will provide notice
thereof to the Auction Agent and to each Holder (initially the Securities
Depository) during such fiscal year at such Holder's address as the same appears
or last appeared on the stock books of the Fund. The Fund, within 30 days after
such notice is given to the Auction Agent, will pay to the Auction Agent (who
then will distribute to such Holders), out of funds legally available therefor,
a cash amount equal to the aggregate Additional Dividend with respect to all
Retroactive Taxable Allocations made to such Holders during the fiscal year in
question.
(e) (i) On each Auction Date, the Auction Agent shall determine
the Reference Rate and the Maximum Applicable Rate. If the Reference Rate is not
quoted on an interest basis but is quoted on a discount basis, the Auction Agent
shall convert the quoted rate to an Interest Equivalent, as set forth in Article
THIRD, paragraph 1 of the Articles Supplementary; or, if the rate obtained by
the Auction Agent is not quoted on an interest or discount basis, the Auction
Agent shall convert the quoted rate to an interest rate after consultation with
the Fund as to the method of such conversion. Not later than 9:30 A.M. on each
Auction Date, the Auction Agent shall notify the Fund and the Broker-Dealers of
the Reference Rate so determined and of the Maximum Applicable Rate.
(ii) If the Reference Rate is the applicable "AA" Composite
Commercial Paper Rate and such rate is to be based on rates supplied by
Commercial Paper Dealers and one or more of the Commercial Paper Dealers shall
not provide a quotation for the determination of the applicable "AA" Composite
Commercial Paper Rate, the Auction Agent immediately shall notify the Fund so
that the Fund can determine whether to select a Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers to provide the quotation or
quotations not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers. The Fund promptly shall advise the Auction Agent of any such selection.
If the Fund does not select any such Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers, then the rates shall be supplied by the
remaining Commercial Paper Dealer or Commercial Paper Dealers.
(iii) If, after the date of this Agreement, there is any
change in the prevailing rating of the APS by Standard & Poor's Ratings Group
(or substitute or successor rating agencies), thereby resulting in any change in
the corresponding applicable percentage for the APS, as set forth in the
definition of Maximum Applicable Rate (the "Percentage"), the Fund shall notify
the Auction Agent in writing of such change in the Percentage prior to 9:00 A.M.
on the Auction Date for the APS next succeeding such change. The Percentage for
the APS on the date of this Agreement is 110%. The Auction Agent shall be
entitled to rely on the last Percentage of which it has received notice from the
Fund (or, in the absence of such notice, the Percentage set forth in the
preceding sentence) in determining the Maximum Applicable Rate as set forth in
Section 2.2(e)(i) hereof.
(f) (i) The Auction Agent shall maintain a current registry of
the Existing Holders of the shares of APS for purposes of each Auction. The Fund
shall use its best efforts to provide or cause to be provided to the Auction
Agent within ten Business Days following the date of the Closing a list of the
initial Existing Holders of APS, and the Broker-Dealer of each such Existing
Holder through which such Existing Holder purchased such shares. The Auction
Agent may rely upon, as evidence of the identities of the Existing Holders, such
list, the results of each Auction and notices from any Existing Holder, the
Agent Member of any Existing Holder or the Broker-Dealer of any Existing Holder
with respect to such Existing Holder's transfer of any shares of APS to another
Person.
(ii) In the event of any partial redemption of APS, upon
notice by the Fund to the Auction Agent of such partial redemption, the Auction
Agent promptly shall request the Securities Depository to notify the Auction
Agent of the identities of the Agent Members (and the respective numbers of
shares) from the accounts of which shares have been called for redemption and
the person or department at such Agent Member to contact regarding such
redemption, and at least two Business Days prior to the Auction preceding the
date of redemption, the Auction Agent shall request each Agent Member so
identified to disclose to the Auction Agent (upon selection by such Agent Member
of the Existing Holders whose shares are to be redeemed) the number of shares of
APS of each such Existing Holder, if any, to be redeemed by the Fund, provided
that the Auction Agent has been furnished with the name and telephone number of
a person or department at such Agent Member from which it is to request such
information. In the absence of receiving any such information with respect to an
Existing Holder, from such Existing Holder's Agent Member or otherwise, the
Auction Agent may continue to treat such Existing Holder as having ownership of
the number of shares of APS shown in the Auction Agent's registry of Existing
Holders.
(iii) The Auction Agent shall register a transfer of the
ownership of shares of APS from an Existing Holder to another Existing Holder,
or to another Person if permitted by the Fund, only if (A) such transfer is made
pursuant to an Auction or (B) if such transfer is made other than pursuant to an
Auction, the Auction Agent has been notified of such transfer in writing in a
notice substantially in the form of Exhibit C to the Broker-Dealer Agreement, by
such Existing Holder or by the Agent Member of such Existing Holder. The Auction
Agent is not required to accept any notice of transfer delivered for an Auction
unless it is received by the Auction Agent by 3:00 P.M. on the Business Day next
preceding the applicable Auction Date. The Auction Agent shall rescind a
transfer made on the registry of the Existing Holders of any shares of APS if
the Auction Agent has been notified in writing, in a notice substantially in the
form of Exhibit D to the Broker-Dealer Agreement, by the Agent Member or the
Broker-Dealer of any Person that (i) purchased any shares of APS and the seller
failed to deliver such shares or (ii) sold any shares of APS and the purchaser
failed to make payment to such Person upon delivery to the purchaser of such
shares.
(g) The Auction Agent may request that the Broker-Dealers, as set
forth in Section 3.2(c) of the Broker-Dealer Agreements, provide the Auction
Agent with a list of their respective customers that such Broker-Dealers believe
are Beneficial Owners of shares of APS. The Auction Agent shall keep
confidential any such information and shall not disclose any such information so
provided to any Person other than the relevant Broker-Dealer and the Fund,
provided that the Auction Agent reserves the right to disclose any such
information if it is advised by its counsel that its failure to do so would be
unlawful.
2.3 Auction Schedule.
The Auction Agent shall conduct Auctions in accordance with the
schedule set forth below. Such schedule may be changed by the Auction Agent with
the consent of the Fund, which consent shall not be withheld unreasonably. The
Auction Agent shall give notice of any such change to each Broker-Dealer. Such
notice shall be received prior to the first Auction Date on which any such
change shall be effective.
TIME EVENT
By 9:30 A.M. Auction Agent advises the Fund and
the Broker-Dealers of the Reference Rate and
the Maximum Applicable Rate as set forth in
Section 2.2(e)(i) hereof.
9:30 A.M. - 1:30 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers as
provided in Article THIRD, paragraph 10 of
the Articles Supplementary. Submission
deadline is 1:00 P.M.
Not earlier than 1:30 P.M. Auction Agent makes determinations
pursuant to Article THIRD, paragraph 10 of
the Articles Supplementary.
By approximately 3:00 P.M. Auction Agent advises the Fund of the
results of the Auction as provided in Article
THIRD, paragraph 10 of the Articles
Supplementary.
Submitted Bids and Submitted Sell Orders are
accepted and rejected in whole or in part and
shares of APS allocated as provided in
Article THIRD, paragraph 10 of the Articles
Supplementary.
Auction Agent gives notice of the Auction
results as set forth in Section 2.4 hereof.
2.4 Notice of Auction Results.
On each Auction Date, the Auction Agent shall notify Broker-Dealers of
the results of the Auction held on such date by telephone or through the Auction
Agent's Auction Processing System as set forth in Paragraph (a) of the
Settlement Procedures.
2.5 Broker-Dealers.
(a) Not later than 12:00 noon on each Auction Date, the Fund
shall pay to the Auction Agent in Federal Funds or similar same-day funds an
amount in cash equal to (i) in the case of any Auction Date immediately
preceding a 7-Day Dividend Period, the product of (A) a fraction the numerator
of which is the number of days in such Dividend Period (calculated by counting
the first day of such Dividend Period but excluding the last day thereof) and
the denominator of which is 360, times (B) 1/4 of 1%, times (C) $25,000 times
(D) the sum of the aggregate number of outstanding shares of APS for which the
Auction is conducted and (ii) in the case of any Special Dividend Period, the
amount determined by mutual consent of the Fund and the Broker-Dealers pursuant
to Section 3.5 of the Broker-Dealer Agreements. The Auction Agent shall apply
such moneys as set forth in Section 3.5 of the Broker-Dealer Agreements and
shall thereafter remit to the Fund any remaining funds paid to the Auction Agent
pursuant to this Section 2.5(a).
(b) The Fund shall not designate any Person to act as a
Broker-Dealer, or permit an Existing Holder or a Potential Beneficial Owner to
participate in Auctions through any Person other than a Broker-Dealer, without
the prior written approval of the Auction Agent, which approval shall not be
withheld unreasonably. The Fund may designate an Affiliate or PaineWebber
Incorporated to act as a Broker-Dealer.
(c) The Auction Agent shall terminate any Broker-Dealer Agreement
as set forth therein if so directed by the Fund.
(d) Subject to Section 2.5(b) hereof, the Auction Agent from time
to time shall enter into such Broker-Dealer Agreements as the Fund shall
request.
(e) The Auction Agent shall maintain a list of Broker-Dealers.
2.6 Ownership of Shares of APS and Submission of Bids by the Fund and
its Affiliates.
Neither the Fund nor any Affiliate of the Fund may submit any Sell
Order or Bid, directly or indirectly, in any Auction, except that an Affiliate
of the Fund that is a Broker-Dealer may submit a Sell Order or Bid on behalf of
a Beneficial Owner or a Potential Beneficial Owner. The Fund shall notify the
Auction Agent if the Fund or, to the best of the Fund's knowledge, any Affiliate
of the Fund becomes a Beneficial Owner of any shares of APS. Any shares of APS
redeemed, purchased or otherwise acquired (i) by the Fund shall not be reissued,
except in accordance with the requirements of the Securities Act of 1933, as
amended, or (ii) by its Affiliates shall not be transferred (other than to the
Fund). The Auction Agent shall have no duty or liability with respect to
enforcement of this Section 2.6.
2.7 Access to and Maintenance of Auction Records.
The Auction Agent shall afford to the Fund, its agents, independent
public accountants and counsel, access at reasonable times during normal
business hours to review and make extracts or copies (at the Fund's sole cost
and expense) of all books, records, documents and other information concerning
the conduct and results of Auctions, provided that any such agent, accountant or
counsel shall furnish the Auction Agent with a letter from the Fund requesting
that the Auction Agent afford such person access. The Auction Agent shall
maintain records relating to any Auction for a period of two years after such
Auction (unless requested by the Fund to maintain such records for such longer
period not in excess of four years, then for such longer period), and such
records, in reasonable detail, shall accurately and fairly reflect the actions
taken by the Auction Agent hereunder. The Fund agrees to keep confidential any
information regarding the customers of any Broker-Dealer received from the
Auction Agent in connection with this Agreement or any Auction, and shall not
disclose such information or permit the disclosure of such information without
the prior written consent of the applicable Broker-Dealer to anyone except such
agent, accountant or counsel engaged to audit or review the results of Auctions
as permitted by this Section 2.7, provided that the Fund reserves the right to
disclose any such information if it is advised by its counsel that its failure
to do so would (i) be unlawful or (ii) expose it to liability, unless the
Broker-Dealer shall have offered indemnification satisfactory to the Fund. Any
such agent, accountant or counsel, before having access to such information,
shall agree to keep such information confidential and not to disclose such
information or permit disclosure of such information without the prior written
consent of the applicable Broker-Dealer, provided that such agent, accountant or
counsel may reserve the right to disclose any such information if it is advised
by its counsel that its failure to do so would (i) be unlawful or (ii) expose it
to liability, unless the Broker-Dealer shall have offered indemnification
satisfactory to such agent, accountant or counsel.
III. THE AUCTION AGENT AS PAYING AGENT.
3.1 The Paying Agent.
The Fund's Board of Directors has adopted a resolution appointing
Bankers Trust Company as transfer agent, registrar, dividend disbursing agent
and redemption agent for the Fund in connection with any shares of APS (in such
capacity, the "Paying Agent"). The Paying Agent hereby accepts such appointment
and agrees to act in accordance with its standard procedures and the provisions
of the Articles Supplementary which are specified herein with respect to the
shares of APS and as set forth in this Section 3.
3.2 The Fund's Notices to the Paying Agent.
Whenever any shares of APS are to be redeemed, the Fund promptly shall
deliver to the Paying Agent a Notice of Redemption at least five Business Days
prior to the date such Notice of Redemption is required to be mailed pursuant to
the Articles Supplementary. The Paying Agent shall have no responsibility to
confirm or verify the accuracy of any such Notice.
3.3 The Fund to Provide Funds for Dividends, Redemptions and
Additional Dividends.
(a) Not later than noon on each Dividend Payment Date, the Fund
shall deposit with the Paying Agent an aggregate amount of Federal Funds or
similar same-day funds equal to the declared dividends to be paid to Holders on
such Dividend Payment Date, and shall give the Paying Agent irrevocable
instructions to apply such funds to the payment of such dividends on such
Dividend Payment Date.
(b) If the Fund shall give a Notice of Redemption, then by noon
of the date fixed for redemption, the Fund shall deposit in trust with the
Paying Agent an aggregate amount of Federal Funds or similar same-day funds
sufficient to redeem such shares of APS called for redemption and shall give the
Paying Agent irrevocable instructions and authority to pay the redemption price
to the Holders of shares of APS called for redemption upon surrender of the
certificate or certificates therefor.
(c) If the Fund provides notice to the Auction Agent of a
Retroactive Taxable Allocation, the Fund, within 30 days after such notice is
given and by noon of the date fixed for payment of an Additional Dividend, shall
deposit in trust with the Paying Agent an aggregate amount of Federal Funds or
similar same-day funds equal to such Additional Dividend and shall give the
Paying Agent irrevocable instructions and authority to pay the Additional
Dividend to Holders (or former Holders) entitled thereto.
3.4 Disbursing Dividends, Redemption Price and Additional Dividends.
After receipt of the Federal Funds or similar same-day funds and
instructions from the Fund described in Sections 3.3(a), (b) and (c) above, the
Paying Agent shall pay to the Holders (or former Holders) entitled thereto (i)
on each corresponding Dividend Payment Date, dividends on the shares of APS,
(ii) on any date fixed for redemption, the redemption price of any shares of APS
called for redemption and (iii) on the date fixed for payment of an Additional
Dividend, such Additional Dividend. The amount of dividends for any Dividend
Period to be paid by the Paying Agent to Holders will be determined by the Fund
as set forth in Article THIRD, paragraph 2 of the Articles Supplementary. The
redemption price to be paid by the Paying Agent to the Holders of any shares of
APS called for redemption will be determined as set forth in Article THIRD,
paragraph 4 of the Articles Supplementary. The amount of Additional Dividends to
be paid by the Paying Agent in the event of a Retroactive Taxable Allocation to
Holders will be determined by the Fund pursuant to Article THIRD, paragraph 2(e)
of the Articles Supplementary. The Fund shall notify the Paying Agent in writing
of a decision to redeem any shares of APS on or prior to the date specified in
Section 3.2 above, and such notice by the Fund to the Paying Agent shall contain
the information required to be stated in a Notice of Redemption required to be
mailed by the Fund to such Holders. The Paying Agent shall have no duty to
determine the redemption price and may rely on the amount thereof set forth in a
Notice of Redemption.
IV. THE PAYING AGENT AS TRANSFER AGENT AND REGISTRAR.
4.1 Original Issue of Stock Certificates.
On the Date of Original Issue for any share of APS, one certificate
for each series of APS shall be issued by the Fund and registered in the name of
Cede & Co., as nominee of the Securities Depository, and countersigned by the
Paying Agent. The Fund will give the Auction Agent prior written notice and
instruction as to the issuance and redemption of APS.
4.2 Registration of Transfer or Exchange of Shares.
Except as provided in this Section 4.2, the shares of each series of
APS shall be registered solely in the name of the Securities Depository or its
nominee. If the Securities Depository shall give notice of its intention to
resign as such, and if the Fund shall not have selected a substitute Securities
Depository acceptable to the Paying Agent prior to such resignation, then upon
such resignation, the shares of each series of APS, if any, at the Fund's
request, may be registered for transfer or exchange, and new certificates
thereupon shall be issued in the name of the designated transferee or
transferees, upon surrender of the old certificate in form deemed by the Paying
Agent properly endorsed for transfer with (a) all necessary endorsers'
signatures guaranteed in such manner and form as the Paying Agent may require by
a guarantor reasonably believed by the Paying Agent to be responsible, (b) such
assurances as the Paying Agent shall deem necessary or appropriate to evidence
the genuineness and effectiveness of each necessary endorsement and (c)
satisfactory evidence of compliance with all applicable laws relating to the
collection of taxes in connection with any registration of transfer or exchange
or funds necessary for the payment of such taxes. If the certificate or
certificates for shares of APS are not held by the Securities Depository or its
nominee, payments upon transfer of shares in an Auction shall be made in Federal
Funds or similar same-day funds to the Auction Agent against delivery of
certificates therefor.
4.3 Removal of Legend.
Any request for removal of a legend indicating a restriction on
transfer from a certificate evidencing shares of APS shall be accompanied by an
opinion of counsel stating that such legend may be removed and such shares may
be transferred free of the restriction described in such legend, said opinion to
be delivered under cover of a letter from a Fund Officer authorizing the Paying
Agent to remove the legend on the basis of said opinion.
4.4 Lost, Stolen or Destroyed Stock Certificates.
The Paying Agent shall issue and register replacement certificates for
certificates represented to have been lost, stolen or destroyed, upon the
fulfillment of such requirements as shall be deemed appropriate by the Fund and
by the Paying Agent, subject at all times to provisions of law, the By-Laws of
the Fund governing such matters and resolutions adopted by the Fund with respect
to lost, stolen or destroyed securities. The Paying Agent may issue new
certificates in exchange for and upon the cancellation of mutilated
certificates. Any request by the Fund to the Paying Agent to issue a replacement
or new certificate pursuant to this Section 4.4 shall be deemed to be a
representation and warranty by the Fund to the Paying Agent that such issuance
will comply with provisions of applicable law and the By-Laws and resolutions of
the Fund.
4.5 Disposition of Canceled Certificates; Record Retention.
The Paying Agent shall promptly transmit to the Fund stock
certificates which have been canceled in transfer or in exchange and
accompanying documentation. The Fund, at its expense, shall retain such records
for a minimum period of six calendar years from the date of delivery of the
records to the Fund and shall make such records available during this period at
any time, or from time to time, for reasonable periodic, special, or other
examinations by representatives of the Securities and Exchange Commission. The
Fund also shall undertake to furnish to the Securities and Exchange Commission,
upon demand, either at their principal office or at any regional office,
complete, correct and current hard copies of any and all such records.
Thereafter, such records shall not be destroyed by the Fund without the approval
of the Paying Agent, which approval shall not be withheld unreasonably, but will
be safely stored for possible future reference.
4.6 Stock Register.
The Paying Agent shall maintain the stock register, which shall
contain a list of the Holders, the number of shares held by each Holder and the
address of each Holder. The Paying Agent shall record in the stock register any
change of address of a Holder upon notice by such Holder. In case of any written
request or demand for the inspection of the stock register or any other books of
the Fund in the possession of the Paying Agent, the Paying Agent will notify the
Fund and secure instructions as to permitting or refusing such inspection. The
Paying Agent reserves the right, however, to exhibit the stock register or other
records to any person in case it is advised by its counsel that its failure to
do so would (i) be unlawful or (ii) expose it to liability, unless the Fund
shall have offered indemnification satisfactory to the Paying Agent.
4.7 Return of Funds.
Any funds deposited with the Paying Agent by the Fund for any reason
under this Agreement, including for the payment of dividends or the redemption
of APS, that remain with the Paying Agent after 12 months shall be repaid to the
Fund upon written request by the Fund.
V. REPRESENTATIONS AND WARRANTIES.
5.1 Representations and Warranties of the Fund.
The Fund represents and warrants to the Auction Agent that:
(i) the Fund is duly organized and is validly existing as a
corporation in good standing under the laws of the State of Maryland, and has
full power to execute and deliver this Agreement and to authorize, create and
issue the shares of APS;
(ii) the Fund is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, as a
closed-end, diversified, management investment company;
(iii) this Agreement has been duly and validly authorized,
executed and delivered by the Fund and constitutes the legal, valid and binding
obligation of the Fund, enforceable against the Fund in accordance with its
terms, subject as to such enforceability to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or affecting
creditors' rights and to general equitable principles;
(iv) the forms of the certificates evidencing the shares of APS
comply with all applicable laws of the State of Maryland;
(v) the shares of APS have been duly and validly authorized by
the Fund and, upon completion of the initial sale of the shares of APS and
receipt of payment therefor, will be validly issued, fully paid and
nonassessable;
(vi) at the time of the offering of the shares of APS, the shares
offered will be registered under the Securities Act of 1933, as amended, and no
further action by or before any governmental body or authority of the United
States or of any state thereof is required in connection with the execution and
delivery of this Agreement or will be required in connection with the issuance
of the shares of APS, except such action as required by applicable state
securities laws, all of which action will have been taken;
(vii) the execution and delivery of this Agreement and the
issuance and delivery of the shares of APS do not and will not conflict with,
violate, or result in a breach of, the terms, conditions or provisions of, or
constitute a default under, the Fund's Articles of Incorporation, By-Laws or
Articles Supplementary, any law or regulation applicable to the Fund, any order
or decree of any court or public authority having jurisdiction over the Fund, or
any mortgage, indenture, contract, agreement or undertaking to which the Fund is
a party or by which it is bound; and
(viii) no taxes are payable upon or in respect of the execution
of this Agreement or will be payable upon or in respect of the issuance of the
shares of APS.
5.2 Representations and Warranties of the Auction Agent.
The Auction Agent represents and warrants to the Fund that the Auction
Agent is duly organized and is validly existing as a corporation in good
standing under the laws of New York, and has the corporate power to enter into
and perform its obligations under this Agreement.
VI. THE AUCTION AGENT.
6.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Fund
hereunder and owes no fiduciary duties to any Person except as provided by this
Agreement.
(b) The Auction Agent undertakes to perform such duties and only
such duties as are set forth specifically in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against the Auction
Agent.
(c) In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered or omitted by
it or for any error of judgment made by it in the performance of its duties
under this Agreement. The Auction Agent shall not be liable for any error of
judgment made in good faith unless the Auction Agent shall have been negligent
in ascertaining (or failing to ascertain) the pertinent facts.
6.2 Rights of the Auction Agent.
(a) The Auction Agent may rely upon, and shall be protected in
acting or refraining from acting upon, any communication authorized hereby and
any written instruction, notice, request, direction, consent, report,
certificate, share certificate or other instrument, paper or document reasonably
believed by it to be genuine. The Auction Agent shall not be liable for acting
upon any telephone communication authorized hereby which the Auction Agent
believes in good faith to have been given by the Fund or by a Broker-Dealer. The
Auction Agent may record telephone communications with the Fund or with the
Broker-Dealers or with both.
(b) The Auction Agent may consult with counsel of its choice, and
the written advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or
risk its own funds or otherwise incur or become exposed to financial liability
in the performance of its duties hereunder. The Auction Agent shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Fund.
(d) The Auction Agent may perform its duties and exercise its
rights hereunder either directly or by or through agents or attorneys.
6.3 Auction Agent's Disclaimer.
The Auction Agent makes no representation as to the validity, accuracy
or adequacy of this Agreement, the Broker-Dealer Agreements or the APS.
6.4 Compensation, Expenses and Indemnification.
(a) The Fund shall pay to the Auction Agent from time to time
reasonable compensation for all services rendered by it under this Agreement and
under the Broker-Dealer Agreements as set forth in the Fee Schedule, subject to
adjustments if the APS no longer are held of record by the Securities Depository
or its nominee or if there shall be such other change as shall increase
materially the Auction Agent's obligations hereunder or under the Broker-Dealer
Agreements.
(b) The Fund shall reimburse the Auction Agent upon its request
for all reasonable expenses, disbursements and advances incurred or made by the
Auction Agent in accordance with any provision of this Agreement and of the
Broker-Dealer Agreements (including the reasonable compensation, expenses and
disbursements of its agents and counsel), except any expense, disbursement or
advance attributable to its negligence or bad faith.
(c) The Fund shall indemnify the Auction Agent for, and hold it
harmless against, any loss, liability or expense incurred without negligence or
bad faith on its part arising out of or in connection with its agency under this
Agreement and under the Broker-Dealer Agreements, including the costs and
expenses of defending itself against any claim of liability in connection with
its exercise or performance of any of its duties hereunder and thereunder,
except such as may result from its negligence or bad faith.
VII. MISCELLANEOUS.
7.1 Term of Agreement.
(a) The term of this Agreement is unlimited unless it shall be
terminated as provided in this Section 7.1. The Fund may terminate this
Agreement at any time by so notifying the Auction Agent, provided that if any
APS remain outstanding the Fund shall have entered into an agreement in
substantially the form of this Agreement with a successor auction agent. The
Auction Agent may terminate this Agreement upon prior notice to the Fund on the
date specified in such notice, which date shall be no earlier than 60 days after
delivery of such notice. If the Auction Agent resigns while any shares of APS
remain outstanding, the Fund shall use its best efforts to enter into an
agreement with a successor auction agent containing substantially the same terms
and conditions as this Agreement.
(b) Except as otherwise provided in this Section 7.1(b), the
respective rights and duties of the Fund and the Auction Agent under this
Agreement shall cease upon termination of this Agreement. The Fund's
representations, warranties, covenants and obligations to the Auction Agent
under Sections 5 and 6.4 hereof shall survive the termination hereof. Upon
termination of this Agreement, the Auction Agent shall (i) resign as Auction
Agent under the Broker-Dealer Agreements, (ii) at the Fund's request, deliver
promptly to the Fund copies of all books and records maintained by it in
connection with its duties hereunder, and (iii) at the request of the Fund,
transfer promptly to the Fund or to any successor auction agent any funds
deposited by the Fund with the Auction Agent (whether in its capacity as Auction
Agent or as Paying Agent) pursuant to this Agreement which have not been
distributed previously by the Auction Agent in accordance with this Agreement.
7.2 Communications.
Except for (i) communications authorized to be made by telephone
pursuant to this Agreement or the Auction Procedures and (ii) communications in
connection with Auctions (other than those expressly required to be in writing),
all notices, requests and other communications to any party hereunder shall be
in writing (including telecopy or similar writing) and shall be given to such
party at its address or telecopier number set forth below:
If to the Fund, addressed to:
Dreyfus Strategic Municipals, Inc.
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attention: Secretary
Telephone No.: (212) 922-7000
If to the Auction Agent, addressed to:
Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Auction Rate Securities
Telecopier No.: (212) 250-6215
Telephone No.: (212) 250-6850
or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of the Fund by a Fund Officer and on
behalf of the Auction Agent by an Authorized Officer.
7.3 Entire Agreement.
This Agreement contains the entire agreement between the parties
relating to the subject matter hereof, and there are no other representations,
endorsements, promises, agreements or understandings, oral, written or inferred,
between the parties relating to the subject matter hereof, except for agreements
relating to the compensation of the Auction Agent.
7.4 Benefits.
Nothing herein, express or implied, shall give to any Person, other
than the Fund, the Auction Agent and their respective successors and assigns,
any benefit of any legal or equitable right, remedy or claim hereunder.
7.5 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be
modified, amended, rescinded, canceled or waived, in whole or in part, except by
a written instrument signed by a duly authorized representative of the party to
be charged. The Fund shall notify the Auction Agent of any change in the
Articles Supplementary prior to the effective date of any such change. If any
such change in the Articles Supplementary materially increases the Auction
Agent's obligations hereunder, the Fund shall obtain the written consent to the
Auction Agent prior to the effective date of such change.
(b) Failure of either party hereto to exercise any right or
remedy hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
7.6 Successors and Assigns.
This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and permitted assigns of each of the
Fund and the Auction Agent. This Agreement may not be assigned by either party
hereto absent the prior written consent of the other party, which consent shall
not be withheld unreasonably.
7.7 Severability.
If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.
7.8 Execution in Counterparts.
This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
7.9 Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and to be
performed in said state.
[REMAINDER OF THIS PAGE BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the date first above written.
DREYFUS STRATEGIC MUNICIPALS, INC.
By:_____________________________________
Name:
Title:
BANKERS TRUST COMPANY
By:_____________________________________
Name:
Title:
EXHIBIT D(2)
BROKER-DEALER AGREEMENT
between
BANKERS TRUST COMPANY
and
PAINEWEBBER INCORPORATED
Dated as of January __, 2000
Relating to
AUCTION PREFERRED STOCK
of
DREYFUS STRATEGIC MUNICIPALS, INC.
BROKER-DEALER AGREEMENT dated as of January __, 2000, between BANKERS
TRUST COMPANY (the "Auction Agent") (not in its individual capacity, but solely
as agent of Dreyfus Strategic Municipals, Inc., a Maryland corporation (the
"Fund"), pursuant to authority granted to it in the Auction Agent Agreement
dated as of January __, 2000, between the Fund and the Auction Agent (the
"Auction Agent Agreement")) and PAINEWEBBER INCORPORATED (together with its
successors and assigns, "BD").
The Fund proposes to issue 2,280 shares of Series M preferred stock,
2,280 shares of Series T preferred stock, 2,280 shares of Series W preferred
stock, 2,280 shares of Series TH preferred stock and 2,280 shares of Series F
preferred stock, par value $.001 per share, liquidation preference $25,000 per
share, designated Auction Preferred Stock (the "APS"), pursuant to the Fund's
Articles Supplementary (as defined below).
The Fund's Articles Supplementary provide that the dividend rate on
the APS for each Dividend Period therefor after the Initial Dividend Period
shall be the Applicable Rate therefor, which, in each case, generally shall be
the rate per annum that a commercial bank, trust company or other financial
institution appointed by the Fund advises results from implementation of the
Auction Procedures (as defined below). The Fund's Board of Directors has adopted
a resolution appointing Bankers Trust Company as Auction Agent for purposes of
the Auction Procedures, and pursuant to Section 2.5 of the Auction Agent
Agreement, the Fund has requested and directed the Auction Agent to execute and
deliver this Agreement.
The Auction Procedures require the participation of one or more
Broker-Dealers.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Auction Agent and BD agree as follows:
I. DEFINITIONS AND RULES OF CONSTRUCTION.
1.1 Terms Defined by Reference to the Articles Supplementary.
Capitalized terms not defined herein have the respective meanings specified in
the Fund's Articles Supplementary.
1.2 Terms Defined Herein. As used herein and in the Settlement
Procedures (as defined below), the following terms have the following meanings,
unless the context otherwise requires:
(a) "Articles Supplementary" means the Articles Supplementary of
the Fund, establishing the powers, preferences and rights of the APS.
(b) "Auction" has the meaning specified in Section 3.1 hereof.
(c) "Auction Procedures" means the Auction Procedures that are
set forth in Article THIRD, paragraph 10 of the Articles Supplementary.
(d) "Authorized Officer" means each Managing Director, Vice
President, Assistant Vice President, Assistant Secretary and Assistant Treasurer
of the Auction Agent and every other officer or employee of the Auction Agent
designated as an "Authorized Officer" for purposes of this Agreement in a
communication to BD.
(e) "BD Officer" means each officer or employee of BD designated
as a "BD Officer" for purposes of this Agreement in a communication to the
Auction Agent.
(f) "Broker-Dealer Agreement" means this Agreement and any
substantially similar agreement between the Auction Agent and a Broker-Dealer.
(g) "Settlement Procedures" means the Settlement Procedures
attached hereto as Exhibit A.
1.3 Rules of Construction. Unless the context or use indicates another
or different meaning or intent, the following rules shall apply to the
construction of this Agreement:
(a) Words importing the singular number shall include the plural
number and vice versa.
(b) The captions and headings herein are solely for convenience
of reference and shall not constitute a part of this Agreement, nor shall they
affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other words of
similar import refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be to
New York City time.
II. NOTIFICATION OF DIVIDEND PERIOD AND ADVANCE NOTICE OF ALLOCATION OF TAXABLE
INCOME.
2.1 The provisions contained in Article THIRD, paragraph 2 of the
Articles Supplementary concerning the notification of a Special Dividend Period
will be followed by the Auction Agent and BD, and the provisions contained
therein are incorporated herein by reference in their entirety and shall be
deemed to be a part of this Agreement to the same extent as if such provisions
were set forth fully herein.
2.2 Except as otherwise provided in Article THIRD, paragraph 2 of the
Articles Supplementary, whenever the Fund intends to include any net capital
gains or other income subject to regular federal income tax in any dividend on
shares of APS, the Fund will notify the Auction Agent of the amount to be so
included at least five Business Days prior to the Auction Date on which the
Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from the Fund, in turn it will notify BD, who, on or
prior to such Auction Date, will notify its Beneficial Owners and Potential
Beneficial Owners believed to be interested in submitting an Order in the
Auction to be held on such Auction Date. Whenever the Fund intends to include
any additional amounts in a dividend as provided in Article THIRD, paragraph 2
of the Articles Supplementary, the Fund will notify the Auction Agent of such
additional amounts to be so included in such dividend at least five Business
Days prior to the applicable Dividend Payment Date. Whenever the Auction Agent
receives such notice from the Fund, in turn it will notify the Securities
Depository and BD, who, on or prior to the applicable Dividend Payment Date,
will notify its Beneficial Owners.
III. THE AUCTION.
3.1 Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
(a) On each Auction Date, the provisions of the Auction
Procedures will be followed by the Auction Agent for the purpose of determining
the Applicable Rate for the of APS, for the next Dividend Period therefor. Each
periodic operation of such procedures is hereinafter referred to as an
"Auction."
(b) All of the provisions contained in the Auction Procedures and
the Settlement Procedures are incorporated herein by reference in their entirety
and shall be deemed to be a part of this Agreement to the same extent as if such
provisions were set forth fully herein.
(c) BD agrees to act as, and assumes the obligations of and
limitations and restrictions placed upon, a Broker-Dealer under this Agreement.
BD understands that other Persons meeting the requirements specified in the
definition of "Broker-Dealer" contained in Article THIRD, paragraph 1 of the
Articles Supplementary may execute a Broker-Dealer Agreement and participate as
Broker-Dealers in Auctions.
(d) BD and other Broker-Dealers may participate in Auctions for
their own accounts. However, the Fund, by notice to BD and all other
Broker-Dealers, may prohibit all Broker-Dealers from submitting Bids in Auctions
for their own accounts, provided that Broker-Dealers may continue to submit
Hold Orders and Sell Orders.
3.2 Preparation for Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for the APS,
the Auction Agent shall advise BD by telephone of the Reference Rate and the
Maximum Applicable Rate in effect on such Auction Date.
(b) In the event that the Auction Date for any Auction shall be
changed after the Auction Agent has given the notice referred to in paragraph
(a) of the Settlement Procedures, the Auction Agent, by such means as the
Auction Agent deems practicable, shall give notice of such change to BD not
later than the earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the
old Auction Date. Thereafter, BD promptly shall notify customers of BD that BD
believes are Beneficial Owners of shares of APS of such change in the Auction
Date.
(c) The Auction Agent from time to time may request BD to provide
it with a list of the respective customers BD believes are Beneficial Owners of
shares of APS. BD shall comply with any such request, and the Auction Agent
shall keep confidential any such information, including information received as
to the identity of Bidders in any Auction, and shall not disclose any such
information so provided to any Person other than the Fund; and such information
shall not be used by the Auction Agent or its officers, employees, agents or
representatives for any purpose other than such purposes as are described
herein. The Auction Agent shall transmit any list of customers BD believes are
Beneficial Owners of shares of APS and information related thereto only to its
officers, employees, agents or representatives who need to know such information
for the purposes of acting in accordance with this Agreement, and the Auction
Agent shall prevent the transmission of such information to others and shall
cause its officers, employees, agents and representatives to abide by the
foregoing confidentiality restrictions; provided, however, that the Auction
Agent shall have no responsibility or liability for the actions of any of its
officers, employees, agents or representatives after they have left the employ
of the Auction Agent.
3.3 Auction Schedule; Method of Submission of Orders.
(a) The Fund and the Auction Agent shall conduct Auctions for APS
in accordance with the schedule set forth below. Such schedule may be changed at
any time by the Auction Agent with the consent of the Fund, which consent shall
not be withheld unreasonably.
The Auction Agent shall give notice of any such change to BD. Such notice shall
be received prior to the first Auction Date on which any such change shall be
effective.
Time: Event:
By 9:30 A.M. Auction Agent advises the Fund
and Broker-Dealers of the Reference Rate and
the Maximum Applicable Rate as set forth in
Section 3.2(a) hereof.
9:30 A.M. - 1:30 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers as
provided in of Article THIRD, paragraph 10 of
the Articles Supplementary. Submission
Deadline is 1:00 P.M.
Not earlier than 1:30 P.M. Auction Agent makes determinations pursuant
to Article THIRD, paragraph 10 of the
Articles Supplementary.
By approximately 3:00 P.M. Auction Agent advises the Fund of the
results of the Auction as provided in Article
THIRD, paragraph 10 of the Articles
Supplementary. Submitted Bids and Submitted
Sell Orders are accepted and rejected in
whole or in part and shares of APS are
allocated as provided in Article THIRD,
paragraph 10 of the Articles Supplementary.
Auction Agent gives notice of the Auction
results as set forth in Section 3.4(a)
hereof.
(b) BD agrees to maintain a list of Potential Beneficial Owners
and to contact the Potential Beneficial Owners on such list on or prior to each
Auction Date for the purposes set forth in Article THIRD, paragraph 10 of the
Articles Supplementary.
(c) BD shall submit Orders to the Auction Agent in writing in
substantially the form attached hereto as Exhibit B. BD shall submit separate
Orders to the Auction Agent for each Potential Beneficial Owner or Beneficial
Owner on whose behalf BD is submitting an Order and shall not net or aggregate
the Orders of Potential Beneficial Owners or Beneficial Owners on whose behalf
BD is submitting Orders.
(d) BD shall deliver to the Auction Agent (i) a written notice,
substantially in the form attached hereto as Exhibit C, of transfers of shares
of APS, made through BD by an Existing Holder to another Person other than
pursuant to an Auction, and (ii) a written notice, substantially in the form
attached hereto as Exhibit D, of the failure of shares of APS to be transferred
to or by any Person that purchased or sold shares of APS through BD pursuant to
an Auction. The Auction Agent is not required to accept any notice delivered
pursuant to the terms of the foregoing sentence with respect to an Auction
unless it is received by the Auction Agent by 3:00 P.M. on the Business Day next
preceding the applicable Auction Date.
3.4 Notice of Auction Results.
(a) On each Auction Date, the Auction Agent shall notify BD by
telephone as set forth in paragraph (a) of the Settlement Procedures. On the
Business Day next succeeding such Auction Date, the Auction Agent shall notify
BD in writing of the disposition of all Orders submitted by BD in the Auction
held on such Auction Date.
(b) BD shall notify each Beneficial Owner, Potential Beneficial
Owner, Existing Holder or Potential Holder on whose behalf BD has submitted an
Order as set forth in paragraph (b) of the Settlement Procedures, and take such
other action as is required of BD pursuant to the Settlement Procedures.
If any Beneficial Owner or Existing Holder selling shares of APS
in an Auction fails to deliver such shares, the BD of any Person that was to
have purchased shares of APS in such Auction may deliver to such Person a number
of whole shares of APS that is less than the number of shares that otherwise was
to be purchased by such Person. In such event, the number of shares of APS to be
so delivered shall be determined by such BD. Delivery of such lesser number of
shares shall constitute good delivery. Upon the occurrence of any such failure
to deliver shares, such BD shall deliver to the Auction Agent the notice
required by Section 3.3(d)(ii) hereof. Notwithstanding the foregoing terms of
this Section 3.4(b), any delivery or non-delivery of shares of APS which
represents any departure from the results of an Auction, as determined by the
Auction Agent, shall be of no effect unless and until the Auction Agent shall
have been notified of such delivery or non-delivery in accordance with the terms
of Section 3.3(d) hereof. The Auction Agent shall have no duty or liability with
respect to enforcement of this Section 3.4(b).
3.5 Service Charge to Be Paid to BD.
On the Business Day next succeeding each Auction Date, the Auction
Agent shall pay to BD from moneys received from the Fund an amount equal to: (a)
in the case of any Auction Date immediately preceding a 7-Day Dividend Period,
the product of (i) a fraction the numerator of which is the number of days in
such Dividend Period (calculated by counting the first day of such Dividend
Period but excluding the last day thereof) and the denominator of which is 360,
times (ii) 1/4 of 1%, times (iii) $25,000, times (iv) the sum of (A) the
aggregate number of APS placed by BD in the applicable Auction that were (x) the
subject of a Submitted Bid of a Beneficial Owner submitted by BD and continued
to be held as a result of such submission and (y) the subject of a Submitted Bid
of a Potential Beneficial Owner submitted by BD and were purchased as a result
of such submission plus (B) the aggregate number of APS subject to valid Hold
Orders (determined in accordance with Article THIRD, paragraph 10 of the
Articles Supplementary) submitted to the Auction Agent by BD plus (C) the number
of APS deemed to be subject to Hold Orders by Beneficial Owners pursuant to
Article THIRD, paragraph 10 of the Articles Supplementary that were acquired by
such Beneficial Owners through BD; and (b) in the case of any Auction Date
immediately preceding a Special Dividend Period, that amount as mutually agreed
upon by the Fund and BD, based on the selling concession that would be
applicable to an underwriting of fixed or variable rate preferred shares with a
similar final maturity or variable rate dividend period, at the commencement of
such Special Dividend Period.
For purposes of subclause (a)(iv)(C) of the foregoing sentence, if any
Beneficial Owner who acquired shares of APS through BD transfers those shares to
another Person other than pursuant to an Auction, then the Broker-Dealer for the
shares so transferred shall continue to be BD, provided, however, that if the
transfer was effected by, or if the transferee is, a Broker-Dealer other than
BD, then such Broker-Dealer shall be the Broker-Dealer for such shares.
IV. THE AUCTION AGENT.
4.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Fund
hereunder and owes no fiduciary duties to any other Person by reason of this
Agreement.
(b) The Auction Agent undertakes to perform such duties and only
such duties as are set forth specifically in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against the Auction
Agent.
(c) In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered or omitted by
it, or for any error of judgment made by it in the performance of its duties
under this Agreement. The Auction Agent shall not be liable for any error of
judgment made in good faith unless the Auction Agent shall have been negligent
in ascertaining (or failing to ascertain) the pertinent facts.
4.2 Rights of the Auction Agent.
(a) The Auction Agent may rely upon, and shall be protected in
acting or refraining from acting upon, any communication authorized by this
Agreement and any written instruction, notice, request, direction, consent,
report, certificate, share certificate or other instrument, paper or document
believed by it to be genuine. The Auction Agent shall not be liable for acting
upon any telephone communication authorized by this Agreement which the Auction
Agent believes in good faith to have been given by the Fund or by BD. The
Auction Agent may record telephone communications with BD.
(b) The Auction Agent may consult with counsel of its own choice,
and the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or
risk its own funds or otherwise incur or become exposed to financial liability
in the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its
rights hereunder either directly or by or through agents or attorneys.
4.3 Auction Agent's Disclaimer. The Auction Agent makes no
representation as to the validity, accuracy or adequacy of this Agreement or the
APS.
V. MISCELLANEOUS.
5.1 Termination. Any party may terminate this Agreement at any time
upon five days' prior written notice to the other party; provided, however, that
if BD is PaineWebber Incorporated, neither BD nor the Auction Agent may
terminate this Agreement without first obtaining the prior written consent of
the Fund to such termination, which consent shall not be withheld unreasonably.
5.2 Participant in Securities Depository; Payment of Dividends in
Same-Day Funds.
(a) BD is, and shall remain for the term of this Agreement, a
member of, or a participant in, the Securities Depository (or an affiliate of
such a member or participant).
(b) BD represents that it (or if BD does not act as Agent Member,
one of its affiliates) shall make all dividend payments on the APS available in
same-day funds on each Dividend Payment Date to customers that use BD (or its
affiliate) as Agent Member.
5.3 Agent Member. At the date hereof, BD is a participant of the
Securities Depository.
5.4 Communications. Except for (i) communications authorized to be
made by telephone pursuant to this Agreement or the Auction Procedures and (ii)
communications in connection with the Auctions (other than those expressly
required to be in writing), all notices, requests and other communications to
any party hereunder shall be in writing (including telecopy or similar writing)
and shall be given to such party at its address or telecopier number set forth
below:
<PAGE>
If to BD, addressed to:
PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Attention: Vijit Sawhney
Telecopier No.: (201) 271-6999
Telephone No.: (201) 271-7270
If to the Auction Agent, addressed to:
Bankers Trust Company
Corporate Trust and Agency Group
Four Albany Street
New York, New York 10006
Attention: Auction Rate Securities
Telecopier No.: (212) 250-6215
Telephone No.: (212) 250-6850
or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of BD by a BD Officer and on behalf of
the Auction Agent by an Authorized Officer. BD may record telephone
communications with the Auction Agent.
5.5 Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof, and there are no
other representations, endorsements, promises, agreements or understandings,
oral, written or inferred, between the parties relating to the subject matter
hereof.
5.6 Benefits. Nothing in this Agreement, express or implied, shall
give to any person, other than the Fund, the Auction Agent and BD and their
respective successors and assigns, any benefit of any legal or equitable right,
remedy or claim under this Agreement.
5.7 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be
modified, amended, rescinded, canceled or waived, in whole or in part, except by
a written instrument signed by a duly authorized representative of the party to
be charged.
(b) Failure of either party to this Agreement to exercise any
right or remedy hereunder in the event of a breach of this Agreement by the
other party shall not constitute a waiver of any such right or remedy with
respect to any subsequent breach.
5.8 Successors and Assigns. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the respective successors and
permitted assigns of each of BD and the Auction Agent. This Agreement may not be
assigned by either party hereto absent the prior written consent of the other
party; provided, however, that this Agreement may be assigned by the Auction
Agent to a successor Auction Agent selected by the Fund without the consent of
BD.
5.9 Severability. If any clause, provision or section of this
Agreement shall be ruled invalid or unenforceable by any court of competent
jurisdiction, the invalidity or unenforceability of such clause, provision or
section shall not affect any remaining clause, provision or section hereof.
5.10 Execution in Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
5.11 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed in said state.
[REMAINDER OF THIS PAGE BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the date first above written.
BANKERS TRUST COMPANY
------------------------------
By:
Title:
PAINEWEBBER INCORPORATED
------------------------------
By:
Title:
<PAGE>
EXHIBIT A
SETTLEMENT PROCEDURES
The following summary of Settlement Procedures sets forth the
procedures expected to be followed in connection with the settlement of each
Auction. Nothing contained in this Exhibit A constitutes a representation that
in each Auction each party referred to herein actually will perform the
procedures described herein to be performed by the party.
(a) On each Auction Date, the Auction Agent shall notify by telephone
or through the Auction Agent's Processing System the Broker-Dealers that
participated in the Auction held on such Auction Date and submitted an Order on
behalf of any Beneficial Owner or Potential Beneficial Owner of:
(i) the Applicable Rate fixed for the next succeeding Dividend
Period;
(ii) whether Sufficient Clearing Bids existed for the
determination of the Applicable Rate;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer")
submitted a Bid or a Sell Order on behalf of a Beneficial Owner, the number of
shares, if any, of shares of preferred stock to be sold by such Beneficial
Owner;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted
a Bid on behalf of a Potential Beneficial Owner, the number of shares, if any,
of shares of preferred stock to be purchased by such Potential Beneficial Owner;
(v) if the aggregate number of shares of preferred stock to be
sold by all Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid
or a Sell Order exceeds the aggregate number of shares of preferred stock to be
purchased by all Potential Beneficial Owners on whose behalf such Broker-Dealer
submitted a Bid, the name or names of one or more Buyer's Broker-Dealers (and
the name of the Agent Member, if any, of each such Buyer's Broker-Dealer)
acting for one or more purchasers of such excess number of shares of preferred
stock and the number of such shares to be purchased from one or more Beneficial
Owners on whose behalf such Broker-Dealer acted by one or more Potential
Beneficial Owners on whose behalf each of such Buyer's Broker-Dealers acted;
(vi) if the aggregate number of shares of preferred stock to be
purchased by all Potential Beneficial Owners on whose behalf such Broker-Dealer
submitted a Bid exceeds the aggregate number of shares of preferred stock to be
sold by all Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid
or a Sell Order, the name or names of one or more Seller's Broker-Dealers (and
the name of the Agent Member, if any, of each such Seller's Broker-Dealer)
acting for one or more sellers of such excess number of shares of preferred
stock and the number of such shares to be sold to one or more Potential
Beneficial Owners on whose behalf such Broker-Dealer acted by one or more
Beneficial Owners on whose behalf each of such Seller's Broker-Dealers acted;
and
(vii) the Auction Date of the next succeeding Auction with
respect to the shares of preferred stock.
(b) On each Auction Date, each Broker-Dealer that submitted an Order
on behalf of any Beneficial Owner or Potential Beneficial Owner shall:
(i) in the case of a Broker-Dealer that is a Buyer's
Broker-Dealer, instruct each Potential Beneficial Owner on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in part, to
instruct such Potential Beneficial Owner's Agent Member to pay to such
Broker-Dealer (or its Agent Member) through the Securities Depository the amount
necessary to purchase the number of shares of preferred stock to be purchased
pursuant to such Bid against receipt of such shares and advise such Potential
Beneficial Owner of the Applicable Rate for the next succeeding Dividend Period;
(ii) in the case of a Broker-Dealer that is a Seller's
Broker-Dealer, instruct each Beneficial Owner on whose behalf such Broker-Dealer
submitted a Sell Order that was accepted, in whole or in part, or a Bid that was
accepted, in whole or in part, to instruct such Beneficial Owner's Agent Member
to deliver to such Broker-Dealer (or its Agent Member) through the Securities
Depository the number of shares of preferred stock to be sold pursuant to such
Order against payment therefor and advise any such Beneficial Owner that will
continue to hold shares of preferred stock of the Applicable Rate for the next
succeeding Dividend Period;
(iii) advise each Beneficial Owner on whose behalf such
Broker-Dealer submitted a Hold Order of the Applicable Rate for the next
succeeding Dividend Period;
(iv) advise each Beneficial Owner on whose behalf such
Broker-Dealer submitted an Order of the Auction Date for the next succeeding
Auction; and
(v) advise each Potential Beneficial Owner on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in part, of the
Auction Date for the next succeeding Auction.
(c) On the basis of the information provided to it pursuant to (a)
above, each Broker-Dealer that submitted a Bid or a Sell Order on behalf of a
Potential Beneficial Owner or a Beneficial Owner shall, in such manner and at
such time or times as in its sole discretion it may determine, allocate any
funds received by it pursuant to (b)(i) above and any shares of preferred stock
received by it pursuant to (b)(ii) above among the Potential Beneficial Owners,
if any, on whose behalf such Broker-Dealer submitted Bids, the Beneficial
Owners, if any, on whose behalf such Broker-Dealer submitted Bids that were
accepted or Sell Orders, and any Broker-Dealer or Broker-Dealers identified to
it by the Auction Agent pursuant to (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Beneficial Owner and Beneficial Owner shall
instruct its Agent Member as provided in (b)(i) or (ii) above, as the case may
be;
(ii) each Seller's Broker-Dealer which is not an Agent Member of
the Securities Depository shall instruct its Agent Member to (A) pay through the
Securities Depository to the Agent Member of the Beneficial Owner delivering
shares to such Broker-Dealer pursuant to (b)(ii) above the amount necessary to
purchase such shares against receipt of such shares, and (B) deliver such shares
through the Securities Depository to a Buyer's Broker-Dealer (or its Agent
Member) identified to such Seller's Broker-Dealer pursuant to (a)(v) above
against payment therefor; and
(iii) each Buyer's Broker-Dealer which is not an Agent Member of
the Securities Depository shall instruct its Agent Member to (A) pay through the
Securities Depository to a Seller's Broker-Dealer (or its Agent Member)
identified pursuant to (a)(vi) above the amount necessary to purchase the shares
to be purchased pursuant to (b)(i) above against receipt of such shares, and (B)
deliver such shares through the Securities Depository to the Agent Member of the
purchaser thereof against payment therefor.
(e) On the day after the Auction Date:
(i) each Bidder's Agent Member referred to in (d)(i) above shall
instruct the Securities Depository to execute the transactions described in
(b)(i) or (ii) above, and the Securities Depository shall execute such
transactions;
(ii) each Seller's Broker-Dealer or its Agent Member shall
instruct the Securities Depository to execute the transactions described in
(d)(ii) above, and the Securities Depository shall execute such transactions;
and
(iii) each Buyer's Broker-Dealer or its Agent Member shall
instruct the Securities Depository to execute the transactions described in
(d)(iii) above, and the Securities Depository shall execute such transactions.
(f) If a Beneficial Owner selling shares of preferred stock in an
Auction fails to deliver such shares (by authorized book-entry), a Broker-Dealer
may deliver to the Potential Beneficial Owner on behalf of which it submitted a
Bid that was accepted a number of whole shares of preferred stock that is less
than the number of shares that otherwise was to be purchased by such Potential
Beneficial Owner. In such event, the number of shares of preferred stock to be
so delivered shall be determined solely by such Broker-Dealer. Delivery of such
lesser number of shares shall constitute good delivery. Notwithstanding the
foregoing terms of this paragraph (f), any delivery or non-delivery of shares
which shall represent any departure from the results of an Auction, as
determined by the Auction Agent, shall be of no effect unless and until the
Auction Agent shall have been notified of such delivery or non-delivery in
accordance with the provisions of the Auction Agent Agreement and the
Broker-Dealer Agreement.
<PAGE>
EXHIBIT B
BANKERS TRUST COMPANY
AUCTION BID FORM
Submit To: Bankers Trust Company Issue: Dreyfus Strategic
Corporate Trust and Agency Group Municipals, Inc.
Four Albany Street
New York, NY 10006
Attention: Auction Rate Securities
Telecopier No.: (212) 250-6215
Telephone No.: (212) 250-6850
The undersigned Broker-Dealer submits the following Order on behalf of the
Bidder listed below:
Name of Bidder: ________________________
BENEFICIAL OWNER
Shares now held _______________ HOLD _____________
BID at rate of _____________
SELL _____________
POTENTIAL BENEFICIAL OWNER
# of shares bid _____________
BID at rate of _____________ Notes:
(1) If submitting more than one Bid for one Bidder, use additional Auction Bid
Forms.
(2) If one or more Bids covering in the aggregate more than the number of
outstanding shares held by any Beneficial Owner are submitted, such bid shall be
considered valid in the order of priority set forth in the Auction Procedures on
the above issue.
(3) A Hold or Sell Order may be placed only by a Beneficial Owner covering a
number of shares not greater than the number of shares currently held.
(4) Potential Beneficial Owners may make only Bids, each of which must specify a
rate. If more than one Bid is submitted on behalf of any Potential Beneficial
Owner, each Bid submitted shall be a separate Bid with the rate specified.
(5) Bids may contain no more than three figures to the right of the decimal
point (.001 of 1%).
<PAGE>
Fractions will not be accepted.
NAME OF BROKER-DEALER ________________________
Authorized Signature ________________________
<PAGE>
EXHIBIT C
(Note: To be used only for transfers made
other than pursuant to an Auction)
TRANSFER FORM
Re: Dreyfus Strategic Municipals, Inc.
Auction Preferred Stock
We are (check one):
[ ] the Existing Holder named below;
[ ] the Broker-Dealer for such Existing Holder; or
[ ] the Agent Member for such Existing Holder.
We hereby notify you that such Beneficial Owner has transferred
______________ APS to ________________.
-------------------------
(Name of Existing Holder)
-------------------------
(Name of Broker-Dealer)
-------------------------
(Name of Agent Member)
By: _________________________
Printed Name:
Title:
<PAGE>
EXHIBIT D
(Note: To be used only for failures to deliver
APS sold pursuant to an Auction)
NOTICE OF A FAILURE TO DELIVER
Complete either I or II
I. We are a Broker-Dealer for ____________________ (the "Purchaser"),
which purchased _____ shares of Series [M/T/W/TH/F] APS of Dreyfus Strategic
Municipals, Inc. in the Auction held on ____________________ from the seller of
such shares.
II. We are a Broker-Dealer for _____________________ (the "Seller"),
which sold ____ shares of Series [M/T/W/TH/F] APS of Dreyfus Strategic
Municipals, Inc. in the Auction held on ______________ to the Purchaser of such
shares.
We hereby notify you that (check one):
_______ the Seller failed to deliver such shares to the Purchaser
_______ the Purchaser failed to make payment to the Seller upon
delivery of such shares
Name: _______________________
(Name of Broker-Dealer)
By: _______________________
Printed Name:
Title:
EXHIBIT D(3)
BOOK-ENTRY-ONLY AUCTION-RATE/MONEY MARKET PREFERRED/
AND REMARKETED PREFERRED SECURITIES
LETTER OF REPRESENTATIONS
[To be Completed by Issuer and Trust Company]
DREYFUS STRATEGIC MUNICIPALS, INC.
[Name of Issuer]
BANKERS TRUST COMPANY
[Name of Trust Company]
JANUARY , 2000
[Date]
Attention: General Counsel's Office
THE DEPOSITORY TRUST COMPANY
55 Water Street - 49th Floor
New York, NY 10041-0099
Re: AUCTION PREFERRED STOCK, SERIES M (CUSIP NO.
AUCTION PREFERRED STOCK, SERIES T (CUSIP NO.
AUCTION PREFERRED STOCK, SERIES W (CUSIP NO.
AUCTION PREFERRED STOCK, SERIES TH (CUSIP NO.
AUCTION PREFERRED STOCK, SERIES F (CUSIP NO.
[Issue description, including CUSIP number (the "Securities")]
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain
matters relating to the Securities. Trust Company shall act as transfer agent,
registrar, dividend disbursing agent, redemption agent or other such agent with
respect to the Securities. The Securities have been issued pursuant to a
prospectus, private placement memorandum, or other such document authorizing the
issuance of the Securities dated January , 2000 (the "Document"). PAINEWEBBER
INCORPORATED ("Underwriter/ Placement is distributing the Securities through the
Depository Trust Company ("DTC"). Agent")
To induce DTC to accept the Securities as eligible for deposit at DTC,
and to act in accordance with its Rules with respect to the Securities, Issuer
and Trust Company make the following representations to DTC:
1. Prior to closing on the Securities on January , 2000 there shall be
deposited with DTC one or more Security certificates registered in the name of
DTC's nominee, Cede & Co., which represents 100% of the offering value of the
Securities. Said certificate(s) shall remain in DTC's custody as provided in the
Document. If, however, the aggregate principal amount of the Securities exceeds
$400 million, one certificate shall be issued with respect to each $400 million
of principal amount and an additional certificate shall be issued with respect
to any remaining principal amount. Each Security certificate shall bear the
following legend:
Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York corporation
("DTC"), to Issuer or its agent for registration of transfer, exchange,
or payment, and any certificate issued is registered in the name of
Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such
other entity as is requested by an authorized representative of DTC),
ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede
& Co., has an interest herein.
2. Issuer: (a) understands that DTC has no obligation to, and will
not, communicate to its participants ("Participants") or to any person having an
interest in the Securities any information contained in the Security
certificate(s); and (b) acknowledges that neither DTC's Participants nor any
person having an interest in the Securities shall be deemed to have notice of
the provisions of the Security certificate(s) by virtue of submission of such
certificate(s) to DTC.
3. In the event of any solicitation of consents from or voting by
holders of the Securities, Issuer shall establish a record date for such
purposes (with no provision for revocation of consents or votes by subsequent
holders) and shall send notice of such record date to DTC no fewer than 15
calendar days in advance of such record date. Notices to DTC pursuant to this
Paragraph by telecopy shall be directed to DTC's Reorganization Department,
Proxy Unit at (212) 855-5181 or (212) 855-5182. If the party sending the notice
does not receive a telecopy receipt from DTC confirming that the notice has been
received, such party shall telephone (212) 855-5202. Notices to DTC pursuant to
this Paragraph, by mail or by any other means, shall be sent to:
Supervisor, Proxy Unit
Reorganization Department
The Depository Trust Company
55 Water Street - 50th Floor
New York, NY 10041-0099
4. In the event of a full or partial redemption of the Securities,
Issuer or Trust Company shall send a notice to DTC specifying: (a) the number of
Securities to be redeemed; and (b) the date such notice is to be distributed to
Security holders (the "Publication Date"). Such notice shall be sent to DTC by a
secure means (E.G., legible telecopy, registered or certified mail, overnight
delivery) in a timely manner designed to assure that such notice is in DTC's
possession no later than the close of business on the business day before or, if
possible, two business days before the Publication Date. Issuer or Trust Company
shall forward such notice either in a separate secure transmission for each
CUSIP number or in a secure transmission for multiple CUSIP numbers (if
applicable) which includes a manifest or list of each CUSIP number submitted in
that transmission. (The party sending such notice shall have a method to verify
subsequently the use of such means and the timeliness of such notice.) The
Publication Date shall be no fewer than 30 days nor more than 60 days prior to
the redemption date. Notices to DTC pursuant to this Paragraph by telecopy shall
be directed to DTC's Call Notification Department at (516) 227-4164 or (516)
227-4190. If the party sending the notice does not receive a telecopy receipt
from DTC confirming that the notice has been received, such party shall
telephone (516) 227-4070. Notices to DTC pursuant to this Paragraph, by mail or
by any other means, shall be sent to:
Manager, Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
5. In the event of an invitation to tender the Securities (including
mandatory tenders, exchanges, and capital changes), notice by Issuer or Trust
Company to Security holders specifying the terms of the tender and the
Publication Date of such notice shall be sent to DTC by a secure means in the
manner set forth in the preceding Paragraph. Notices to DTC pursuant to this
Paragraph and notices of other corporate actions by telecopy shall be directed
to DTC's Reorganization Department at (212) 855-5488. If the party sending the
notice does not receive a telecopy receipt from DTC confirming that the notice
has been received, such party shall telephone (212) 855-5290. Notices to DTC
pursuant to this Paragraph, by mail or by any other means, shall be sent to:
Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
55 Water Street - 50th Floor
New York, NY 10041-0099
6. All notices and payment advices sent to DTC shall contain the CUSIP
number of the Securities.
7. The Document indicates that the dividend rate for the Securities
may vary from time to time. Absent other existing arrangements with DTC, Issuer
or Trust Company shall give DTC notice of each such change in the dividend rate,
on the same day that the new rate is determined, by telephoning DTC's Dividend
Announcement Section at (212) 855-4550, or by telecopy sent to (212) 855-4555.
Such verbal or telecopy notice shall be followed by prompt written confirmation
sent by a secure means (E.G., legible telecopy, registered or certified mail,
overnight delivery) in a timely manner designed to assure that such notice is in
DTC's possession no later than the close of business on the business day before
or, if possible, two business days before the Publication Date. Issuer or Agent
shall forward such notice either in a separate secure transmission for each
CUSIP number or in a secure transmission for multiple CUSIP numbers (if
applicable) which includes a manifest or list of each CUSIP number submitted in
that transmission. (The party sending such notice shall have a method to verify
subsequently the use and timeliness of such notice.) Notices to DTC pursuant to
this Paragraph, by mail or by any other means, shall be sent to:
Manager, Announcements
Dividend Department
The Depository Trust Company
55 Water Street - 25th Floor
New York, NY 10041-0099
8. The Document indicates that each purchaser of Securities must sign
a purchaser's letter which contains provisions restricting transfer of the
Securities purchased. Issuer and Trust Company acknowledge that as long as Cede
& Co. is the sole record owner of the Securities, Cede & Co. shall be entitled
to all voting rights applicable to the Securities and to receive the full amount
of all dividends, liquidation proceeds, and redemption proceeds payable with
respect to the Securities, even if the credits of Securities to the DTC accounts
of any DTC Participant result from transfers or failures to transfer in
violation of the provisions of the purchaser's letter. Issuer and Trust Company
acknowledge that DTC shall treat any Participant having Securities credited to
its DTC accounts as entitled to the full benefits of ownership of such
Securities. Without limiting the generality of the preceding sentence, Issuer
and Trust Company acknowledge that DTC shall treat any Participant having
Securities credited to its DTC accounts as entitled to receive dividends,
distributions, and voting rights, if any, in respect of Securities and, subject
to Paragraphs 12 and 13, to receive certificates evidencing Securities if such
certificates are to be issued in accordance with Issuer's certificate of
incorporation. (The treatment by DTC of the effects of the crediting by it of
Securities to the accounts of Participants described in the preceding two
sentences shall not affect the rights of Issuer, participants in auctions
relating to the Securities, purchasers, sellers, or holders of Securities
against any Participant.) DTC shall not have any responsibility to ascertain
whether any transfer of Securities is made in accordance with the provisions of
the purchaser's letter.
9. Issuer or Trust Company shall provide a written notice of dividend
payment and distribution information to DTC as soon as the information is
available. Issuer or Trust Company shall provide this information to DTC
electronically, as previously arranged by Issuer or Trust Company and DTC, as
soon as the information is available. If electronic transmission has not been
arranged, absent any other arrangements between Issuer or Trust Company and DTC,
such information shall be sent by telecopy to DTC's Dividend Department at (212)
855-4555 or (212) 855-4556, and receipt of such notices shall be confirmed by
telephoning (212) 855-4550. Notices to DTC pursuant to this Paragraph, by mail
or by any other means, shall be addressed as indicated in Paragraph 7.
10. Dividend payments and distributions shall be received by Cede &
Co., as nominee of DTC, or its registered assigns, in same-day funds no later
than 2:30 p.m. (Eastern Time) on the payment date. Issuer shall remit by 1:00
p.m. (Eastern Time) on the payment date, dividend and distribution payments due
Trust Company, or at such earlier time as may be required by Trust Company to
guarantee that DTC shall receive payment in same-day funds no later than 2:30
p.m. (Eastern Time) on the payment date. Absent any other arrangements between
Issuer or Trust Company and DTC, such funds shall be wired to the Dividend
Deposit Account number that will be stamped on the signature page hereof at the
time DTC executes this Letter of Representations.
11. Issuer or Trust Company shall provide DTC, no later than 12:00
noon (Eastern Time) on each payment date, automated notification of CUSIP-level
detail. If the circumstances prevent the funds paid to DTC from equaling the
dollar amount associated with the detail payments by 12:00 noon (Eastern Time),
Issuer or Trust Company must provide CUSIP-level reconciliation to DTC no later
than 2:30 p.m. (Eastern Time). Reconciliation must be provided by either
automated means or written format. Such reconciliation notice, if sent by
telecopy, shall be directed to DTC's Dividend Department at (212) 855-4633, and
receipt of such reconciliation notice shall be confirmed by telephoning (212)
855-4430.
12. Redemption payments shall be received by Cede & Co., as nominee of
DTC, or its registered assigns, in same-day funds no later than 2:30 p.m.
(Eastern Time) on the payment date. Issuer shall remit by 1:00 p.m. (Eastern
Time) on the payment date all such redemption payments due Trust Company, or at
such earlier time as required by Trust Company to guarantee that DTC shall
receive payment in same-day funds no later than 2:30 p.m. (Eastern Time) on the
payment date. Absent any other arrangements between Issuer or Trust Company and
DTC, such funds shall be wired to the Redemption Deposit Account number that
will be stamped on the signature page hereof at the time DTC executes this
Letter of Representations.
13. Reorganization payments and CUSIP-level detail resulting from
corporate actions (such as tender offers, remarketings, or mergers) shall be
received by Cede & Co., as nominee of DTC, or its registered assigns, in
same-day funds no later than 2:30 p.m. (Eastern Time) on the payment date.
Issuer shall remit by 1:00 p.m. (Eastern Time) on the payment date all such
reorganization payments due Trust Company, or at such earlier time as required
by Trust Company to guarantee that DTC shall receive payment in same-day funds
no later than 2:30 p.m. (Eastern Time) on the payment date. Absent any other
arrangements between Issuer or Trust Company and DTC, such funds shall be wired
to the Reorganization Deposit Account number that will be stamped on the
signature page hereof at the time DTC executes this Letter of Representations.
14. DTC may direct Issuer or Trust Company to use any other number or
address as the number or address to which notices or payments may be sent.
15. In the event of a redemption acceleration, or any similar
transaction (E.G., tender made and accepted in response to Issuer's or Trust
Company's invitation) necessitating a reduction in the number of Securities
outstanding, or an advance refunding of part of the Securities outstanding DTC,
in its discretion: (a) may request Issuer or Trust Company to issue and
authenticate a new Security certificate; or (b) may make an appropriate notation
on the Security certificate indicating the date and amount of such reduction in
the number of Securities outstanding, except in the case of final redemption, in
which case the certificate will be presented to Issuer or Trust Company prior to
payment, if required.
16. In the event that Issuer determines that beneficial owners of
Securities shall be able to obtain certificated Securities, Issuer or Trust
Company shall notify DTC of the availability of certificates. In such event,
Issuer or Trust Company shall issue, transfer, and exchange certificates in
appropriate amounts, as required by DTC and others.
17. DTC may discontinue providing its services as securities
depository with respect to the Securities at any time by giving reasonable
notice to Issuer or Trust Company (at which time DTC will confirm with Issuer or
Trust Company the aggregate principal amount of Securities outstanding). Under
such circumstances, at DTC's request, Issuer and Trust Company shall cooperate
fully with DTC by taking appropriate action to make available one or more
separate certificates evidencing Securities to any DTC Participant having
Securities credited to its DTC accounts.
18. Issuer hereby authorizes DTC to provide to Trust Company listings
of Participants' holdings, known as Security Position Listings ("SPLs") with
respect to the Securities from time to time at the request of Trust Company.
Issuer also authorizes DTC, in the event of a partial redemption of Securities,
to provide Trust Company, upon request, with the names of those Participants
whose positions in Securities have been selected for redemption by DTC. DTC will
use its best efforts to notify Trust Company of those Participants whose
positions in Securities have been selected for redemption by DTC. Issuer
authorizes and instructs Trust Company to provide DTC with such signatures,
examples of signatures, and authorizations to act as may be deemed necessary or
appropriate by DTC to permit DTC to discharge its obligations to its
Participants and appropriate regulatory authorities. DTC charges a customary fee
for such SPLs. This authorization, unless revoked by Issuer, shall continue with
respect to the Securities while any Securities are on deposit at DTC, until and
unless Trust Company shall no longer be acting. In such event, Issuer shall
provide DTC with similar evidence, satisfactory to DTC, of the authorization of
any successor thereto so to act. Requests for SPLs shall be directed to the
Proxy Unit of DTC's Reorganization Department at (212) 855-5181 or (212)
855-5182. Receipt of such requests shall be confirmed by telephoning (212)
855-5202. Delivery by mail or by any other means, with respect to such SPL
request, shall be directed to the address indicated in Paragraph 3.
19. Nothing herein shall be deemed to require Trust Company to advance
funds on behalf of Issuer.
20. This Letter of Representations may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts together shall constitute but one and the same
instrument.
21. This Letter of Representations shall be governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
principles of conflicts of law.
22. The sender of each notice delivered to DTC pursuant to this Letter
of Representations is responsible for confirming that such notice was properly
received by DTC.
23. Issuer recognizes that DTC does not in any way undertake to, and
shall not have any responsibility to, monitor or ascertain the compliance of any
transactions in the Securities with the following, as amended from time to time:
(a) any exemptions from registration under the Securities Act of 1933; (b) the
Investment Company Act of 1940; (c) the Employee Retirement Income Security Act
of 1974; (d) the Internal Revenue Code of 1986; (e) any rules of any
self-regulatory organizations (as defined under the Securities Exchange Act of
1934); or (f) any other local, state, or federal laws or regulations thereunder.
24. Issuer and Trust Company shall comply with the applicable
requirements stated in DTC's Operational Arrangements, as they may be amended
from time to time. DTC's Operational Arrangements are posted on DTC's website at
"www.DTC.org."
25. The following rider(s), attached hereto, are hereby incorporated
into this Letter of Representations:
NONE
<PAGE>
NOTES:
A. If there is a Trust Company (as
defined in this Letter of
Representations), Trust Company, as well
as Issuer, must sign this Letter. If
there is no Trust Company, in signing
this Letter Issuer itself undertakes to
perform all of the obligations set forth
herein.
B. Schedule B contains statements that
DTC believes accurately describe DTC,
the method of effecting book-entry
transfers of securities distributed
through DTC, and certain related
matters.
Very truly yours,
DREYFUS STRATEGIC MUNICIPALS, INC.
------------------------------------
[Issuer]
By:
---------------------------------
[Authorized Officer's Signature]
BANKERS TRUST COMPANY
------------------------------------
[Trust Company]
By:
---------------------------------
[Authorized Officer's Signature]
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
cc: Underwriter PaineWebber Incorporated
Underwriter's Counsel Skadden, Arps, Slate, Meagher & Flom LLP
<PAGE>
SCHEDULE A
1. AUCTION PREFERRED STOCK, SERIES M
2. AUCTION PREFERRED STOCK, SERIES T
3. AUCTION PREFERRED STOCK, SERIES W
4. AUCTION PREFERRED STOCK, SERIES TH
5. AUCTION PREFERRED STOCK, SERIES F
CUSIP NUMBER SHARE TOTAL OFFERING ($) VALUE
1. 2,280 $57,000,000
2. 2,280 $57,000,000
3. 2,280 $57,000,000
4. 2,280 $57,000,000
5. 2,280 $57,000,000
<PAGE>
SCHEDULE B
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
(Prepared by DTC--bracketed material may be applicable only to certain issues)
1. The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities will
be issued as fully-registered securities registered in the name of Cede & Co.
(DTC's partnership nominee) or such other name as may be requested by an
authorized representative of DTC. One fully-registered Security certificate will
be issued for [each issue of] the Securities, [each] in the aggregate principal
amount of such issue, and will be deposited with DTC. [If, however, the
aggregate principal amount of [any] issue exceeds $400 million, one certificate
will be issued with respect to each $400 million of principal amount and an
additional certificate will be issued with respect to any remaining principal
amount of such issue.]
2. DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Direct Participants")
deposit with DTC. DTC also facilitates the settlement among Direct Participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in Direct
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations. DTC is owned by a number of its Direct Participants and by the
New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks, and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The Rules
applicable to DTC and its Direct and Indirect Participants are on file with the
Securities and Exchange Commission.
3. Purchases of Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Securities on
DTC's records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books
of Direct and Indirect Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in Securities, except in the event that use of the book-entry system
for the Securities is discontinued.
4. To facilitate subsequent transfers, all Securities deposited by
Direct Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co. or such other name as may be requested by an authorized
representative of DTC. The deposit of Securities with DTC and their registration
in the name of Cede & Co. or such other nominee do not effect any change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of
the Securities; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Securities are credited, which may or may
not be the Beneficial Owners. The Direct and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. [Beneficial Owners of Securities may wish to
take certain steps to augment transmission to them of notices of significant
events with respect to the Securities, such as redemptions, tenders, defaults,
and proposed amendments to the security documents. Beneficial Owners of
Securities may wish to ascertain that the nominee holding the Securities for
their benefit has agreed to obtain and transmit notices to Beneficial Owners, or
in the alternative, Beneficial Owners may wish to provide their names and
addresses to the registrar and request that copies of the notices be provided
directly to them.]
6. Redemption notices shall be sent to DTC. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed.]
7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will
consent or vote with respect to the Securities. Under its usual procedures, DTC
mails an Omnibus Proxy to Issuer as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the
Securities will be made to Cede & Co., or such other nominee as may be requested
by an authorized representative of DTC. DTC's practice is to credit Direct
Participants' accounts, upon DTC's receipt of funds and corresponding detail
information from Issuer or Agent on payable date in accordance with their
respective holdings shown on DTC's records. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of
such Participant and not of DTC, Agent, or Issuer, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
redemption proceeds, distributions, and dividends to Cede & Co. (or such other
nominee as may be requested by an authorized representative of DTC) is the
responsibility of Issuer or Agent, disbursement of such payments to Direct
Participants shall be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners shall be the responsibility of Direct and
Indirect Participants.
[9. A Beneficial Owner shall give notice to elect to have its
Securities purchased or tendered, through its Participant, to
[Tender/Remarketing] Agent, and shall effect delivery of such Securities by
causing the Direct Participant to transfer the Participant's interest in the
Securities, on DTC's records, to [Tender/Remarketing] Agent. The requirement for
physical delivery of Securities in connection with an optional tender or a
mandatory purchase will be deemed satisfied when the ownership rights in the
Securities are transferred by Direct Participants on DTC's records and followed
by a book-entry credit of tendered Securities to [Tender/Remarketing] Agent's
DTC account.]
10. DTC may discontinue providing its services as securities
depository with respect to the Securities at any time by giving reasonable
notice to Issuer or Agent. Under such circumstances, in the event that a
successor securities depository is not obtained, Security certificates are
required to be printed and delivered.
11. Issuer may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's
book-entry system has been obtained from sources that Issuer believes to be
reliable, but Issuer takes no responsibility for the accuracy thereof.
EXHIBIT E
DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN
Dear Shareholder:
We are pleased that you have chosen to invest in DREYFUS STRATEGIC
MUNICIPALS, INC. (the "Fund") and are happy to provide you with a Dividend
Reinvestment and Cash Purchase Plan (the "Plan") for the automatic reinvestment
of your dividends and capital gains distributions. The Plan also allows you to
make optional cash investments in Fund shares through The Bank of New York, the
Plan Agent. The features of the Plan are described in this brochure. To
participate, your Fund shares must be registered in your name.
You may withdraw from the Plan at any time and hereby elect to receive
cash instead of shares of the Fund. No penalty will be imposed if you withdraw
from the Plan, and if you previously have withdrawn from the Plan, you may
rejoin it at any time.
We invite you to review the Plan. If your Fund shares are registered
in your own name, you automatically are enrolled as a participant in the Plan.
If you do not wish to be participant in the Plan, simply complete and mail the
withdrawal card in the enclosed business reply envelope. If your shares are
registered in nominee or "street" name through your broker/dealer, you may not
participate in the Plan; however, you should contact your broker/dealer to see
if it offers a similar service under which you may elect to have cash dividends
and distributions reinvested by your broker/dealer in additional Fund shares.
Sincerely,
--------------------
President
<PAGE>
HOW DOES THE DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN WORK?
The Dividend Reinvestment and Cash Purchase Plan (the "Plan") offers
you, as a shareholder of DREYFUS STRATEGIC MUNICIPALS, INC. (the "Fund"), a
convenient way to reinvest your dividends and capital gains distributions in
Fund shares. The Plan also allows you to make optional cash investments in Fund
Shares. The fund will distribute to shareholders, at least monthly,
substantially all of its net investment income and currently expects to
distribute substantially all of its net realized capital gains once a year, or
on a more frequent basis to comply with the distribution requirements of the
Internal Revenue Code.
When the Fund declares a dividend or a distribution, participants in
the Plan will receive the equivalent in shares of the Fund valued at the lower
of market price or net asset value, as described below.
1) On the record date of the dividend or distribution, if the shares
of the Fund are trading below net asset value, or if the Fund declares a
dividend or other distribution payable only in cash, The Bank of New York, as
agent for the participants, will buy Fund shares in the open market on the New
York Stock Exchange for participants' accounts.
2) On the record date of the dividend or distribution, if the market
price of the shares of the Fund is equal to or greater than net asset value,
participants will be issued new shares by the Fund at net asset value. Shares
issued by the Fund will not be issued at a discount of more than 5% from the
then current market value of the Fund's shares.
As a participant in the Plan, the entire amount of your distribution
will be reinvested automatically in additional Fund shares. For any balance that
is insufficient to purchase a full share, The Bank of New York will credit your
account with fractional shares computed to three decimal places. The fractional
share position is included in all subsequent distributions, and you have voting
rights on all full and fractional shares acquired under the Plan.
Any stock dividends or split shares distributed by the Fund on shares
held by The Bank of New York for you will be credited to your account. In the
event that the Fund makes available to its shareholders rights to purchase
additional shares or other securities, the shares held for you under the Plan
will be added to other shares held by you in calculating the number of rights to
be issued to you.
The Bank of New York's fees for handling the reinvestment of
distributions will be paid by the Fund. However, when shares are purchased on
the New York Stock Exchange or otherwise in the open market, each participant
will pay a pro rata portion of brokerage commissions. Brokerage charges for
purchasing shares through the Plan are expected to be less than the usual
brokerage charges for individual transactions because The Bank of New York will
purchase stock for all participants in blocks, resulting in lower commissions
for each individual participant. No brokerage fees are charged for shares issued
directly by the Fund.
HOW DO SHAREHOLDERS PARTICIPATE IN THE PLAN?
To participate in the Plan, your Fund shares must be registered in
your own name and not held in nominee or "street" name with your broker/dealer.
If your Fund shares are registered in your own name, you automatically
participate in the Plan. If your Fund shares are registered in nominee or
"street" name you will not be able to participate in the Plan; however, your
broker/ dealer may offer a similar service under which you may elect to have
cash dividends and distributions reinvested by your broker/dealer in additional
Fund Shares. If your broker/dealer does not provide this service, your
distributions will be treated like any other cash dividend.
HOW DO PARTICIPANTS WITHDRAW FROM THE PLAN?
A participant in the Plan may elect to withdraw from the Plan at any
time without penalty by completing and mailing the withdrawal card in the
enclosed business reply envelope or by written notice addressed to The Bank of
New York. Termination will be effective immediately if your notice is received
by The Bank of New York not less than ten days prior to any dividend or
distribution record date; otherwise such termination will be effective on the
first trading day after the payment date for such dividend or distribution with
respect to any subsequent dividend or distribution.
If you elect to withdraw, you may choose to (i) receive without charge
stock certificates issued in your name for all full shares and a check for the
value of any fractional shares in your account, or (ii) instruct The Bank of New
York to sell your full or fractional shares and send you the proceeds. There
will be a service fee of $2.50 for terminating an account.
WHAT ARE THE TAX IMPLICATIONS FOR PARTICIPANTS?
You will receive tax information annually for your personal records
and to help you prepare your federal income tax return. The automatic
reinvestment of dividends and capital gains distributions does not relieve you
of any income tax which may be payable on such dividends or distributions.
When the Fund issues shares upon reinvestment of a dividend or capital
gains distribution, for U.S. federal income tax purposes, the amount reportable
in respect of the reinvested amount of the dividend or distribution will be the
fair market value of the shares received as of the payment date.
HOW DO PARTICIPANTS MAKE VOLUNTARY CASH PURCHASES?
Plan participants have the option of making additional investments in
Fund shares through The Bank of New York. You may invest any amount from $1,000
to $10,000 semi-annually. The Bank of New York will use all funds received to
purchase Fund shares on or about January 15 and July 15, unless the Plan is
terminated. Any voluntary cash payments received more than 30 days prior to
these dates will be returned by The Bank of New York, and interest will not be
paid on any uninvested cash payments. To avoid unnecessary cash accumulations,
and also to allow ample time for receipt and processing by The Bank of New York,
it is suggested that participants send in voluntary cash payments to be received
by The Bank of New York approximately ten days before January 15 or July 15. A
participant may withdraw a voluntary cash payment by written notice, if the
notice is received by The Bank of New York not less than 48 hours before the
payment is to be invested. A shareholder who owns Fund shares registered in
nominee or "street" name should consult his broker/dealer to determine whether a
similar cash purchase option is available through his broker/ dealer.
Participants in the Plan should send checks for voluntary cash purchases to the
following address: The Bank of New York, Dividend Reinvestment Service, Church
Street Station, P.O. Box 11002, New York, New York 10277-0702.
The Bank of New York will charge a participant in the Plan $1.25 for
each purchase made from a voluntary cash payment plus a pro rata share of the
brokerage commissions. Brokerage charges for purchasing small amounts of stock
for individual accounts through the Plan are expected to be less than the usual
brokerage charges for such transactions because The Bank of New York will be
purchasing stock for all participants in blocks and prorating the lower
commission thus obtainable. Brokerage commissions will vary based on, among
other things, the broker selected to effect a particular purchase and the number
of participants on whose behalf such purchase is being made. The Fund cannot
predict, therefore, whether the cost to a participant in the Plan who makes a
voluntary cash payment will be less than if a participant were to make an open
market purchase of the Fund's shares on his own behalf.
ADDITIONAL INFORMATION
The price at which The Bank of New York will be deemed to have
acquired Fund shares in the open market for participants' accounts shall be the
average price (including brokerage commissions) of all shares purchased by it
for all participants in the Plan. The average price per share may be greater,
due to market fluctuations, than the net asset value per share.
Under certain circumstances, the rules and regulations of the
Securities and Exchange Commission may require limitation or temporary
suspension of market purchases of shares under the Plan. The Bank of New York
will not be accountable for its inability to make purchases during such a
period.
Neither The Bank of New York nor its nominee or nominees shall have
any responsibility beyond the exercise of ordinary care for any action taken or
omitted pursuant to the Plan nor shall they have any duties, responsibilities or
liabilities except such as are expressly set forth herein. Neither shall they be
liable under the Plan for any act done in good faith or for any good faith
omission to act, including, without limitation, failure to terminate a
participant's account prior to receipt of written notice of his death or with
respect to the timing or the price of any purchase.
Participants' accounts and the Plan shall be governed by and construed
in accordance with the laws of the State of New York and the rules of the
Securities and Exchange Commission.
If you have shares registered in your own name, please address all
notices, correspondence, questions, or other communications regarding the Plan
to:
THE BANK OF NEW YORK
DIVIDEND REINVESTMENT SERVICE
P.O. BOX 11002
CHURCH STREET STATION
NEW YORK, NEW YORK 10277-0702
1-800-524-4458
Experience under the Plan may indicate that changes are desirable.
Either the Fund or The Bank of New York may amend or terminate the Plan.
Participants will receive written notice at least 90 days before the effective
date of any amendment. In the case of termination, participants will receive
written notice at least 90 days before the record date of any dividend or
capital gains distribution by the Fund.
DREYFUS STRATEGIC
MUNICIPALS, INC.
200 Park Avenue
New York, New York 10166
Investment Adviser:
THE DREYFUS CORPORATION
Shareholder Inquiries to:
DREYFUS STRATEGIC MUNICIPALS, INC.
c/o The Bank of New York
Dividend Reinvestment Service
P.O. Box 11002
Church Street Station
New York, New York 10277-0702
Telephone: 1-800-524-4458
EXHIBIT G
MANAGEMENT AGREEMENT
DREYFUS STRATEGIC MUNICIPALS, INC.
August 24, 1994
The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Dear Sirs:
The above-named investment company (the "Fund") herewith confirms its
agreement with you as follows:
The Fund desires to employ its capital by investing and reinvesting
the same in investments of the type and in accordance with the limitations
specified in its charter documents and in its Prospectus as from time to time in
effect, copies of which have been or will be submitted to you, and in such
manner and to such extent as from time to time may be approved by the Fund's
Board. The Fund desires to employ you to act as its investment adviser.
In this connection it is understood that from time to time you will
employ or associate with yourself such person or persons as you may believe to
be particularly fitted to assist you in the performance of this Agreement. Such
person or persons may be officers or employees who are employed by both you and
the Fund. The compensation of such person or persons shall be paid by you and no
obligation may be incurred on the Fund's behalf in any such respect.
Subject to the supervision and approval of the Fund's Board, you will
provide investment management of the Fund's portfolio in accordance with the
Fund's investment objectives and policies as stated in its Prospectus as from
time to time in effect. In connection therewith, you will obtain and provide
investment research and will supervise the Fund's investments and conduct a
continuous program of investment, evaluation and, if appropriate, sale and
reinvestment of the Fund's assets. You will furnish to the Fund such statistical
information, with respect to the investments which the Fund may hold or
contemplate purchasing, as the Fund may reasonably request. The Fund wishes to
be informed of important developments materially affecting its portfolio and
shall expect you, on your own initiative, to furnish to the Fund from time to
time such information as you may believe appropriate for this purpose.
In addition, you will supply office facilities (which may be in your
own offices), data processing services, clerical, accounting and bookkeeping
services, internal auditing and legal services, internal executive and
administrative services, and stationery and office supplies; prepare reports to
the Fund's stockholders, tax returns, reports to and filings with the Securities
and Exchange Commission and state Blue Sky authorities; calculate the net asset
value of the Fund's shares; and generally assist in all aspects of the Fund's
operations. You shall have the right, at your expense, to engage other entities
to assist you in performing some or all of the obligations set forth in this
paragraph, provided each such entity enters into an agreement with you in form
and substance reasonably satisfactory to the Fund. You agree to be liable for
the acts or omissions of each such entity to the same extent as if you had acted
or failed to act under the circumstances.
You shall exercise your best judgment in rendering the services to be
provided to the Fund hereunder and the Fund agrees as an inducement to your
undertaking the same that you shall not be liable hereunder for any error of
judgment or mistake of law or for any loss suffered by the Fund, provided that
nothing herein shall be deemed to protect or purport to protect you against any
liability to the Fund or to its security holders to which you would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties hereunder, or by reason of your reckless disregard of
your obligations and duties hereunder.
In consideration of services rendered pursuant to this Agreement, the
Fund will pay you on the first business day of each month a fee at the annual
rate of .75 of 1% of the value of the Fund's average weekly net assets. Net
asset value shall be computed on such days and at such time or times as
described in the Fund's then-current Prospectus. Upon any termination of this
Agreement before the end of any month, the fee for such part of a month shall be
pro-rated according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement.
For the purpose of determining fees payable to you, the value of the
Fund's net assets shall be computed in the manner specified in the Fund's
charter documents for the computation of the value of the Fund's net assets.
You will bear all expenses in connection with the performance of your
services under this Agreement. All other expenses to be incurred in the
operation of the Fund will be borne by the Fund, except to the extent
specifically assumed by you. The expenses to be borne by the Fund include,
without limitation, the following: taxes, interest, loan commitment fees,
interest and distributions paid on securities sold short, brokerage fees and
commissions, if any, and other expenses in any way related to the execution,
recording and settlement of portfolio securities transactions, fees of Board
members who are not your officers, directors or employees or holders of 5% or
more of your outstanding voting securities, Securities and Exchange Commission
fees and state Blue Sky qualification fees, advisory fees, charges of
custodians, transfer and dividend paying agents' fees, certain insurance
premiums, industry association fees, outside auditing and legal expenses, costs
of independent pricing services, costs of maintaining the Fund's existence,
expenses of reacquiring shares, expenses in connection with the Fund's Dividend
Reinvestment and Cash Purchase Plan, costs of maintaining the required books and
accounts (including the costs of calculating the net asset value of the Fund's
shares), costs attributable to investor services (including, without limitation,
telephone and personnel expenses), costs of preparing, printing and mailing
share certificates, proxy statements and prospectuses, costs of stockholders,
reports and meetings, and any extraordinary expenses.
If in any fiscal year the aggregate expenses of the Fund (including
fees pursuant to this Agreement, but excluding interest, taxes, brokerage and,
with the prior written consent of the necessary state securities commissions,
extraordinary expenses) exceed the lesser of (a) the expense limitation of any
state having jurisdiction over the Fund or (b) 2% of the first $10 million of
average net assets, 1-1/2% of the next $20 million of average net assets and 1%
of average net assets in excess of $30 million, the Fund may deduct from the
fees to be paid hereunder, or you will bear, such excess expense. Your
obligation pursuant hereto will be limited to the amount of your fees hereunder.
Such deduction or payment, if any, will be estimated daily, and reconciled and
effected or paid, as the case may be, on a monthly basis.
The Fund understands that you now act, and that from time to time
hereafter you may act, as investment adviser to one or more other investment
companies and fiduciary or other accounts, and the Fund has no objection to your
so acting, provided that when the purchase or sale of securities of the same
issuer is suitable for the investment objectives of two or more companies or
accounts managed by you which have available funds for investment, the available
securities will be allocated in a manner believed by you to be equitable to each
company or account. It is recognized that in some cases this procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtainable for or disposed of by the Fund.
In addition, it is understood that the persons employed by you to
assist in the performance of your duties hereunder will not devote their full
time to such service and nothing contained herein shall be deemed to limit or
restrict your right or the right of any of your affiliates to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.
You shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith or gross negligence on your part in the performance of your duties or from
reckless disregard by you of your obligations and duties under this Agreement.
Any person, even though also your officer, director, partner, employee or agent,
who may be or become an officer, Board member, employee or agent of the Fund,
shall be deemed, when rendering services to the Fund or acting on any business
of the Fund, to be rendering such services to or acting solely for the Fund and
not as your officer, director, partner, employee or agent or one under your
control or direction even though paid by you.
This Agreement shall continue until September 15, 1994, and thereafter
shall continue automatically for successive annual periods ending on September
15th of each year, provided such continuance is specifically approved at least
annually by (i) the Fund's Board or (ii) vote of a majority (as defined in the
Investment Company Act of 1940) of the Fund's outstanding voting securities,
provided that in either event its continuance also is approved by a majority of
the Fund's Board members who are not "interested persons" (as defined in said
Act) of any party to this Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval. This Agreement is terminable without
penalty, on 60 days, notice, by the Fund's Board or by vote of holders of a
majority of the Fund's shares or, upon not less than 90 days, notice, by you.
This Agreement also will terminate automatically in the event of its assignment
(as defined in said Act).
The Fund recognizes that from time to time your directors, officers
and employees may serve as directors, trustees, partners, officers and employees
of other corporations, business trusts, partnerships or other entities
(including other investment companies) and that such other entities may include
the name "Dreyfus" as part of their name, and that your corporation or its
affiliates may enter into investment advisory or other agreements with such
other entities. If you cease to act as the Fund's investment adviser, the Fund
agrees that, at your request, the Fund will take all necessary action to change
the name of the Fund to a name not including "Dreyfus" in any form or
combination of words.
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
DREYFUS STRATEGIC MUNICIPALS, INC.
By: /s/ RICHARD J. MOYNIHAN
-----------------------------
Richard J. Moynihan, President
Accepted:
THE DREYFUS CORPORATION
By: /s/ DANIEL C. MACLEAN
--------------------------
Daniel C. Maclean, Vice
President
EXHIBIT H
2,280 SHARES AUCTION PREFERRED STOCK, SERIES M
2,280 SHARES AUCTION PREFERRED STOCK, SERIES T
2,280 SHARES AUCTION PREFERRED STOCK, SERIES W
2,280 SHARES AUCTION PREFERRED STOCK, SERIES TH
2,280 SHARES AUCTION PREFERRED STOCK, SERIES F
DREYFUS STRATEGIC MUNICIPALS, INC.
UNDERWRITING AGREEMENT
January __, 2000
PAINEWEBBER INCORPORATED
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
Dreyfus Strategic Municipals, Inc., a Maryland corporation (the
"Fund"), proposes to issue and sell to the underwriters named in Schedule 1
hereto (the "Underwriters"), an aggregate of 11,400 shares of preferred stock,
par value $0.001 per share, 2,280 shares designated Auction Preferred Stock,
Series M, 2,280 shares designated Auction Preferred Stock, Series T, 2,280
shares designated Auction Preferred Stock, Series W, 2,280 shares designated
Auction Preferred Stock, Series TH and 2,280 shares designated Auction Preferred
Stock, Series F of the Fund, each with a liquidation preference of $25,000 per
share (collectively, the "APS").
The Dreyfus Corporation ("Dreyfus"), a New York corporation, acts as
the Fund's investment adviser pursuant to a Management Agreement by and between
the Fund and Dreyfus, dated as of August 24, 1994 (the "Management Agreement").
Boston Safe Deposit and Trust Company acts as the custodian (the "Custodian") of
the Fund's cash and portfolio assets pursuant to a Custody Agreement, dated as
of August 12, 1987 (the "Custody Agreement"). The Bank of New York acts as the
Fund's transfer agent, dividend disbursing agent and registrar (the "Transfer
Agent") pursuant to a Registrar and Transfer Agency Agreement, dated as of
August 12, 1987 (the "Transfer Agency Agreement"). Bankers Trust Company acts as
the Fund's auction agent (the "Auction Agent") pursuant to an Auction Agent
Agreement, dated as of January __, 2000 (the "Auction Agent Agreement"). The
Fund has entered into a Letter Agreement with The Depository Trust Company
("DTC"), dated as of January __, 2000 (the "DTC Agreement").
The Fund and Dreyfus each hereby confirms as follows their agreements
with the Underwriters.
1. SALE AND PURCHASE; COMPENSATION
(a) The Fund will issue and sell to each Underwriter, and each
Underwriter will purchase from the Fund, the number of APS set forth opposite
such Underwriter's name in Schedule 1 hereto, at the purchase price per share of
$24,750.
(b) The obligations of the Underwriters under this Underwriting
Agreement are undertaken on the basis of the representations and are subject to
the conditions set forth in this Underwriting Agreement.
2. PAYMENT AND DELIVERY. Delivery by the Fund of the APS (the "APS
Closing") to the Underwriters against payment of the purchase price by wire
transfer of Federal Funds or similar same day funds to the Fund for the APS,
will take place at the offices of PaineWebber Incorporated (the "Managing
Representative"), 1285 Avenue of the Americas, New York, New York or such other
location as is agreed upon by the parties hereto, or through the facilities of
DTC or another mutually agreeable facility, at 9:00 a.m., New York City time, on
the third business day following the date of this Underwriting Agreement, or at
such time on such other date, not later than ten business days after the date of
this Underwriting Agreement, as may be agreed upon by the Fund and the Managing
Representative (the "APS Closing Date").
A certificate in definitive form representing each series of the APS
to be purchased by the Underwriters registered in the name of Cede & Co., as
nominee for DTC, shall be delivered by or on behalf of the Fund to DTC for the
account of the Underwriters.
3. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC OFFERING. The Fund
has filed with the Securities and Exchange Commission (the "Commission"),
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
the published rules and regulations adopted by the Commission under the
Securities Act (the "Securities Act Rules") and the Investment Company Act (the
"Investment Company Act Rules"), a Notification of Registration on Form N-8A
(the "Notification") pursuant to Section 8 of the Investment Company Act and a
registration statement on Form N-2 (File Nos. 333-84699 and 811-5245) relating
to the APS (the "registration statement"), including a preliminary prospectus
(including any preliminary statement of additional information), and such
amendments to such registration statement as may have been required to the date
of this Underwriting Agreement. The preliminary prospectus (including any
preliminary statement of additional information) is to be used in connection
with the offering and sale of the APS. The term "Preliminary Prospectus" as used
herein means any preliminary prospectus (including any preliminary statement of
additional information) included at any time as a part of the registration
statement and any preliminary prospectus (including any preliminary statement of
additional information) omitted therefrom pursuant to the Securities Act Rules.
The Fund has furnished the Managing Representative copies of such
registration statement, each amendment to such registration statement filed by
the Fund with the Commission and the Preliminary Prospectus filed by the Fund
with the Commission or used by the Fund. If the registration statement has not
become effective, a further amendment (the "Final Amendment") to such
registration statement, including the forms of final prospectus (including any
final statement of additional information), necessary to permit such
registration statement to become effective will promptly be filed by the Fund
with the Commission. If such registration statement has become effective and any
prospectus (including any statement of additional information) contained therein
omits certain information at the time of effectiveness pursuant to Rule 430A of
the Securities Act Rules, a final prospectus (the "Rule 430A Prospectus")
containing such omitted information will be filed by the Fund with the
Commission in accordance with Rule 497(h) of the Securities Act Rules. The
registration statement as amended at the time it becomes or became effective
(the "Effective Date"), including financial statements and all exhibits, and any
information deemed to be included by Rule 430A, is called the "Registration
Statement." The term "Prospectus" means the prospectus (including any statement
of additional information) in the form in which it is first filed with the
Commission pursuant to Rule 497(b), (h) or (j) of the Securities Act Rules, as
the case may be.
The Fund and Dreyfus understand that the Underwriters propose to make
a public offering of the APS, as described in the Prospectus, as soon after the
Effective Date (or, if later, after the date this Underwriting Agreement is
signed) as the Managing Representative deems advisable. The Fund confirms that
the Underwriters and dealers have been authorized to distribute the Preliminary
Prospectus relating to the APS included in the initial filing of the
registration statement and are authorized to distribute the Prospectus and any
amendments or supplements thereto.
4. REPRESENTATIONS.
(a) The Fund represents to each Underwriter as follows:
(i) On (A) the Effective Date and the date on which the
Prospectus is first filed with the Commission pursuant to Rule 497(b), (h)
or (j) of the Securities Act Rules, as the case may be, (B) the date on
which any post-effective amendment to the Registration Statement (except
any post-effective amendment which is filed with the Commission after the
later of (x) one year from the date of this Underwriting Agreement or (y)
the date on which the distribution of the APS is completed) became or
becomes effective or any amendment or supplement to the Prospectus was or
is filed with the Commission and (C) the APS Closing Date, the Registration
Statement, the Prospectus and any such amendment or supplement thereto and
the Notification complied or will comply in all material respects with the
requirements of the Securities Act, the Investment Company Act, the
Securities Act Rules and the Investment Company Act Rules, as the case may
be. On the Effective Date and on the date that any post-effective amendment
to the Registration Statement (except any post-effective amendment which is
filed with the Commission after the later of (x) one year from the date of
this Underwriting Agreement or (y) the date on which the distribution of
the APS is completed) became or becomes effective, neither the Registration
Statement nor any such amendment did or will contain any untrue statement
of a material fact or omit to state a material fact required to be stated
in it or necessary to make the statements in it not misleading. At the
Effective Date and, if applicable, the date the Prospectus or any amendment
or supplement to the Prospectus was or is filed with the Commission and at
the APS Closing Date, the Prospectus did not or will not, as the case may
be, contain any untrue statement of a material fact or omit to state a
material fact required to be stated in it or necessary to make the
statements in it, in light of the circumstances under which they were made,
not misleading. The foregoing representations in this Section 4(a)(i) do
not apply to statements or omissions relating to the Underwriters made in
reliance on and in conformity with information furnished in writing to the
Fund by the Underwriters expressly for use in the Registration Statement,
the Prospectus, or any amendments or supplements thereto, as described in
Section 7(f) hereof.
(ii) The Fund has been duly organized and is validly existing as
a corporation under the laws of its jurisdiction of incorporation, the
Articles of Incorporation of the Fund, as amended through the date hereof
and the Articles Supplementary dated January ___, 2000 (the "Articles
Supplementary") adopted in connection with the issuance of the APS (the
"Articles of Incorporation" (which term shall include the Articles
Supplementary)), and the By-Laws of the Fund, as amended through the date
hereof (the "By-Laws"), confer upon the Fund full power and authority to
conduct all the activities conducted by it, to own or lease all assets
owned (or to be owned) or leased (or to be leased) by it and to conduct its
business as described in the Registration Statement and Prospectus; the
Fund is duly licensed and qualified to do business and in good standing in
each jurisdiction in which its ownership or leasing of property or its
conducting of business requires such qualification, except where the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Fund; and the Fund owns, possesses or has obtained
and currently maintains all governmental licenses, permits, consents,
orders, approvals and other authorizations, whether foreign or domestic,
necessary to carry on its business as contemplated in the Prospectus. The
Fund has no subsidiaries.
(iii) The capitalization of the Fund is as set forth in the
Registration Statement and the Prospectus. The shares of common stock of
the Fund, par value $0.001 per share (the "Common Stock"), and the APS
conform in all material respects to the description of them in the
Prospectus. All the outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and nonassessable (except as
described in the Registration Statement). The APS to be issued and
delivered to and paid for by the Underwriters in accordance with this
Underwriting Agreement against payment therefor as provided by this
Underwriting Agreement have been duly authorized and when issued and
delivered to the Underwriters will have been validly issued and will be
fully paid and nonassessable (except as described in the Registration
Statement). No person is entitled to any preemptive or other similar rights
in connection with the issuance of the APS.
(iv) The Fund is duly registered with the Commission under the
Investment Company Act as a diversified, closed-end management investment
company, and, subject to the filing of the Final Amendment, if not already
filed, all action under the Securities Act, the Investment Company Act, the
Securities Act Rules and the Investment Company Act Rules, as the case may
be, necessary to make the public offering and consummate the sale of the
APS as provided in this Underwriting Agreement has or will have been taken
by the Fund.
(v) The Fund has full power and authority to enter into each of
this Underwriting Agreement, the Management Agreement, the Custody
Agreement, the Transfer Agency Agreement, the Auction Agent Agreement and
the DTC Agreement (collectively, the "Fund Agreements") and to perform all
of the terms and provisions hereof and thereof to be carried out by it and
(A) each Fund Agreement has been duly and validly authorized, executed and
delivered by or on behalf of the Fund, (B) each Fund Agreement does not
violate in any material respect any of the applicable provisions of the
Investment Company Act, the Investment Advisers Act of 1940 (the "Advisers
Act") and the Investment Company Act Rules and the rules and regulations
adopted by the Commission under the Advisers Act (the "Advisers Act
Rules"), as the case may be, and (C) assuming due authorization, execution
and delivery by the other parties thereto, each Fund Agreement constitutes
the legal, valid and binding obligation of the Fund enforceable in
accordance with its terms, (1) subject, as to enforcement, to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and to general equitable principles (regardless of whether
enforcement is sought in a proceeding in equity or at law) and (2) except
as rights to indemnity thereunder may be limited by federal or state
securities laws.
(vi) None of (A) the execution and delivery by the Fund of the
Fund Agreements, (B) the issue and sale by the Fund of the APS as
contemplated by this Underwriting Agreement and (C) the performance by the
Fund of its obligations under any of the Fund Agreements or consummation by
the Fund of the other transactions contemplated by the Fund Agreements
conflicts with or will conflict with, or results or will result in a breach
of, the Articles of Incorporation or By-Laws or any material agreement or
instrument to which the Fund is a party or by which the Fund is bound, or
any law, rule or regulation, or order of any court, governmental
instrumentality, securities exchange or association or arbitrator, whether
foreign or domestic, having jurisdiction over the Fund, other than state
securities or "blue sky" laws applicable in connection with the purchase
and distribution of the APS by the Underwriters pursuant to this
Underwriting Agreement.
(vii) The Fund is not currently in breach of, or in default
under, in any material respect, any written agreement or instrument to
which it is a party or by which it or its property is bound or affected.
(viii) No person has any right to the registration of any
securities of the Fund because of the filing of the Registration Statement.
(ix) No consent, approval, authorization or order of any court or
governmental agency or body or securities exchange or association, whether
foreign or domestic, is legally required by the Fund for the consummation
by the Fund of the transactions to be performed by the Fund or the
performance by the Fund of all the terms and provisions to be performed by
or on behalf of it in each case as contemplated in the Fund Agreements,
except such as (A) have been obtained under the Securities Act, the
Investment Company Act, the Advisers Act, the Securities Act Rules, the
Investment Company Act Rules, and the Advisers Act Rules, and (B) may be
required by the New York Stock Exchange or under state securities or "blue
sky" laws, in connection with the purchase and distribution of the APS by
the Underwriters pursuant to this Underwriting Agreement.
(x) Ernst & Young LLP, whose report appears in the Prospectus,
are independent public accountants with respect to the Fund as required by
the Securities Act, the Investment Company Act, the Securities Act Rules
and the Investment Company Act Rules.
(xi) The financial statements included in the Registration
Statement and the Prospectus present fairly in all material respects, in
accordance with generally accepted accounting principles in the United
States applied on a consistent basis, the financial condition of the Fund
at the dates and for the periods indicated.
(xii) The Fund will maintain a system of internal accounting
controls sufficient to provide reasonable assurances that (A) transactions
are executed in accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (C) access
to assets is permitted only in accordance with management's general or
specific authorization; and (D) the recorded accountability for assets is
compared with existing assets through an asset reconciliation procedure or
otherwise at reasonable intervals and appropriate action is taken with
respect to any differences.
(xiii) Other than as set forth in the Prospectus, subsequent to
the date of the financial statements in the Registration Statement and
Prospectus, (A) the Fund has not incurred any liabilities or obligations,
direct or contingent (whether or not in the ordinary course of business),
or entered into any transactions, not in the ordinary course of business,
that are material to the Fund, (B) there has not been any material change
in the Common Stock or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, shareholders' equity or
results of operations of the Fund, that might materially and adversely
affect the property or assets thereof, (C) except for the Fund's regular
monthly dividend, there has been no dividend or distribution paid or
declared in respect of any class of the Fund's shares of Common Stock, and
(D) the Fund has not issued any senior security or materially increased any
debt.
(xiv) There is no action, suit or proceeding before or by any
court, commission, regulatory body, administrative agency or other
governmental agency or body, foreign or domestic, now pending, or, to the
knowledge of the Fund, threatened against or affecting the Fund, which (A)
is reasonably expected to result in any material adverse change in the
condition, financial or otherwise, or business affairs of the Fund or is
reasonably expected to materially adversely affect the properties or assets
of the Fund or (B) is of a character required to be described in the
Registration Statement or the Prospectus; and there are no contracts,
franchises or other documents that are of a character required to be
described in, or that are required to be filed as exhibits to, the
Registration Statement that have not been described or filed as required.
(xv) The Fund intends to direct the investment of the proceeds of
the offering of the APS in such a manner as to comply with the requirements
of Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code").
(xvi) The shares of Common Stock are listed on the New York Stock
Exchange.
(xvii) All advertisements and other sales literature
(collectively, "sales materials") authorized in writing or prepared by the
Fund for use in connection with the public offering of the APS complied and
comply in all material respects with the requirements of the Securities
Act, the Securities Act Rules and the rules and interpretations of the NASD
and no such sales materials contained or contain any untrue statement of a
material fact or omitted or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading in light of the circumstances in which they were made, including
the Securities Act and the Securities Act Rules.
(b) Dreyfus represents to each Underwriter as follows:
(i) On the Effective Date and on the date that any post-
effective amendment to the Registration Statement (except any
post-effective amendment which is filed with the Commission after the
expiration of such period as a prospectus is required by law to be
delivered by an underwriter or a dealer) became or becomes effective,
neither the Registration Statement nor any such amendment did or will
contain any untrue statement of a material fact or omit to state a material
fact required to be stated in it or necessary to make the statements in it
not misleading; provided, however, that the foregoing shall apply only to
statements in the Registration Statement describing Dreyfus and its
business. At the Effective Date and, if applicable, the date the Prospectus
or any amendment or supplement to the Prospectus was or is filed with the
Commission and at the APS Closing Date, the Prospectus did not or will not,
as the case may be, contain any untrue statement of a material fact or omit
to state a material fact required to be stated in it or necessary to make
the statements in it, in light of the circumstances under which they were
made, not misleading; provided, however, that the foregoing shall apply
only to statements in the Prospectus describing Dreyfus and its business.
(ii) Dreyfus has been duly organized, is validly existing as a
corporation under the laws of its jurisdiction of incorporation with full
corporate power and authority to conduct all of the activities conducted by
it, to own or lease all of the assets owned or leased by it and to conduct
its business as described in the Registration Statement and Prospectus, and
Dreyfus is duly licensed and qualified to do business and in good standing
in each jurisdiction in which it is required to be so qualified, except to
the extent that failure to be so qualified or be in good standing would not
have a material adverse affect on Dreyfus; and Dreyfus owns, possesses or
has obtained and currently maintains all governmental licenses, permits,
consents, orders, approvals and other authorizations, whether foreign or
domestic, necessary to carry on its business as contemplated in the
Registration Statement and the Prospectus.
(iii) Dreyfus is (A) duly registered as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"),
and (B) not prohibited by the Advisers Act, the Investment Company Act, the
Advisers Act Rules or the Investment Company Act Rules from acting as the
investment adviser for the Fund as contemplated by the Management
Agreement, the Registration Statement and the Prospectus.
(iv) Dreyfus has full power and authority to enter into each of
this Underwriting Agreement and the Management Agreement (collectively, the
"Dreyfus Agreements") and to carry out all the terms and provisions hereof
and thereof to be carried out by it; and each Dreyfus Agreement has been
duly and validly authorized, executed and delivered by Dreyfus; none of the
Dreyfus Agreements violate in any material respect any of the applicable
provisions of the Investment Company Act, the Advisers Act, the Investment
Company Act Rules and the Advisers Act Rules; and assuming due
authorization, execution and delivery by the other parties thereto, each
Dreyfus Agreement constitutes a legal, valid and binding obligation of
Dreyfus, enforceable in accordance with its terms, (1) subject, as to
enforcement, to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and to general equitable principles
(regardless of whether enforcement is sought in a proceeding in equity or
at law) and (2) except as rights to indemnity thereunder may be limited by
federal or state securities laws.
(v) Neither (A) the execution and delivery by Dreyfus of any
Dreyfus Agreement nor (B) the consummation by Dreyfus of the transactions
contemplated by, or the performance of its obligations under any Dreyfus
Agreement conflicts or will conflict with, or results or will result in a
breach of, the articles of incorporation or by-laws of Dreyfus or any
material agreement or instrument to which Dreyfus is a party or by which
Dreyfus is bound, or any law, rule or regulation, or order of any court,
governmental instrumentality, securities exchange or association or
arbitrator, whether foreign or domestic, applicable to Dreyfus.
(vi) No consent, approval, authorization or order of any court,
governmental agency or body or securities exchange or association, whether
foreign or domestic, is required for the consummation of the transactions
contemplated in, or the performance by Dreyfus of its obligations under,
any Dreyfus Agreement, as the case may be, except such as (A) have been
obtained under the Investment Company Act, the Advisers Act, the Securities
Act, the Investment Company Act Rules, the Advisers Act Rules and the
Securities Act Rules, and (B) may be required under state securities or
"blue sky" laws, in connection with the purchase and distribution of the
APS by the Underwriters pursuant to this Underwriting Agreement.
(vii) The description of Dreyfus and its business, and the
statements attributable to the Investment Adviser, in the Registration
Statement and the Prospectus complies with the requirements of the
Securities Act, the Investment Company Act, the Securities Act Rules and
the Investment Company Act Rules.
(viii) There is no action, suit or proceeding before or by any
court, commission, regulatory body, administrative agency or other
governmental agency or body, foreign or domestic, now pending or, to
Dreyfus's knowledge, threatened against or affecting Dreyfus that
reasonably is expected to result in any material adverse change in the
condition, financial or otherwise, business affairs or business prospects
of Dreyfus or the ability of Dreyfus to fulfill its respective obligations
under any Dreyfus Agreement.
(ix) In the event that the Fund or Dreyfus makes available any
promotional materials (other than the sales materials) intended for use
only by qualified broker-dealers and registered representatives thereof by
means of an Internet web site or similar electronic means, Dreyfus will
install and maintain pre-qualification and password-protection or similar
procedures which will effectively prohibit access to such promotional
materials by persons other than qualified broker-dealers and registered
representatives thereof.
5. AGREEMENTS OF THE PARTIES.
(a) If the registration statement relating to the APS has not yet
become effective, the Fund will promptly file the Final Amendment, if not
previously filed, with the Commission, and will use its best efforts to cause
such registration statement to become effective and, as soon as the Fund is
advised, will advise the Managing Representative when the Registration Statement
or any amendment thereto has become effective. If the Registration Statement has
become effective and the Prospectus contained therein omits certain information
at the time of effectiveness pursuant to Rule 430A of the Securities Act Rules,
the Fund will file a 430A Prospectus pursuant to Rule 497(h) of the Securities
Act Rules as promptly as practicable, but no later than the second business day
following the earlier of the date of the determination of the offering price of
the APS or the date the Prospectus is first used after the Effective Date. If
the Registration Statement has become effective and the Prospectus contained
therein does not so omit such information, the Fund will file a Prospectus
pursuant to Rule 497(b) or (j) of the Securities Act Rules as promptly as
practicable, but no later than the fifth business day following the date of the
later of the Effective Date or the commencement of the public offering of the
APS after the Effective Date. In either case, the Fund will provide the Managing
Representative satisfactory evidence of the filing. The Fund will not file with
the Commission any Prospectus or any other amendment (except any post-effective
amendment which is filed with the Commission after the later of (x) one year
from the date of this Underwriting Agreement or (y) the date on which the
distribution of the APS is completed) or supplement to the Registration
Statement or the Prospectus unless a copy has first been submitted to the
Managing Representative a reasonable time before its filing and the Managing
Representative has not objected to it in writing within a reasonable time after
receiving the copy.
(b) For the period of three years from the date hereof, the Fund
will advise the Managing Representative promptly (1) of the issuance by the
Commission of any order in respect of the Fund or Dreyfus which relates to the
Fund, or which relates to any material arrangements or proposed material
arrangements involving the Fund and Dreyfus, (2) of the initiation or
threatening of any proceedings for, or receipt by the Fund of any notice with
respect to, the suspension of the qualification of the APS for sale in any
jurisdiction or the issuance of any order by the Commission suspending the
effectiveness of the Registration Statement, (3) of receipt by the Fund, or any
representative or attorney of the Fund, of any other communication from the
Commission relating in any material way to the Fund, the Registration Statement,
the Notification, any Preliminary Prospectus, the Prospectus or to the
transactions contemplated by this Underwriting Agreement and (4) the issuance by
any court, regulatory body, administrative agency or other governmental agency
or body, whether foreign or domestic, of any order, ruling or decree, or the
threat to initiate any proceedings with respect thereto, regarding the Fund,
which relates in any material way to the Fund or any material arrangements or
proposed material arrangements involving the Fund. The Fund will make every
reasonable effort to prevent the issuance of any order suspending the
effectiveness of the Registration Statement and, if any such order is issued, to
obtain its lifting as soon as possible.
(c) If not delivered prior to the date of this Underwriting
Agreement, the Fund will deliver to the Managing Representative, without charge,
a signed copy of the registration statement and of any amendments (except any
post-effective amendment which is filed with the Commission after the later of
(x) one year from the date of this Underwriting Agreement or (y) the date on
which the distribution of the APS is completed) and as many conformed copies of
the registration statement and any amendments thereto (except any post-effective
amendment which is filed with the Commission after the later of (x) one year
from the date of this Underwriting Agreement or (y) the date on which the
distribution of the APS is completed) (excluding exhibits) as the Managing
Representative may reasonably request.
(d) During such period as a prospectus is required by law to be
delivered by an underwriter or a dealer, the Fund will deliver, without charge,
to the Underwriters and any dealers, at such office or offices as the
Underwriters may designate, as many copies of the Prospectus as the Underwriters
may reasonably request, and, if any event occurs during such period as a result
of which it is necessary to amend or supplement the Prospectus, in order to make
the statements therein, in light of the circumstances existing when such
Prospectus is delivered to a purchaser of APS, not misleading in any material
respect, or if during such period it is necessary to amend or supplement the
Prospectus to comply with the Securities Act, the Investment Company Act, the
Securities Act Rules or the Investment Company Act Rules, the Fund promptly will
prepare, submit to the Managing Representative, file with the Commission and
deliver, without charge, to the Underwriters and to dealers (whose names and
addresses the Managing Representative will furnish to the Fund) to whom APS may
have been sold by the Underwriters, and to other dealers on request, amendments
or supplements to the Prospectus so that the statements in such Prospectus, as
so amended or supplemented, will not, in light of the circumstances existing
when such Prospectus is delivered to a purchaser, be misleading in any material
respect and will comply with the Securities Act, the Investment Company Act, the
Securities Act Rules and the Investment Company Act Rules. Delivery by the
Underwriters of any such amendments or supplements to the Prospectus will not
constitute a waiver of any of the conditions in Section 6 hereof.
(e) The Fund will make generally available to holders of the
Fund's securities, as soon as practicable but in no event later than the last
day of the 18th full calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement, if applicable, satisfying the
provisions of Section 11(a) of the Securities Act and, at the option of the
Fund, Rule 158 of the Securities Act Rules.
(f) The Fund will take such actions as the Managing
Representative reasonably requests in order to qualify the APS for offer and
sale under the securities or "blue sky" laws of such jurisdictions as the
Underwriters reasonably designate; provided that the Fund shall not be required
in connection therewith or as a condition thereof to qualify as a foreign
corporation or to execute a general consent to service of process in any
jurisdiction.
(g) The Fund will pay, or reimburse if paid by the Managing
Representative, whether or not the transactions with respect to the Fund
contemplated by this Underwriting Agreement are consummated or this Underwriting
Agreement is terminated (irrespective of who the party terminating any such
agreement is or the reason therefor), all costs and expenses incident to the
performance of the obligations of the Fund under this Underwriting Agreement,
including but not limited to the following: (i) the fees, disbursements and
expenses of the Fund's counsel and accountants in connection with the
registration of the APS and all other expenses in connection with the
preparation, printing and filing of the Registration Statement, any Preliminary
Prospectus and the Prospectus and amendments and supplements thereto and of any
sales materials and the mailing and delivering of copies thereof to the
Underwriters and dealers; (ii) the cost of printing or reproducing this
Underwriting Agreement and any other documents in connection with the offering,
purchase, sale and delivery of the APS (including advertising expenses of the
Underwriters, if any); (iii) the cost of preparing share certificates; (iv) the
expenses (including, but not limited to, travel, hotels and other
accommodations) incurred by the Fund's or Dreyfus's directors, officers,
employees and other personnel in connection with meetings held with registered
brokers in connection with the offering of the APS, the preparing to market and
the marketing of the APS; (v) any fees charged by securities rating services for
rating the APS; (vi) the fees and expenses of DTC and its nominee, the Custodian
and the Auction Agent; (vii) the fees and expenses, if any, including reasonable
fees, expenses and disbursements of legal counsel, in connection with the
registration and qualification of the APS under state securities or "blue sky"
laws; and (viii) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for. It is
understood, however, that, except as provided in this Section 5 and Section 7
hereof, the Underwriters will pay all of their own costs and expenses, including
the fees of their counsel and stock transfer taxes, if any, on resale of any of
the APS by them.
(h) If the transactions contemplated by this Underwriting
Agreement are not consummated, except as otherwise provided herein, no party
will be under any liability to any other party, except that (1) if this
Underwriting Agreement is terminated by (x) the Fund or Dreyfus pursuant to any
of the provisions hereof (otherwise than pursuant to Section 8 hereof) or (y) by
the Underwriters because of any inability, failure or refusal on the part of the
Fund or Dreyfus to comply with any material terms hereunder or because any of
the conditions in Section 6 are not satisfied, the Fund or Dreyfus will
reimburse the Underwriters for all out-of-pocket expenses (including the
reasonable fees, disbursements and other charges of their counsel) reasonably
incurred by them in connection with the proposed purchase and sale of the APS
and (2) no Underwriter who has failed or refused to purchase the APS agreed to
be purchased by it under this Underwriting Agreement, in breach of its
obligations pursuant to this Underwriting Agreement, will be relieved of
liability to the Fund and Dreyfus and the other Underwriters for damages
occasioned by its default.
(i) Without the prior written consent of the Managing
Representative, the Fund will not offer, sell or register with the Commission,
or announce an offering of, any equity securities of the Fund, within 180 days
after the Effective Date, except for the APS as described in the Prospectus and
any issuances of shares of Common Stock pursuant to the dividend reinvestment
plan established by the Fund.
(j) The Fund will direct the investment of the net proceeds of
the offering of the APS in such a manner as to comply with the investment
objective and policies of the Fund as described in the Prospectus.
(k) No later than the APS Closing Date, the Underwriters will
provide, and will cause any selling group member to whom they have sold APS to
provide, the Auction Agent with a list of the record names of the persons to
whom they have sold APS, the number of APS sold to each such person, and the
number of APS they are holding as of the APS Closing Date; provided that in lieu
of thereof, an Underwriter may provide the Auction Agent with a list indicating
itself as the sole holder of all the APS sold by such Underwriter.
(l) The Fund will use its best efforts to cause the APS, prior to
the APS Closing Date, to be assigned a rating of "AAA" by Standard & Poor's
Ratings Group ("Standard & Poor's").
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters to purchase the APS are subject to the accuracy on the date of this
Underwriting Agreement, and on the APS Closing Date, of the representations of
the Fund and Dreyfus in this Underwriting Agreement, to the accuracy and
completeness of all statements made by the Fund or Dreyfus or any of their
respective officers in any certificate delivered to the Managing Representative
or its counsel pursuant to this Underwriting Agreement, to performance by the
Fund and Dreyfus of their respective obligations under this Underwriting
Agreement and to each of the following additional conditions:
(a) The registration statement must have become effective by 5:30
p.m., New York City time, on the date of this Underwriting Agreement or such
later date and time as the Managing Representative consents to in writing. The
Prospectus must have been filed in accordance with Rule 497(b), (h) or (j), as
the case may be, of the Securities Act Rules.
(b) No order suspending the effectiveness of the Registration
Statement may be in effect and no proceedings for such purpose may be pending
before or, to the knowledge of counsel to the Underwriters, threatened by the
Commission, and any requests for additional information on the part of the
Commission (to be included in the Registration Statement or the Prospectus or
otherwise) must be complied with or waived to the reasonable satisfaction of the
Managing Representative.
(c) Since the dates as of which information is given in the
Registration Statement and the Prospectus, (1) there must not have been any
material change in the Common Stock, the APS or the liabilities of the Fund
except as set forth in or contemplated by the Prospectus; (2) there must not
have been any material adverse change in the general affairs, management,
business, financial condition or results of operations of the Fund or Dreyfus
whether or not arising from transactions in the ordinary course of business as
set forth in or contemplated by the Prospectus; (3) the Fund must not have
sustained any material loss or material interference with its business from any
court or from legislative or other governmental action, order or decree, whether
foreign or domestic, or from any other occurrence not described in the
Registration Statement and Prospectus; and (4) there must not have occurred any
event that makes untrue or incorrect in any material respect any statement or
information contained in the Registration Statement or Prospectus or that is not
reflected in the Registration Statement or Prospectus but should be reflected
therein in order to make the statements or information therein (in the case of
the Prospectus, in light of the circumstances in which they were made) not
misleading in any material respect; if, in the judgment of the Managing
Representative, any such development referred to in clause (1), (2), (3) or (4)
of this paragraph (c) makes it impracticable or inadvisable to consummate the
sale and delivery of the APS pursuant to this Underwriting Agreement by the
Underwriters, at the initial public offering price of the APS.
(d) The Managing Representative must have received on the APS
Closing Date a certificate, dated such date, of the President or a Vice
President or a Vice Chairman and the Controller, Treasurer, an Assistant
Treasurer, chief financial or accounting officer of each of the Fund and Dreyfus
certifying that (1) the signers have carefully examined the Registration
Statement, the Prospectus, and this Underwriting Agreement, (2) the
representations of the Fund (with respect to the certificates from such Fund
officers) and the representations of Dreyfus (with respect to the certificates
from such officers of Dreyfus) in this Underwriting Agreement are accurate on
and as of the date of the certificate, (3) there has not been any material
adverse change in the general affairs, management, business, financial condition
or results of operations of the Fund (with respect to the certificates from such
Fund officers) or Dreyfus (with respect to the certificates from such officers
of Dreyfus), that is reasonably expected to materially and adversely affect the
ability of the Fund or Dreyfus, as the case may be, to fulfill its obligations
under this Underwriting Agreement or the Management Agreement, whether or not
arising from transactions in the ordinary course of business, (4) with respect
to the Fund only, to the knowledge of such officers after reasonable
investigation, no order suspending the effectiveness of the Registration
Statement, prohibiting the sale of any of the APS or otherwise having a material
adverse effect on the Fund has been issued and no proceedings for any such
purpose are pending before or threatened by the Commission or any other
regulatory body, whether foreign or domestic, (5) to the knowledge of the
officers of Dreyfus, after reasonable investigation, no order is reasonably
expected to have a material adverse effect on the ability of Dreyfus to fulfill
its obligations under this Underwriting Agreement or the Management Agreement,
as the case may be, has been issued and no proceedings reasonably expected to
have such effect are pending before or threatened by the Commission or any other
regulatory body, whether foreign or domestic, and (6) the Fund (with respect to
the certificates from such Fund officers) and Dreyfus (with respect to the
certificates from such officers of Dreyfus) has performed all of its respective
agreements that this Underwriting Agreement requires it to perform by the APS
Closing Date (to the extent not waived in writing by the Managing
Representative).
(e) The Underwriters must receive on the APS Closing Date the
opinions dated such date substantially in the form of Annexes A and B to this
Underwriting Agreement from the counsel identified in each such Annex.
(f) The Underwriters must receive on the APS Closing Date from
Skadden, Arps, Slate, Meagher & Flom LLP and its affiliated entities, their
counsel, an opinion dated such date with respect to the Fund, the APS, the
Registration Statement and the Prospectus, this Underwriting Agreement and the
form and sufficiency of all proceedings taken in connection with the sale and
delivery of the APS. Such opinion and proceedings shall fulfill the requirements
of this Section 6(f) only if such opinion and proceedings are satisfactory in
all respects to the Managing Representative. The Fund and Dreyfus must have
furnished to such counsel such documents as counsel may reasonably request for
the purpose of enabling them to render such opinion.
(g) The Underwriters must receive on the date this Underwriting
Agreement is signed and delivered by the Underwriters a signed letter, dated
such date, substantially in the form of Annex C to this Underwriting Agreement
from the firm of accountants designated in such Annex. The Underwriters also
must receive on the APS Closing Date a signed letter from such accountants,
dated as of such date, confirming on the basis of a review in accordance with
the procedures set forth in their earlier letter that nothing has come to their
attention during the period from a date not more than five business days before
the date of this Underwriting Agreement, specified in the letter, to a date not
more than five business days before such date, that would require any change in
their letter referred to in the foregoing sentence.
(h) The APS shall have been accorded a rating of "AAA" by
Standard & Poor's and a letter to such effect, dated the APS Closing Date, shall
have been delivered to the Managing Representative.
(i) As of the APS Closing Date and assuming the receipt of the
net proceeds from the sale of the APS, the Investment Company Act Asset Coverage
and the Preferred Stock Basic Maintenance Amount (each as defined in the
Prospectus) each will be met.
All opinions, letters, evidence and certificates mentioned above
or elsewhere in this Underwriting Agreement will comply only if they are in form
and scope reasonably satisfactory to counsel for the Underwriters, provided that
any such documents, forms of which are annexed hereto, shall be deemed
satisfactory to such counsel if substantially in such form.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification and contribution by the Fund and Dreyfus:
(i) Each of the Fund and Dreyfus, jointly and severally,
will indemnify and hold harmless each Underwriter, the directors, officers,
employees and agents of such Underwriter and each person, if any, who
controls such Underwriter within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act from and against any and
all losses, claims, liabilities, expenses and damages (including, but not
limited to, any and all investigative, legal and other expenses reasonably
incurred in connection with, and any and all amounts paid in settlement of,
any action, suit or proceeding between any of the indemnified parties and
any indemnifying parties or between any indemnified party and any third
party, or otherwise, or any claim asserted), as and when incurred, to which
such Underwriter or any such person, or any of them, may become subject
under the Securities Act, the Exchange Act, the Investment Company Act, the
Advisers Act or other federal or state statutory law or regulation, at
common law or otherwise, whether foreign or domestic, insofar as such
losses, claims, liabilities, expenses or damages arise out of or are based
on (i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, the Preliminary Prospectus, the
Prospectus, the sales materials or any amendment or supplement to the
Registration Statement, the Preliminary Prospectus, the Prospectus, or the
sales materials or in any documents filed under the Exchange Act and deemed
to be incorporated by reference into the Registration Statement, the
Preliminary Prospectus or the Prospectus, or in any application or other
document executed by or on behalf of the Fund or based on written
information furnished by or on behalf of the Fund filed in any jurisdiction
in order to qualify the APS under the securities laws thereof or filed with
the Commission, (ii) the omission or alleged omission to state, in any or
all such documents, a material fact required to be stated therein or
necessary to make the statements therein not misleading or (iii) any act or
failure to act or any alleged act or failure to act by such Underwriter in
connection with, or relating in any manner to, the APS or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, liability, expense or damage arising out of or based upon
matters covered by clause (i) or (ii) above (provided, however, that
neither the Fund nor Dreyfus shall be liable under this clause (iii) to the
extent it is finally judicially determined by a court of competent
jurisdiction that such loss, claim, liability, expense or damage resulted
directly from any such acts or failures to act undertaken or omitted to be
taken by such Underwriter through its gross negligence, bad faith or
willful misconduct); provided that neither the Fund nor Dreyfus will be
liable to the extent that such losses, claims, liabilities, expenses or
damages (A) arise from the sale of the APS in the public offering to any
person by any Underwriter and is based on an untrue statement or omission
or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing to the Fund by any
Underwriter expressly for inclusion in the Registration Statement, the
Preliminary Prospectus, the Prospectus, the sales material or any such
document (or) (B) results solely from an untrue statement of material fact
contained in, or the omission of a material fact from, the Preliminary
Prospectus, which untrue statement or omission was completely corrected in
the Prospectus (as then amended or supplemented) if the Fund shall sustain
the burden of proving that the Underwriters sold APS to the person alleging
such loss, claim, liability, expense or damage without sending or giving,
at or prior to written confirmation of such sale, a copy of the Prospectus
(as then amended or supplemented) if the Fund had previously furnished
copies thereof to the Underwriters within a reasonable amount of time prior
to such sale or such confirmation, and the Underwriters failed, to deliver
the corrected Prospectus, if required by law to have so delivered it and if
delivered would have been a complete defense against the person asserting
such loss, claim, liability, expense or damage; provided, further, that the
indemnification contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of the Underwriters
(or to the benefit of any person controlling the Underwriters) on account
of any such loss, claim, damage, liability or expense arising from the sale
of the APS by the Underwriters to any person if a copy of the Prospectus
shall not have been delivered or sent to such person within the time
required by the Securities Act and the Securities Act Rules and
Regulations, and the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus, provided that the
Fund has delivered the Prospectus to the Underwriters in requisite quantity
on a timely basis to permit such delivery or sending. This indemnity
agreement will be in addition to any liability that the Fund or Dreyfus
might otherwise have; provided, however, that any Underwriter shall not
seek indemnification from Dreyfus as to a Claim (as defined below) until 90
days after such Underwriter has notified the Fund pursuant to Section 7(c)
of its proposal to claim the right to indemnification or its right to
reimbursement of fees, disbursements and other charges (collectively, a
"Claim"), and the Fund failed to pay or reimburse such Underwriter within
such 90-day period for all amounts so claimed by such party to be payable
or reimbursable with respect to such Claim (on a case by case basis)
pursuant to this Section 7(a)(i); provided, however, that if the Fund
agrees in writing to pay such amounts claimed within such 90-day period,
such Underwriter shall not seek indemnification from Dreyfus until the Fund
has had a reasonable time period to remit to such Underwriter such amounts
claimed, and such period shall be the longer of 30 days after the 90-day
period or such other period agreed to in writing between the Fund and such
Underwriter.
(ii) Notwithstanding Section 7(a)(i), Dreyfus will in
addition indemnify and hold harmless the Underwriter, the directors,
officers, employees and agents of such Underwriter and each person, if any,
who controls such Underwriter within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act from and against any and
all losses, claims, liabilities, expenses and damages (including, but not
limited to, any and all investigative, legal and other expenses reasonably
incurred in connection with, and any and all amounts paid in settlement of,
any action, suit or proceeding between any of the indemnified parties and
any indemnifying parties or between any indemnified party and any third
party, or otherwise, or any claim asserted), as and when incurred, to which
such Underwriter or any such person, or any of them, may become subject
under the Securities Act, the Exchange Act, the Investment Company Act, the
Advisers Act or other federal or state statutory law or regulation, at
common law or otherwise, whether foreign or domestic, insofar as such
losses, claims, liabilities, expenses or damages arise out of or are based
on (i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, the Preliminary Prospectus, the
Prospectus, the sales materials or any amendment or supplement to the
Registration Statement, the Preliminary Prospectus, the Prospectus, or the
sales materials or in any documents filed under the Exchange Act and deemed
to be incorporated by reference into the Registration Statement, the
Preliminary Prospectus or the Prospectus, or in any application or other
document executed by or on behalf of the Fund or based on written
information furnished by or on behalf of the Fund filed in any jurisdiction
in order to qualify the APS under the securities laws thereof or filed with
the Commission, but only to the extent that such untrue statement or
alleged untrue statement concerns statements therein describing Dreyfus and
its business, (ii) the omission or alleged omission to state, in any or all
such documents, a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that
such omission or alleged omission concerns statements therein describing
Dreyfus and its business, or (iii) any act or failure to act or any alleged
act or failure to act by such Underwriter in connection with, or relating
in any manner to, the APS or the offering contemplated hereby, and which is
included as part of or referred to in any loss, claim, liability, expense
or damage arising out of or based upon matters covered by clause (i) or
(ii) above (provided, however, that Dreyfus shall not be liable under this
clause (iii) to the extent it is finally judicially determined by a court
of competent jurisdiction that such loss, claim, liability, expense or
damage resulted directly from any such acts or failures to act undertaken
or omitted to be taken by such Underwriter through its gross negligence,
bad faith or willful misconduct); provided that Dreyfus will not be liable
to the extent that such losses, claims, liabilities, expenses or damages
(A) arise from the sale of the APS in the public offering to any person by
the Underwriter and is based on an untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information relating to the Underwriter furnished in writing to the Fund by
the Underwriter expressly for inclusion in the Registration Statement, the
Preliminary Prospectus, the Prospectus, the sales material or any such
document or (B) results solely from an untrue statement of material fact
contained in, or the omission of a material fact from, such Preliminary
Prospectus, which untrue statement or omission was completely corrected in
the Prospectus (as then amended or supplemented) if Dreyfus shall sustain
the burden of proving that the Underwriter sold APS to the person alleging
such loss, claim, liability, expense or damage without sending or giving,
at or prior to written confirmation of such sale, a copy of the Prospectus
(as then amended or supplemented) if the Fund had previously furnished
copies thereof to the Underwriter within a reasonable amount of time prior
to such sale or such confirmation, and the Underwriter failed, to deliver
the corrected Prospectus, if required by law to have so delivered it and if
delivered wold have been a complete defense against the person asserting
such loss, claim, liability, expense or damage; provided, further, that the
indemnification contained in this paragraph (a)(ii) with respect to any
Preliminary Prospectus shall not inure to the benefit of the Underwriters
(or to the benefit of any person controlling the Underwriters) on account
of any such loss, claim, damage, liability or expense arising from the sale
of the APS by the Underwriters to any person if a copy of the Prospectus
shall not have been delivered or sent to such person within the time
required by the Securities Act and the Securities Act Rules and
Regulations, and the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus, provided that the
Fund has delivered the Prospectus to the Underwriters in requisite quantity
on a timely basis to permit such delivery or sending. This indemnity
agreement will be in addition to any liability that Dreyfus might otherwise
have.
(b) Each Underwriter will indemnify and hold harmless the Fund
and Dreyfus, each person, if any, who controls the Fund or Dreyfus within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
each director of the Fund and each officer of the Fund who signs the
Registration Statement to the same extent as the foregoing indemnity from the
Fund or Dreyfus to the Underwriter, but only insofar as losses, claims,
liabilities, expenses or damages arise out of or are based on any untrue
statement or omission or alleged untrue statement or omission of a material fact
made in reliance on and in conformity with information relating to such
Underwriter furnished in writing to the Fund by such Underwriter expressly for
use in the Registration Statement, the Preliminary Prospectus or Prospectus.
This indemnity will be in addition to any liability that such Underwriter might
otherwise have; provided, however, that in no case shall such Underwriter be
liable or responsible for any amount in excess of the fees and commissions
received by such Underwriter (whether from the Fund or otherwise).
(c) Any party that proposes to assert the right to be indemnified
under this Section 7 will, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim is to be made against
an indemnifying party or parties under this Section 7, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission to so notify such indemnifying party will not
relieve it from any liability that it may have to any indemnified party under
the foregoing provision of this Section 7 unless, and only to the extent that,
such omission results in the forfeiture of substantive rights or defenses by the
indemnifying party. If any such action is brought against any indemnified party
and it notifies the indemnifying party of its commencement, the indemnifying
party will be entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after receiving
notice of the commencement of the action from the indemnified party, jointly
with any other indemnifying party similarly notified, to assume the defense of
the action, with counsel reasonably satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense. The indemnified party will
have the right to employ its own counsel in any such action, but the fees,
disbursements and other charges of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded (based on the advice of counsel) that there may
be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party, (3)
a conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel reasonably satisfactory to the indemnified
party to assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which cases the
reasonable fees disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. Subject to the requirements of
Investment Company Act Release No. 11330, all such fees, disbursements and other
charges will be reimbursed by the indemnifying party promptly as they are
incurred. It is understood that the indemnifying party or parties shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees, disbursements and other charges of more than
one separate firm (in addition to local counsel) admitted to practice in such
jurisdiction at any one time for all such indemnified party or parties. An
indemnifying party will not be liable for any settlement of any action or claim
effected without its written consent (which consent will not be unreasonably
withheld). No indemnifying party shall, without the prior written consent of
each indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
the matters contemplated by this Section 7 (whether or not any indemnified party
is a party thereto), unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising or
that may arise out of such claim, action or proceeding.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 7 is
applicable in accordance with its terms but for any reason is held to be
unavailable from the Fund, Dreyfus or the Underwriters, the Fund, Dreyfus and
the Underwriters will contribute to the total losses, claims, liabilities,
expenses and damages (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claim asserted, but after deducting any
contribution received by the Fund and Dreyfus from persons other than the
Underwriters, such as persons who control the Fund or Dreyfus within the meaning
of the Securities Act or the Exchange Act, officers of the Fund who signed the
Registration Statement and directors of the Fund, who may also be liable for
contribution) to which the Fund, Dreyfus and the Underwriters may be subject in
such proportion as shall be appropriate to reflect the relative benefits
received by the Fund and Dreyfus on the one hand and the Underwriters on the
other. The relative benefits received by the Fund and Dreyfus on the one hand
and the Underwriters on the other hand shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Fund bear to the total discounts, fees and commissions
received by the Underwriters (whether from the Fund or otherwise). If, but only
if, the allocation provided by the foregoing sentence is not permitted by
applicable law, the allocation of contribution shall be made in such proportion
as is appropriate to reflect not only such relative benefits referred to in the
foregoing sentence but also the relative fault of the Fund and Dreyfus on the
one hand and the Underwriters on the other hand in connection with respect to
the statements or omissions or alleged statements or omissions that resulted in
the losses, claims, liabilities, expenses or damages joint or several (including
any investigative, legal or other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), as well as any other relevant equitable considerations
appropriate in the circumstances. Such relative fault of the parties shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Fund, Dreyfus or the Underwriters, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission and any other
equitable considerations appropriate in the circumstances. The Fund, Dreyfus and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 7(d) were to be determined by pro rata allocation or by
any other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, liability, expense or damage, or action in
respect thereof, referred to above in this Section 7(d) shall be deemed to
include, for purposes of this Section 7(d) any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding any other provisions of
this Section 7(d), the Underwriters shall not be required to contribute any
amount in excess of the fees and commissions received by them (whether from the
Fund or otherwise)and no person found guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7(d), any person who controls a
party to this Underwriting Agreement within the meaning of the Securities Act
will have the same rights to contribution as that party, and each director of
the Fund and each officer of the Fund who signed the Registration Statement will
have the same rights to contribution as the Fund, subject in each case to the
provisions hereof. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action against such party in respect of
which a claim for contribution may be made under this Section 7(d), notify such
party or parties from whom contribution may be sought, but the omission so to
notify will not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have under this Section 7(d). No
party will be liable for contribution with respect to any action or claim
settled without its written consent (which consent shall not be unreasonably
withheld). The Underwriters' obligations to contribute pursuant to this Section
7 are several in proportion to the respective number of APS set forth opposite
their names in Schedule 1 (or such number of APS as determined pursuant to
Section 9 hereof) and not joint.
(e) Notwithstanding any other provisions in this Section 7, no
party shall be entitled to indemnification or contribution under this
Underwriting Agreement against any loss, claim, liability, expense or damage
arising by reason of such person's willful misfeasance, bad faith or gross
negligence in the performance of its duties hereunder, or by reason of such
persons's reckless disregard of such person's obligations and duties hereunder.
(f) The Fund and Dreyfus acknowledge that the statements (1) with
respect to the public offering of the APS as set forth on the cover page of, and
(2) in the second paragraph under the caption "Underwriting" relating to dealer
concessions and reallowances in the Prospectus constitute the only information
furnished in writing to the Fund by the Underwriters expressly for use in such
document. The Underwriters severally confirm that these statements are correct
in all material respects and were so furnished by or on behalf of the
Underwriters for use in the Prospectus.
8. TERMINATION. This Underwriting Agreement may be terminated by the
Managing Representative by notifying the Fund at any time:
(a) before the later of the effectiveness of the Registration
Statement and the time when any of the APS are first generally offered pursuant
to this Underwriting Agreement by the Managing Representative to dealers by
letter or telegram;
(b) at or before the APS Closing Date if, in the sole judgment of
the Managing Representative, payment for and delivery of any APS is rendered
impracticable or inadvisable because (1) trading in the APS or the Common Stock
of the Fund is suspended by the Commission or trading in the Common Stock is
suspended by the principal exchange that lists the Common Stock, (2) trading in
securities generally on the New York Stock Exchange or the Nasdaq Stock Market
or other comparable U.S. securities exchange shall have been suspended or
limited or minimum or maximum prices shall have been generally established on
such exchange or over-the-counter market, (3) additional material governmental
restrictions, not in force at the date of this Underwriting Agreement, have been
imposed upon trading in securities or trading has been suspended on any U.S.
securities exchange, (4) a general banking moratorium has been established by
U.S. federal or New York authorities or (5) any material adverse change in the
financial or securities markets in the United States or in political, financial
or economic conditions in the United States or any outbreak or material
escalation of hostilities or declaration by the United States of a national
emergency or war or other calamity or crisis shall have occurred the effect of
any of which is such as to make it, in the sole judgement of the Managing
Representative, impracticable or inadvisable to market the APS on the terms and
in the manner contemplated by the Prospectus; or
(c) at or before the APS Closing Date, if any of the conditions
specified in Section 6 have not been fulfilled when and as required by this
Underwriting Agreement.
9. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters
fails (other than for a reason sufficient to justify the termination of this
Underwriting Agreement) to purchase on the APS Closing Date the APS agreed to be
purchased on such date by such Underwriter or Underwriters, the Managing
Representative may find one or more substitute underwriters to purchase such APS
or make such other arrangements as the Managing Representative deems advisable,
or one or more of the remaining Underwriters may agree to purchase such APS in
such proportions as may be approved by the Managing Representative, in each case
upon the terms set forth in this Underwriting Agreement. If no such arrangements
have been made within 36 hours after such date, and
(a) the number of APS to be purchased by the defaulting
Underwriters on such date does not exceed 10% of the APS that the Underwriters
are obligated to purchase on the APS Closing Date, each of the nondefaulting
Underwriters will be obligated to purchase such APS on the terms set forth in
this Underwriting Agreement in proportion to their respective obligations under
this Underwriting Agreement, or
(b) the number of APS to be purchased by the defaulting
Underwriters on the APS Closing Date exceeds 10% of the APS to be purchased by
all the Underwriters on the APS Closing Date, the Fund will be entitled to an
additional period of 24 hours within which to find one or more substitute
underwriters reasonably satisfactory to the Managing Representative to purchase
such APS on the terms set forth in this Underwriting Agreement.
In any such case, either the Managing Representative or the Fund will
have the right to postpone the APS Closing Date for not more than five business
days in order that necessary changes and arrangements (including any necessary
amendments or supplements to the Registration Statement or the Prospectus) may
be effected by the Managing Representative and the Fund. If the number of APS to
be purchased on the APS Closing Date by such defaulting Underwriter or
Underwriters exceeds 10% of the APS that the Underwriters are obligated to
purchase on such date, and none of the nondefaulting Underwriters or the Fund
makes arrangements pursuant to this Section within the period stated for the
purchase of the APS that the defaulting Underwriters agreed to purchase, this
Underwriting Agreement will terminate without liability on the part of any
nondefaulting Underwriter, the Fund or Dreyfus, except as provided in Sections
5(g) and 7 hereof. This Section 9 will not affect the liability of any
defaulting Underwriter to the Fund or the nondefaulting Underwriters arising out
of such default. A substitute underwriter will become an Underwriter for all
purposes of this Underwriting Agreement.
10. MISCELLANEOUS.
(a) The reimbursement, indemnification and contribution
agreements in Sections 5(g) and 7 hereof and the representations of the Fund,
Dreyfus and the Underwriters in this Underwriting Agreement will remain in full
force and effect regardless of any termination of this Underwriting Agreement.
The reimbursement, indemnification and contribution agreements in Sections 5(g)
and 7 hereof and the representations and agreements of the Fund, Dreyfus and the
Underwriters in this Underwriting Agreement shall survive the APS Closing Date
and shall remain in full force and effect regardless of any investigation made
by or on behalf of any Underwriter, the Fund, Dreyfus or any controlling person
and delivery of and payment for the APS.
(b) This Underwriting Agreement is for the benefit of the
Underwriters, the Fund, Dreyfus and their successors and assigns, and, to the
extent expressed in this Underwriting Agreement, for the benefit of persons
controlling any of the Underwriters, the Fund, Dreyfus and directors and
officers of the Fund and Dreyfus, and their respective successors and assigns,
and no other person, partnership, association or corporation will acquire or
have any right under or by virtue of this Underwriting Agreement. The term
"successors and assigns" does not include any purchaser of the APS from any
Underwriter merely because of such purchase.
(c) All notices and communications under this Underwriting
Agreement will be in writing, effective only on receipt and mailed or delivered,
by messenger, facsimile transmission or otherwise, to the Underwriters in care
of PaineWebber Incorporated, Attn: Financial Institutions Group, 1285 Avenue of
the Americas, New York, New York 10019, to the Fund or Dreyfus at 200 Park
Avenue, New York, New York 10166.
(d) This Underwriting Agreement may be signed in multiple
counterparts that taken as a whole constitute one agreement.
(e) This Underwriting Agreement will be governed by and construed
in accordance with the laws of the State of New York without reference to choice
of law principles thereof.
[REMAINDER OF THIS PAGE BLANK]
<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement between us.
Very truly yours,
Dreyfus Strategic Municipals, Inc.
By: ______________________________
Name:
Title:
The Dreyfus Corporation
By: ______________________________
Name:
Title:
Confirmed:
PaineWebber Incorporated
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
By: PaineWebber Incorporated
By: _____________________________
Name:
Title:
Acting on behalf of itself
and the Underwriters
named in Schedule 1
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
NUMBER OF NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SERIES M APS TO SERIES T APS TO SERIES W APS TO SERIES TH APS TO SERIES F APS TO
NAME BE PURCHASED BE PURCHASED BE PURCHASED BE PURCHASED BE PURCHASED
---- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PaineWebber
Incorporated 2,280 2,280 2,280 2,280 2,280
</TABLE>
<PAGE>
ANNEX A
FORM OF OPINION OF
STROOCK, STROOCK & LAVAN LLP REGARDING THE FUND
1. The Registration Statement and all post-effective amendments, if any,
are effective under the Securities Act and, to the best of our
knowledge, no stop order with respect thereto has been issued and no
proceeding for that purpose has been instituted or is threatened by
the Commission. Any filing of the Prospectus or any supplements
thereto required under Rule 497 of the Securities Act Rules prior to
the date hereof have been made in the manner and within the time
required by such Rule.
2. The Fund has been duly organized and is validly existing as a
corporation under the laws of the State of Maryland, with full
corporate power and authority to conduct all of the activities
conducted by it, to own or lease all assets owned (or to be owned) or
leased (or to be leased) by it and to conduct its business as
described in the Registration Statement and Prospectus, and the Fund
is duly licensed and qualified to do business and in good standing in
each jurisdiction in which its ownership or leasing of property
requires such qualification, except where the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Fund. The Fund has no subsidiaries.
3. The capitalization of the Fund is as set forth in the Registration
Statement and the Prospectus. The shares of Common Stock and the APS
conform in all material respects to the description of them in the
Prospectus. All the outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and nonassessable. The
APS to be issued and delivered to the Underwriters in accordance with
the Underwriting Agreement against payment therefor as provided by the
Underwriting Agreement have been duly authorized and when issued and
delivered to the Underwriters will have been validly issued and will
be fully paid and nonassessable (except as described in the
Registration Statement). No person is entitled to any preemptive or
other similar rights in connection with the issuance of the APS.
4. The Fund is duly registered with the Commission under the Investment
Company Act as a diversified, closed-end management investment company
and all action under the Securities Act, the Investment Company Act,
the Securities Act Rules and the Investment Company Act Rules, as the
case may be, necessary to make the public offering and consummate the
sale of the APS as provided in the Underwriting Agreement has been
taken by the Fund.
5. The Fund has full corporate power and authority to enter into each of
the Underwriting Agreement, the Management Agreement the Custody
Agreement, the Transfer Agency Agreement, the Auction Agent Agreement
and the DTC Agreement (collectively, the "Fund Agreements") and to
perform all of the terms and provisions thereof to be carried out by
it and (A) each Fund Agreement has been duly and validly authorized,
executed and delivered by the Fund, (B) each Fund Agreement complies
in all material respects with all applicable provisions of the
Investment Company Act, the Advisers Act, the Investment Company Act
Rules and the Advisers Act Rules, as the case may be, and (C) assuming
due authorization, execution and delivery by the other parties
thereto, each Fund Agreement constitutes the legal, valid and binding
obligation of the Fund enforceable in accordance with its terms, (1)
subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and court
decisions with respect thereto, and to general equitable principles
(regardless of whether enforcement is sought in a proceeding in equity
or at law) and to termination under the Investment Company Act, and
(2) except as rights to indemnity thereunder may be limited by Federal
or state securities laws.
6. None of (A) the execution and delivery by the Fund of the Fund
Agreements, (B) the issue and sale by the Fund of the APS as
contemplated by the Underwriting Agreement and (C) the performance by
the Fund of its obligations under the Fund Agreements or consummation
by the Fund of the other transactions contemplated by the Fund
Agreements conflicts with or will conflict with, or results or will
result in a breach of, the Articles of Incorporation or the By-Laws of
the Fund or any Material Agreement ("Material Agreement" means those
material agreements or instruments, other than Fund Agreements, which
have been identified to us by representatives of the Fund as all
agreements and instruments which are material to the business or
financial condition of the Fund and which have been listed on Schedule
A hereto) to which the Fund is a party or by which the Fund is bound,
or any law, rule or regulation known to us to be applicable to the
Fund, or, to our knowledge, order of any court, governmental
instrumentality, securities exchange or association or arbitrator,
whether foreign or domestic, having jurisdiction over the Fund, except
that we express no opinion as to the securities or "blue sky" laws
applicable in connection with the purchase and distribution of the APS
by the Underwriters pursuant to the Underwriting Agreement.
7. To our knowledge, based on inquiry of appropriate officers and
representatives of the Fund, the Fund is not currently in breach of,
or in default under, in any material respect, any written agreement or
instrument to which it is a party or by which it or its property is
bound or affected.
8. No consent, approval, authorization or order of any court or
governmental agency or body or securities exchange or association,
whether foreign or domestic, is legally required by the Fund for the
consummation by the Fund of the transactions to be performed by the
Fund or the performance by the Fund of all the terms and provisions to
be performed by or on behalf of it in each case as contemplated in the
Fund Agreements, except such as (A) have been obtained under the
Securities Act, the Investment Company Act, the Advisers Act, the
Securities Act Rules, the Investment Company Act Rules and the
Advisers Act Rules and (B) may be required by the American Stock
Exchange or under state securities or "blue sky" laws in connection
with the purchase and distribution of the APS by the Underwriters
pursuant to the Underwriting Agreement.
9. To our knowledge, based, as to the existence thereof, solely on
inquiry of appropriate officers and representatives of the Fund and
not on any docket search or any other independent inquiry, there is no
action, suit or proceeding before or by any court, commission,
regulatory body, administrative agency or other governmental agency or
body, foreign or domestic, now pending or threatened against or
affecting the Fund, which is required to be disclosed in the
Prospectus that is not disclosed in the Prospectus, and to the best of
our knowledge, based on inquiry of appropriate officers and
representatives of the Fund, there are no contracts, franchises or
other documents that are of a character required to be described in,
or that are required to be filed as exhibits to, the Registration
Statement that have not been adequately described or filed as
required.
10. The Common Stock is listed on the New York Stock Exchange.
11. The Fund does not require any tax or other rulings to enable it to
qualify as a regulated investment company under Subchapter M of the
Code.
12. Each of the sections in the Prospectus entitled "Taxes" and in the
Statement of Additional Information entitled "Taxes" is a fair summary
of the principal United States Federal income tax rules currently in
effect applicable to the Fund and to the purchase, ownership and
disposition of the APS.
13. The Registration Statement (except the financial statements and
schedules and other financial data included therein as to which we
express no view), at the time it became effective, and the Prospectus
(except as aforesaid), as of the date thereof, complied as to form in
all material respects to the requirements of the Securities Act, the
Investment Company Act and the rules and regulations of the Commission
thereunder.
In rendering our opinion, we have relied, as to factual matters, upon
the attached written certificates and statements of officers of the Fund. As to
matters of Maryland law, we have relied with your consent on the opinion of
Venable, Baetjer and Howard, LLP dated as of an even date herewith.
While we have not verified, and are not passing upon and do not assume
any responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus, we have participated
in conferences with certain officers and other representatives of the Fund,
Dreyfus, counsel for Dreyfus, representatives of the independent auditors for
the Fund and your representatives, at which the contents of the Registration
Statement and Prospectus and related matters were discussed and, on the basis of
the foregoing (relying as to materiality to a large extent on the opinions of
officers and other representatives of the Fund and Dreyfus), no facts have come
to our attention that lead us to believe that the Registration Statement (except
with respect to the financial statements, schedules and other financial data,
including therein, as to which we make no statement), at the time it became
effective, contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading or that the Prospectus (except with respect to the
financial statements, schedules and other financial data included therein, as to
which we make no statement), as of its date, and as of the date hereof, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
<PAGE>
ANNEX B
FORM OF OPINION OF INTERNAL COUNSEL
REGARDING THE DREYFUS CORPORATION
1. Dreyfus has been duly formed and is validly existing as a corporation
under the laws of its jurisdiction of incorporation with full power
and authority to conduct all of the activities conducted by it, to own
or lease all of the assets owned or leased by it and to conduct its
business as described in the Registration Statement and Prospectus,
and Dreyfus is duly licensed and qualified and in good standing in
each other jurisdiction in which it is required to be so qualified and
Dreyfus owns, possesses or has obtained and currently maintains all
governmental licenses, permits, consents, orders, approvals and other
authorizations, whether foreign or domestic, necessary for Dreyfus to
carry on its business as contemplated in the Registration Statement
and the Prospectus.
2. Dreyfus is duly registered as an investment adviser under the Advisers
Act and is not prohibited by the Advisers Act, the Investment Company
Act, the Advisers Act Rules or the Investment Company Act Rules from
acting as investment adviser for the Fund as contemplated by the
Management Agreement, the Registration Statement and the Prospectus.
3. Dreyfus has full power and authority to enter into each of the
Underwriting Agreement and the Management Agreement (collectively, the
"Dreyfus Agreements") and to carry out all the terms and provisions
thereof to be carried out by it, and each such agreement has been duly
and validly authorized, executed and delivered by Dreyfus; each
Dreyfus Agreement complies in all material respects with all
provisions of the Investment Company Act, the Advisers Act, the
Investment Company Act Rules and the Advisers Act Rules; and assuming
due authorization, execution and delivery by the other parties
thereto, each Dreyfus Agreement constitutes a legal, valid and binding
obligation of Dreyfus, enforceable in accordance with its terms, (1)
subject, as to enforcement, to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to general
equitable principles (regardless of whether enforcement is sought in a
proceeding in equity or at law) and (2) as rights to indemnity
thereunder may be limited by federal or state securities laws.
4. Neither (A) the execution and delivery by Dreyfus of any Dreyfus
Agreement nor (B) the consummation by Dreyfus of the transactions
contemplated by, or the performance of its obligations under any
Dreyfus Agreement conflicts or will conflict with, or results or will
result in a breach of, the Articles of Incorporation or Bylaws of
Dreyfus or any agreement or instrument to which Dreyfus is a party or
by which Dreyfus is bound, or any law, rule or regulation, or order of
any court, governmental instrumentality, securities exchange or
association or arbitrator, whether foreign or domestic, applicable to
Dreyfus.
5. No consent, approval, authorization or order of any court,
governmental agency or body or securities exchange or association,
whether foreign or domestic, is required for the consummation of the
transactions contemplated in, or the performance by Dreyfus of its
obligations under, any Dreyfus Agreement, except such as have been
obtained under the Investment Company Act, the Advisers Act, the
Securities Act, the Investment Company Act Rules, the Advisers Act
Rules and the Securities Act Rules.
6. The description of Dreyfus and its business, and the statements
attributable to Dreyfus, in the Registration Statement and the
Prospectus complies with the requirements of the Securities Act, the
Investment Company Act, the Securities Act Rules and the Investment
Company Act Rules and do not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading.
7. There is no action, suit or proceeding before or by any court,
commission, regulatory body, administrative agency or other
governmental agency or body, foreign or domestic, now pending or, to
our knowledge, threatened against or affecting Dreyfus of a nature
required to be disclosed in the Registration Statement or Prospectus
or that might reasonably result in any material adverse change in the
condition, financial or otherwise, business affairs or business
prospects of Dreyfus or the ability of Dreyfus to fulfill its
respective obligations under any Dreyfus Agreement.
In connection with the registration of the APS, Dreyfus has been
advised by myself and/or other counsel on the legal staff of Dreyfus as to the
requirements of the Securities Act, the Investment Company Act and the
applicable rules and regulations of the Commission thereunder and have rendered
other legal advice and assistance to Dreyfus in the course of the preparation of
the Registration Statement and the Prospectus describing Dreyfus and its
business. Rendering such assistance involved, among other things, discussions
and inquiries concerning various legal and related subjects and reviews of
certain corporate records, documents and proceedings. We also participated in
conferences with representatives of the Fund and its accountants and Dreyfus at
which statements describing Dreyfus and its business in the Registration
Statement and Prospectus were discussed. With your permission, we have not
undertaken, except as otherwise indicated herein, to determine independently,
and do not assume any responsibility for, the accuracy, completeness or fairness
of those statements in the Registration Statement or Prospectus. On the basis of
the information which was developed in the course of the performance of the
services referred to above, no information has come to our attention that would
lead us to believe that the statements describing Dreyfus and its business in
the Registration Statement, at the time it became effective, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make those statements not misleading or
that the statements describing Dreyfus and its business in the Prospectus, as of
its date and as of the date hereof, contained or contains an untrue statement of
a material fact or omitted or omits to state a material fact necessary in order
to make those statements, in the light of the circumstances under which they
were made, not misleading or that the statements describing Dreyfus and its
business in any amendment or supplement to the Prospectus, as of its respective
date, and as of the date hereof, contained any untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make
those statements in the Prospectus, in the light of the circumstances under
which they were made, not misleading.
<PAGE>
ANNEX C
FORM OF ACCOUNTANT'S LETTER
January ___, 2000
PAINEWEBBER INCORPORATED
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
We have audited the statement of assets and liabilities of Dreyfus Strategic
Municipals, Inc. (the "Fund"), including the statement of investments, as of
September 30, 1999, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and financial highlights for each of the five years in the
period then ended (the "September 30, 1999 Financial Statements"), incorporated
by reference in the Registration Statement on Form N-2 filed by the Fund under
the Securities Act of 1933 (the "Act") (No. 333-84699) and under the Investment
Company Act of 1940 (the "1940 Act") (No. 811-5245); our report with respect
thereto also is incorporated by reference in such Registration Statement as
amended by Pre-Effective Amendment No. 1 under the Act and Amendment No. 10
under the 1940 Act to be filed with the Securities Exchange Commission on
January , 2000, herein referred to as the "Registration Statement".
In connection with the Registration Statement:
1. We are independent auditors with respect to the Fund within the
meaning of the Act and the applicable published rules and regulations
thereunder.
2. In our opinion the September 30, 1999 Financial Statements audited by
us and incorporated by reference in the Registration Statement comply
as to form in all material respects with the applicable accounting
requirements of the Act, the 1940 Act and the related published rules
and regulations thereunder.
3. For the purposes of this letter, we have read the minutes of all
meetings of the shareholders, the Board of Directors and all
committees thereof as set forth in the minute books of the Fund,
officials of the Fund having advised us that the Minutes of all such
meetings through January , 2000, were set forth therein.
4. We have not audited any financial statements of the Fund as of any
date or for any period subsequent to September 30, 1999. The purpose
(and therefore the scope) of our audit as of September 30, 1999, was
to enable us to express our opinion on the September 30, 1999
Financial Statements. Therefore, we are unable to express and do not
express an opinion on the financial position, results of operations,
or changes in net assets of the Fund as of any date or for any period
subsequent to September 30, 1999.
5. Fund officials have advised us that no financial statements as of any
date or for any period subsequent to September 30, 1999 are available
We have inquired of certain officials of the Fund who have
responsibility for financial and accounting matters as to whether
there was any change at January ___, 2000 (our work did not extend to
the period from January ___, 2000 to January ___, 2000, inclusive) in
the capital stock or net assets of the Fund or any increase in the
long-term debt of the Fund as compared with the amounts shown on the
September 30, 1999 Annual Financial Statements incorporated by
reference in the Registration Statement. On the basis of these
inquiries, nothing came to our attention that caused us to believe
that there was any such change in capital stock or net assets of the
Fund or any such increase in the long-term debt of the Fund, except
for a decrease in net assets from $___________ as of September 30,
1999 to $____________ as of January ___, 2000 and except in all
instances for changes or increases that the Registration Statement
discloses have occurred or may occur.
6. For purposes of this letter, we have read the following information as
set forth in the Registration Statement and have performed the
additional procedures stated below with respect to such information.
PAGE PROCEDURES AND FINDINGS
14 "Capitalization." - We compared the dollar amounts shown in the column
titled "Actual" to information found in the accounting records of the
Fund provided by management and found them to be in agreement. We
compared the dollar amounts shown under the caption "Actual" with the
dollar amounts shown under the caption "As Adjusted" and found them to
be in agreement with the exception of the inclusion of $300,000,000 of
Preferred Stock and "Capital in excess of par value attributable to
common stock," which we have been advised by management, has been
adjusted for estimated offering costs and sales load expenses of
$________ attributable to the Preferred Stock (however, we do not
comment as to the reasonableness of the offering costs and sales load
expenses or whether such issuance will actually take place). We
express no opinion on the reasonableness of the amounts in that they
were based on accounting records which were not audited by us.
14 "Portfolio Composition." - We recalculated the "Number of Issues,"
"Value (In Thousands)" and "Percent" amounts shown in the table in the
section "Portfolio Composition" based upon information found in the
accounting records of the Fund provided by management and found no
exceptions. We express no opinion on the reasonableness of the amounts
in that they were based on accounting records which were not audited
by us.
37 "Investment Company Act Preferred Stock Asset Coverage." - We proved
the arithmetic accuracy of the percentage computation shown, after
rounding. We express no opinion on the reasonableness of the amounts
in that they were based on analyses prepared by management of the Fund
which were not audited by us. 437 "Description of Capital Structure."
- We recalculated the net asset value per share of common stock at
December 31, 1999 based on information found in the accounting records
of the Fund provided by management and found such information to be in
agreement. We express no opinion on the reasonableness of the amounts
in that they were based on accounting records which were not audited
by us.
47. "Description of Capital Structure." - We recalculated the net asset
value per share of common stock at December 31, 1999 based on
information found in the accounting records of the Fund provided
by management and found such information to be in agreement. We
express no opinion on the reasonableness of the amounts in that they
were based on accounting records which were not audited by us.
7. It should be understood that we make no representations as to
questions of legal interpretation or as to the sufficiency for your
purposes of the procedures enumerated in the preceding paragraph;
also, such procedures would not necessarily reveal any material
misstatement of the information identified in 5 above. Further, we
have addressed ourselves solely to the foregoing data as set forth in
the Registration Statement and make no representations as to the
adequacy of disclosure or as to whether any material facts have been
omitted.
8. Our audit of the September 30, 1999 Financial Statements, referred to
in the introductory paragraph of this letter was comprised of audit
tests and procedures deemed necessary for the purpose of expressing an
opinion on such financial statements taken as a whole. For neither the
date referred to therein nor any other period did we perform audit
tests for the purpose of expressing an opinion on individual balances
of accounts or summaries of selected transactions such as those
enumerated above and accordingly, we do not express an opinion
thereon.
9. This letter is solely for the information of the addressees and to
assist the underwriters in conducting and documenting their
investigation of the affairs of the Fund in connection with the
offering of the securities covered by the Registration Statement, and
is not to be used, circulated, quoted or otherwise referred to for any
other purpose, including but not limited to, the registration,
purchase or sale of securities, nor is it to be filed with or referred
to in whole or in part in the Registration Statement or any other
document, except that reference may be made to it in the underwriting
agreement or in any list of closing documents pertaining to the
offering of the securities covered by the Registration Statement.
Very truly yours,
EXHIBIT J
CUSTODY AGREEMENT
Agreement made as of August 12, 1987 between DREYFUS STRATEGIC
MUNICIPALS, INC. (the "Fund"), a Maryland corporation, having its principal
office and place of business at 666 Old Country Road, Garden City, New York
11530, and BOSTON SAFE DEPOSIT AND TRUST COMPANY (the "Custodian"), a
Massachusetts trust company, having its principal office and place of business
at One Boston Place, Boston, Massachusetts 02108.
W I T N E S S E T H :
That for and in consideration of the mutual promises hereinafter set
forth, the Fund and the Custodian agree as follows:
1. DEFINITIONS.
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the
following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation of the Fund dated July 20, 1987, as the same may be
amended from time to time.
(b) "Authorized Person" shall be deemed to include the President, any
Vice President, the Secretary, the Treasurer, the Controller or any
other person, whether or not any such person is an Officer or employee
of the Fund, duly authorized by the Board of Directors of the Fund to
give Oral Instructions and Written Instructions on behalf of the Fund
and listed in the Certificate annexed hereto as Appendix A or such
other Certificate as may be received by the Custodian from time to
time.
(c) "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and Federal agency securities, its
successor or successors and its nominee or nominees.
(d) "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be
given to the Custodian, which is actually received by the Custodian
and signed on be half of the Fund by any two Officers of the Fund.
(e) "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission
under Section 17A of the Securities Exchange Act of 1934, as amended,
its successor or successors and its nominee or nominees, in which the
Custodian is hereby specifically authorized to make deposits. The term
"Depository" shall further mean and include any other person
authorized to act as a depository under the Investment Company Act of
1940, its successor or successors and its nominee or nominees,
specifically identified in a certified copy of a resolution of the
Fund's Board of Directors specifically approving deposits therein by
the Custodian.
(f) "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to principal and
interest by the government of the United States or agencies or
instrumentalities thereof, commercial paper, certificates of deposit
and bankers' acceptances, repurchase and reverse repurchase agreements
with respect to the same and bank time deposits, where the purchase
and sale of such securities normally requires settlement in Federal
funds on the same date as such purchase or sale.
(g) "Officers" shall be deemed to include the President, any Vice
President, the Secretary, the Treasurer, the Controller, any Assistant
Secretary, any Assistant Treasurer or any other person or persons duly
authorized by the Directors of the Fund to execute any Certificate,
instruction, notice or other instrument on behalf of the Fund and
listed in the Certificate annexed hereto as Appendix B or such other
Certificate as may be received by the Custodian from time to time.
(h) "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized Person.
(i) "Prospectus" shall mean the Fund's current prospectus relating to
the registration of the Fund's Shares under the Securities Act of
1933, as amended, and the 1940 Act.
(j) "Security" shall be deemed to include, without limitation, common
stock and other instruments or rights having characteristics similar
to common stocks, preferred stocks, debt obligations issued by state
or municipal governments and by public authorities (including, without
limitation, general obligation bonds, revenue bonds and industrial
bonds and industrial development bonds), bonds, debentures, notes,
mortgages or other obligations, and any certificates, receipts,
warrants or other instruments representing rights to receive,
purchase, sell or subscribe for the same, or evidencing or
representing any other rights or interest therein, or any property or
assets and other securities and investments from time to time owned by
the Fund.
(k) "Shares" shall mean the shares of Common Stock, par value $.001
per share, of the Fund.
(l) "Transfer Agent" shall mean the person which performs the transfer
agent, dividend paying agent and registrar functions for the Fund.
(m) "Written Instructions" shall mean written communications actually
received by the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized Person by
telex or any other such system whereby the receiver of such
communications is able to verify by codes or otherwise with a
reasonable degree of certainty the authenticity of the sender of such
communication.
(n) The "1940 Act" refers to the Investment Company Act of 1940, and
the Rules and Regulations thereunder, all as amended from time to
time.
2. APPOINTMENT OF CUSTODIAN.
(a) The Fund hereby constitutes and appoints the Custodian as
custodian of all the Securities and moneys at any time owned by or in
possession of the Fund during the period of this Agreement.
(b) The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
3. COMPENSATION.
(a) The Fund will compensate the Custodian for its services rendered
under this Agreement in accordance with the fees set forth in the Fee
Schedule annexed hereto as Schedule A and incorporated herein. Such
Fee Schedule does not include out-of-pocket disbursements of the
Custodian for which the Custodian shall be entitled to bill
separately. Out-of-pocket disbursements shall include, but shall not
be limited to, the items specified in the Schedule of Out-of-Pocket
charges annexed hereto as Schedule B and incorporated herein, which
schedule may be modified by the Custodian upon not less than thirty
days' prior written notice to the Fund.
(b) Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule A of this Agreement a revised Fee
Schedule, dated and signed by an Authorized Officer of each party
hereto.
(c) The Custodian will bill the Fund as soon as practicable after the
end of each calendar month, and said billings will be detailed in
accordance with the Fee Schedule. The Fund will promptly pay to the
Custodian the amount of such billing.
4. CUSTODY OF CASH AND SECURITIES.
(a) RECEIPT AND HOLDING OF ASSETS. The Fund will deliver or cause to
be delivered to the Custodian all Securities and all moneys owned by
it, including cash received for the issuance of its Shares, at any
time during the period of this Agreement. The Custodian will not be
responsible for such Securities and such moneys until actually
received by it. The Fund shall deliver to the Custodian a certified
resolution of the Board of Directors of the Fund approving,
authorizing and instructing the Custodian on a continuous and on-going
basis to deposit in the Book-Entry System all Securities eligible for
deposit therein and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including,
without limitation, in connection with settlements of purchases and
sales of Securities, loans of Securities, and deliveries and returns
of Securities collateral. Prior to a deposit of Securities of the Fund
in the Depository, the Fund shall deliver to the Custodian a certified
resolution of the Board of Directors of the Fund approving,
authorizing and instructing the Custodian on a continuous and on-going
basis until instructed to the contrary by a Certificate actually
received by the Custodian to deposit in the Depository all Securities
eligible for deposit therein and to utilize the Depository to the
extent possible in connection with its performance hereunder,
including, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities, and deliveries
and returns of Securities collateral. Securities and moneys of the
Fund deposited in either the Book-Entry System or the Depository will
be represented in accounts which include only assets held by the
Custodian for customers, including, but not limited to, accounts in
which the Custodian acts in a fiduciary or representative capacity.
(b) ACCOUNTS AND DISBURSEMENTS. The Custodian shall credit to a
separate account in the name of the Fund all moneys received by it for
the account of the Fund, and shall disburse the same only:
1. In payment for Securities purchased, as provided in Section
5 hereof;
2. In payment of dividends or distributions, as provided in
Section 7 hereof;
3. In payment for Shares reacquired by it, as described in the
Fund's Prospectus;
4. Pursuant to Certificates setting forth the name and address
of the person to whom the payment is to be made, and the purpose
for which payment is to be made; or
5. In payment of the fees and in reimbursement of the expenses
and liabilities of the Custodian, as provided in Section 10
hereof.
(c) REPORTS BY CUSTODIAN. The Custodian shall furnish the Fund each
month with a statement summarizing all transactions and entries for
the account of the Fund. The Custodian shall furnish the Fund at the
close of each month with a detailed statement of the Securities and
moneys held for the Fund under this Agreement. The books and records
of the Custodian pertaining to its actions under this Agreement shall
be open to inspection and audit at reasonable times by officers of,
and auditors employed by, the Fund.
(d) REGISTRATION OF SECURITIES AND PHYSICAL SEPARATION. All Securities
held for the Fund, which are issued or issuable only in bearer form,
except such Securities as are held in the Book-Entry System, shall be
held by the Custodian in that form; all other Securities held for the
Fund may be registered in the name of the Fund, in the name of any
duly appointed registered nominee of the Custodian as the Custodian
may from time to time determine, or in the name of the Book-Entry
System or the Depository or their successor or successors, or their
nominee or nominees. The Fund reserves the right to instruct the
Custodian as to the method of registration and safekeeping of the
Securities of the Fund. The Fund agrees to furnish to the Custodian
appropriate instruments to enable the Custodian to hold or deliver in
proper form for transfer, or to register in the name of its registered
nominee or in the name of the Book-Entry System or the Depository, any
Securities which it may hold for the account of the Fund and which may
from time to time be registered in the name of the Fund. The Custodian
shall hold all such Securities which are not held in the Book-Entry
System or in the Depository in a separate account in the name of the
Fund physically segregated at all times from those of any other person
or persons.
(e) SEGREGATED ACCOUNTS. Upon receipt of a Certificate, the Custodian
will establish segregated accounts on behalf of the Fund to hold
liquid or other assets as it shall be directed by a Certificate and
shall increase or decrease the assets in such Segregated Account only
as it shall be directed by a subsequent Certificate.
(f) COLLECTION OF INCOME AND OTHER MATTERS AFFECTING SECURITIES.
Unless otherwise instructed to the contrary by a Certificate, the
Custodian by itself, or through the use of the Book-Entry System or
the Depository with respect to Securities therein deposited, shall
with respect to all Securities held for the Fund in accordance with
this Agreement:
1. Collect all income due or payable;
2. Present for payment and collect the amount payable upon all
Securities which may mature or be called, redeemed or retired, or
otherwise become payable; except the Custodian shall have no
responsibility to the Fund for monitoring or ascertaining any
redemption or retirement date with respect to any put bonds which
are owned by the Fund and held by the Custodian or its nominee.
Nor shall the Custodian have any responsibility to the Fund for
any loss to the Fund for any missed payments or other defaults
resulting therefrom unless the Custodian received timely
notification from the Fund specifying the time, place and manner
for the presentment of such put bond owned by the Fund and held
by the Custodian or its nominee. The Custodian is not responsible
and assumes no liability to the Fund for the accuracy or
completeness of any notification the Custodian may furnish the
Fund with respect to put bonds;
3. Surrender Securities in temporary form for definitive
Securities;
4. Execute, as Custodian, any necessary declarations or
certificates of ownership under the Federal income tax laws or
the laws or regulations of any other taxing authority now or
hereafter in effect;
5. Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the
account of the Fund all rights and similar securities issued with
respect to any Securities held by the Custodian hereunder.
(g) DELIVERY OF SECURITIES AND EVIDENCE OF AUTHORITY. Upon receipt of
a Certificate and not otherwise, except for subparagraphs 5, 6, 7 and
8 which may be effected by Oral or Written Instructions and confirmed
by Certificates, the Custodian, directly or through the use of the
Book-Entry System or the Depository, shall:
1. Execute and deliver or cause to be executed and delivered to
such persons as may be designated in such Certificate proxies,
consents, authorizations, and any other instruments whereby the
authority of the Fund as owner of any Securities may be
exercised;
2. Deliver or cause to be delivered any Securities held for the
Fund in exchange for other Securities or cash issued or paid in
connection with the liquidation, reorganization, refinancing,
merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege;
3. Deliver or cause to be delivered any Securities held for the
Fund to any protective committee, reorganization committee or
other person in connection with the reorganization, refinancing,
merger, consolidation, recapitalization or sale of assets of any
corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to evidence such
delivery;
4. Make or cause to be made such transfers or exchanges of the
assets of the Fund and take such other steps as shall be stated
in such Certificate to be for the purpose of effectuating any
duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund; and
5. Deliver Securities owned by the Fund upon sale of such
Securities for the account of the Fund pursuant to Section 5;
6. Deliver Securities owned by the Fund upon the receipt of
payment in connection with any repurchase agreement related to
such Securities entered into by the Fund;
7. Deliver Securities owned by the Fund to the issuer thereof
or its agent when such Securities are called, redeemed, retired
or otherwise become payable, provided, however, that in any such
case the cash or other consideration is to be delivered to the
Custodian. Notwithstanding the foregoing, the Custodian shall not
be responsible for monitoring or ascertaining any redemption and
retirement date with respect to any put bond which is owned by
the Fund and held by the Custodian or its nominee; nor shall the
Custodian have any responsibility to the Fund for any loss to the
Fund for any missed payment or other default resulting therefrom
unless the Custodian received timely notification from the Fund
specifying the time, place and manner for the presentment of such
put bond owned by the Fund and held by the Custodian or its
nominee. The Custodian is not responsible and assumes no
liability to the Fund for the accuracy or completeness of any
notification the Custodian may furnish the Fund with respect to
put bonds;
8. Deliver Securities owned by the Fund for delivery in
connection with any loans of securities made by the Fund but only
against receipt of adequate collateral as agreed upon from time
to time by the Custodian and the Fund;
9. Deliver Securities owned by the Fund for delivery as
security in connection with any borrowings by the Fund requiring
a pledge of Fund assets, but only against receipt of amounts
borrowed;
10. Deliver Securities owned by the Fund for any purpose
expressly permitted by and in accordance with procedures
described in the Fund's Prospectus; and
11. Deliver Securities owned by the Fund for any other proper
business purpose, but only upon receipt of, in addition to
Written Instructions, a certified copy of a resolution of the
Board of Directors signed by an Authorized Person and certified
by the Secretary of the Fund, specifying the Securities to be
delivered, setting forth the purpose for which such delivery is
to be made, declaring such purpose to be a proper business
purpose, and naming the person or persons to whom delivery of
such Securities shall be made.
(h) ENDORSEMENT AND COLLECTION OF CHECKS, ETC. The Custodian is
hereby authorized to endorse and collect all checks, drafts or other
orders for the payment of money received by the Custodian for the
account of the Fund.
5. PURCHASE AND SALE OF INVESTMENTS OF THE FUND.
(a) Promptly after each purchase of Securities by the Fund, the Fund
shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate, and
(ii) with respect to each purchase of Money Market Securities, either
a Certificate or Oral Instructions, in either case specifying with
respect to each such purchase: (1) the name of the issuer and the
title of the Securities; (2) the number of shares or the principal
amount purchased and accrued interest, if any; (3) the date of
purchase and settlement; (4) the purchase price per unit; (5) the
total amount payable upon such purchase; (6) the name of the person
from whom or the broker through whom the purchase was made; and (7)
whether or not such purchase is to be settled through the Book-Entry
System or the Depository. The Custodian shall, upon receipt of
Securities purchased by or for the Fund, pay out of the moneys held
for the account of the Fund the total amount payable to the person
from whom, or the broker through whom, the purchase was made, provided
that the same conforms to the total amount payable as set forth in
such Certificate or Oral Instructions.
(b) Promptly after each sale of Securities by the Fund, the Fund
shall deliver to the Custodian (i) with respect to each sale of
Securities which are not Money Market Securities, a Certificate, and
(ii) with respect to each sale of Money market Securities, a
Certificate or Oral Instructions, in either case specifying with
respect to each such sale: (1) the name of the issuer and the title of
the Security; (2) the number of shares or principal amount sold, and
accrued interest, if any; (3) the date of sale; (4) the sale price per
unit; (5) the total amount payable to the Fund upon such sale; (6) the
name of the broker through whom or the person to whom the sale was
made; and (7) whether or not such sale is to be settled through the
Book-Entry System or the Depository. The Custodian shall deliver or
cause to be delivered the Securities upon receipt of the total amount
payable to the Fund upon such sale, provided that the same conforms to
the total amount payable as set forth in such Certificate or Oral
Instructions. Subject to the foregoing, the Custodian may accept
payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs
prevailing among dealers in Securities.
6. LENDING OF SECURITIES.
(a) Within 24 hours after any loan of Securities by the Fund as
disclosed in its Prospectus, the Fund shall deliver or cause to be
delivered to the Custodian written Instructions specifying with
respect to each such loan: (1) the name of the issuer and the title of
the Securities; (2) the number of shares or the principal amount
loaned; (3) the date of loan and delivery; (4) the total amount to be
delivered to the Custodian against the loan of the Securities,
including the amount of cash collateral and the premium, if any,
separately identified; (5) the name of the broker, dealer or financial
institution to which the loan was made; and (6) whether the Securities
loaned are to be delivered through the Book-Entry System or the
Depository.
(b) Promptly after each termination of a loan of Securities, the
Fund shall deliver to the Custodian written Instructions specifying
with respect to each such loan termination and return of Securities:
(1) the name of the issuer and the title of the Securities to be
returned; (2) the number of shares or the principal amount to be
returned; (3) the date of termination; (4) the total amount to be
delivered by the Custodian (including the cash collateral for such
Securities minus any offsetting credits as described in said Written
Instructions); (5) the name of the broker, dealer or financial
institution from which the Securities will be returned; and (6)
whether such return is to be effected through the Book-Entry System or
the Depository. The Custodian shall receive all Securities returned
from the broker, dealer or financial institution to which such
Securities were loaned and upon receipt thereof shall pay, out of
moneys held for the account of the Fund, the total amount payable upon
such return of Securities as set forth in the written Instructions.
Securities returned to the Custodian shall be held as they were prior
to such loan.
7. PAYMENT OF DIVIDENDS OR DISTRIBUTIONS.
(a) The Fund shall furnish to the Custodian a copy of the resolution
of the Board of Directors, certified by the Secretary or any Assistant
Secretary, either (i) setting forth the date of the declaration of a
dividend or distribution, the date of payment thereof, the record date
as of which shareholders entitled to payment shall be determined, the
amount payable per share to the shareholders of record as of that date
and the total amount payable to the Transfer Agent on the payment
date, or (ii) authorizing the declaration of dividends and
distributions on a specified periodic basis and authorizing the
Custodian to rely on Oral Instructions, Written Instructions or a
Certificate setting forth the date of the declaration of such dividend
or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount
payable per share to the shareholders of record as of that date and
the total amount payable to the Transfer Agent on the payment date.
(b) Upon the payment date specified in such resolution, Oral
Instructions, Written Instructions or Certificate, as the case may be,
the Custodian shall pay out of the moneys held for the account of the
Fund the total amount payable to the Transfer Agent.
8. INDEBTEDNESS.
(a) The Fund will cause to be delivered to the Custodian by any bank
(excluding the Custodian) from which the Fund borrows money for
temporary or emergency purposes using Securities as collateral for
such borrowings, a notice or undertaking in the form currently
employed by any such bank setting forth the amount which such bank
will loan to the Fund against delivery of a stated amount of
collateral. The Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to each such borrowing: (1) the
name of the bank; (2) the amount and terms of the borrowing, which may
be set forth by incorporating by reference an attached promissory
note, duly endorsed by the Fund, or other loan agreement; (3) the time
and date, if known, on which the loan is to be entered into; (4) the
date on which the loan becomes due and payable; (5) the total amount
payable to the Fund on the borrowing date; (6) the market value of
Securities to be delivered as collateral for such loan, including the
name of the issuer, the title and the number of shares or the
principal amount of any particular Securities; (7) whether the
Custodian is to deliver such collateral through the Book-Entry System
or the Depository; and (8) a statement that such loan is in
conformance with the 1940 Act and the Fund's Prospectus.
(b) Upon receipt of the Certificate referred to in the preceding
paragraph, the Custodian shall deliver on the borrowing date specified
in a Certificate the specified collateral and the executed promissory
note, if any, against delivery by the lending bank of the total amount
of the loan payable, provided that the same conforms to the total
amount payable as set forth in the Certificate. The Custodian may, at
the option of the lending bank, keep such collateral in its
possession, but such collateral shall be subject to all rights therein
given the lending bank by virtue of any promissory note or loan
agreement. The Custodian shall deliver such Securities as additional
collateral as may be specified in a Certificate to collateralize
further any transaction described in this Section. The Fund shall
cause all Securities released from collateral status to be returned
directly to the Custodian, and the Custodian shall receive from time
to time such return of collateral as may be tendered to it. In the
event that the Fund fails to specify in a Certificate all of the
information required by this Section, the Custodian shall not be under
any obligation to deliver any Securities. Collateral returned to the
Custodian shall be held hereunder as it was prior to being used as
collateral.
9. PERSONS HAVING ACCESS TO ASSETS OF THE PORTFOLIOS.
(a) No Director, officer, employee or agent of the Fund, and no
officer, director, employee or agent of the Fund's investment adviser,
shall have physical access to the assets of the Fund held by the
Custodian or be authorized or permitted to withdraw any investments of
the Fund, nor shall the Custodian deliver any assets of the Fund to
any such person. No officer, director, employee or agent of the
Custodian who holds any similar position with the Fund or the Fund's
investment adviser shall have access to the assets of the Fund.
(b) The individuals employed by the Custodian duly authorized by the
Board of Directors of the Custodian to have access to the assets of
the Fund are listed in the certification annexed hereto as Appendix A.
The Custodian shall advise the Fund of any change in the individuals
authorized to have access to the assets of the Fund by written notice
to the Fund accompanied by a certified copy of the authorizing
resolution of the Custodian's Board of Directors approving such
change.
(c) Nothing in this Section 9 shall prohibit any officer, employee
or agent of the Fund, or any officer, employee or agent of the Fund's
investment adviser, from giving Oral Instructions or Written
Instructions to the Custodian or executing a Certificate so long as it
does not result in delivery of or access to assets of the Fund
prohibited by paragraph (a) of this Section 9.
10. CONCERNING THE CUSTODIAN.
(a) STANDARD OF CONDUCT. Except as otherwise provided herein,
neither the Custodian nor its nominee shall be liable for any loss or
damage, including counsel fees, resulting from its action or omission
to act or otherwise, except for any such loss or damage arising out of
its own negligence or willful misconduct. The Custodian may, with
respect to questions of law arising hereunder, apply for and obtain
the advice and opinion of counsel to the Fund or of its own counsel,
at the expense of the Fund, and shall be fully protected with respect
to anything done or omitted by it in good faith in conformity with
such advice or opinion. The Custodian shall be liable to the Fund for
any loss or damage resulting from the use of the Book-Entry System or
the Depository arising by reason of any negligence, misfeasance or
willful misconduct on the part of the Custodian or any of its
employees or agents.
(b) LIMIT OF DUTIES. Without limiting the generality of the
foregoing, the Custodian shall be under no duty or obligation to
inquire into, and shall not be liable for:
1. The validity of the issue of any Securities purchased, sold
or written by or for the Fund, the legality of the purchase, sale
or writing thereof, or the propriety of the amount paid or
received therefor;
2. The legality of the issue or sale of any of the Fund's
Shares, or the sufficiency of the amount to be received therefor;
3. The legality of the declaration or payment of any dividend
by the Fund; or
4. The legality of any borrowing by the Fund using Securities
as collateral.
(c) NO LIABILITY UNTIL RECEIPT. The Custodian shall not be liable
for, or considered to be the Custodian of, any money, whether or not
represented by any check, draft or other instrument for the payment of
money, received by it on behalf of the Fund until the Custodian
actually receives and collects such money directly or by the final
crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.
(d) AMOUNTS DUE FROM TRANSFER AGENT. The Custodian shall not be
under any duty or obligation to take action to effect collection of
any amount due to the Fund from the Transfer Agent nor to take any
action to effect payment or distribution by the Transfer Agent of any
amount paid by the Custodian to the Transfer Agent in accordance with
this Agreement.
(e) COLLECTION WHERE PAYMENT REFUSED. The Custodian shall not be
under any duty or obligation to take action to effect collection of
any amount, if the Securities upon which such amount is payable are in
default, or if payment is refused after due demand or presentation,
unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of
reimbursement of its costs and expenses in connection with any such
action.
(f) APPOINTMENT OF AGENTS AND SUB-CUSTODIAN. The Custodian may
appoint one or more banking institutions, including, but not limited
to, banking institutions located in foreign countries, to act as
Depository or Depositories or as Sub-Custodian or Sub-Custodians of
Securities and moneys at any time owned by the Fund, upon terms and
conditions specified in a Certificate. The Custodian shall use
reasonable care in selecting a Depository and/or Sub-Custodian located
in a country other than the United States ("Foreign Sub-Custodian"),
and shall oversee the maintenance of any Securities or moneys of the
Fund by any Foreign Sub-Custodian.
(g) NO DUTY TO VALUE ASSETS. The Custodian shall not be under any
duty or obligation to value the assets of the Fund.
(h) NO DUTY TO ASCERTAIN AUTHORITY. The Custodian shall not be under
any duty or obligation to ascertain whether any Securities at any time
delivered to or held by it for the account of the Fund are such as
properly may be held by the Fund under the provisions of its Articles
of Incorporation and Prospectus.
(i) COMPENSATION OF THE CUSTODIANS. The Custodian shall be entitled
to receive and the Fund agrees to pay to the Custodian such
compensation as may be agreed upon from time to time between the
Custodian and the Fund. The Custodian may charge such compensation and
any expenses incurred by the Custodian in the performance of its
duties pursuant to such agreement against any money held by it for the
account of the Fund. The Custodian shall also be entitled to charge
against any money held by it for the account of the Fund the amount of
any loss, damage, liability or expense, including counsel fees, for
which it shall be entitled to reimbursement under the provisions of
this Agreement. The expenses which the Custodian may charge against
the account of the Fund include, but are not limited to, the expenses
of Sub-Custodians and foreign branches of any Sub-Custodian incurred
in settling outside of Boston, Massachusetts or New York City
transactions involving the purchase and sale of Securities of the
Fund.
(j) RELIANCE ON CERTIFICATES AND INSTRUCTIONS. The Custodian shall
be entitled to rely upon any Certificate, notice or other instrument
in writing received by the Custodian and reasonably believed by the
Custodian to be a Certificate. The Custodian shall be entitled to rely
upon any Oral Instructions and any Written Instructions actually
received by the Custodian pursuant to the applicable Sections of this
Agreement and reasonably believed by the Custodian to be genuine and
to be given by an Authorized Person. The Fund agrees to forward to the
Custodian Written Instructions confirming such Oral Instructions in
such manner so that such Written Instructions are received by the
Custodian, whether by hand delivery, telex or otherwise, by the close
of business on the same day that such Oral Instructions are given to
the Custodian. The Fund agrees that the fact that such confirming
instructions are not received by the Custodian shall in no way affect
the validity of the transactions or enforceability of the transactions
hereby authorized by the Fund. The Fund agrees that the Custodian
shall incur no liability to the Fund in acting upon Oral Instructions
given to the Custodian hereunder concerning such transactions,
provided such instructions reasonably appear to have been received
from an Authorized Person.
(k) INSPECTION OF BOOKS AND RECORDS. The books and records
pertaining to the Fund which are in the possession of the Custodian
shall be the property of the Fund. Such books and records shall be
prepared and maintained as required by the 1940 Act and other
applicable securities laws and rules and regulations. The Fund, or the
Fund's authorized representatives, shall have access to such books and
records during the Custodian's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's
authorized representative at the Fund's expense.
The Custodian shall provide the Fund with any report obtained by
the Custodian on the system of internal accounting control of the
Book-Entry System or the Depository and with such reports on its own
systems of internal accounting control as the Fund may reasonably
request from time to time.
11. TERM AND TERMINATION.
(a) This Agreement shall become effective on the date first set
forth above (the "Effective Date") and shall continue in effect
thereafter as the parties may mutually agree.
(b) Either of the parties hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of
such termination, which shall be not less than 60 days after the date
of receipt of such notice. In the event such notice is given by the
Fund, it shall be accompanied by a certified resolution of the Board
of Directors of the Fund, electing to terminate this Agreement and
designating a successor custodian or custodians, each of which shall
be qualified to so act under the 1940 Act. In the event such notice is
given by the Custodian, the Fund shall, on or before the termination
date, deliver to the Custodian a certified resolution of the Board of
Directors of the Fund, designating a successor custodian or
custodians. In the absence of such designation by the Fund, the
Custodian may designate a successor custodian which shall be qualified
to so act under the 1940 Act. If a successor custodian is not
designated by the Fund or the Custodian, the Fund shall, upon the date
specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities
held in the Book-Entry System which cannot be delivered to the Fund)
and moneys then owned by the Fund, be deemed to be its own custodian,
and the Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty with
respect to Securities held in the Book-Entry System, in any Depository
or by a Clearing Member which cannot be delivered to the Fund, to hold
such Securities hereunder in accordance with this Agreement.
(c) Upon the date set forth in such notice under paragraph (b) of
this Section 11, this Agreement shall terminate and the Custodian
shall, upon receipt of a notice of acceptance by the successor
custodian, on that date deliver directly to the successor custodian
all Securities and moneys then owned by the Fund and held by it as
Custodian, after deducting all fees, expenses and other amounts for
the payment or reimbursement of which it shall then be entitled.
12. MISCELLANEOUS.
(a) Annexed hereto as Appendix A is a certification signed by two of
the present Officers of the Fund under its seal, setting forth the
names and the signatures of the present Authorized Persons. The Fund
agrees to furnish to the Custodian a new certification in similar form
in the event that any such present Authorized Person ceases to be an
Authorized Person or in the event that other or additional Authorized
Persons are elected or appointed. Until such new certification shall
be received, the Custodian shall be fully protected in acting under
the provisions of this Agreement upon Oral Instructions or signatures
of the present Authorized Persons as set forth in the last delivered
certification.
(b) Annexed hereto as Appendix B is a certification signed by two of
the present Officers of the Fund under its seal, setting forth the
names and the signatures of the present Officers of the Fund. The Fund
agrees to furnish to the Custodian a new certification in similar form
in the event any such present Officer ceases to be an Officer of the
Fund, or in the event that other or additional Officers are elected or
appointed. Until such new certification shall be received, the
Custodian shall be fully protected in acting under the provisions of
this Agreement upon the signatures of the Officers as set forth in the
last delivered certification.
(c) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or
delivered to it at its offices at One Boston Place, Boston,
Massachusetts 02108, or at such other place as the Custodian may from
time to time designate in writing.
(d) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund, shall be
sufficiently given if addressed to the Fund and mailed or delivered to
it at its office at 666 Old Country Road, Garden City, New York 11530,
or at such other place as the Fund may from time to time designate in
writing.
(e) This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties with the same
formality as this Agreement and as may be permitted or required by the
1940 Act.
(f) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Fund
without the written consent of the Custodian, or by the Custodian
without the written consent of the Fund authorized or approved by a
resolution of the Board of Directors of the Fund, and any attempted
assignment without such written consent shall be null and void.
(g) This Agreement shall be construed in accordance with the laws
of the State of New York.
(h) The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect. (i) This
Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective Officers, thereunto duly authorized, and their
respective seals to be hereunto affixed, as of the day and year first above
written.
Attest: DREYFUS STRATEGIC MUNICIPALS, INC.
/s/ DANIEL C. MACLEAN By: /s/ RICHARD J. MOYNIHAN
- ----------------------- -------------------------
Title: President
Attest: BOSTON SAFE DEPOSIT AND TRUST COMPANY
/s/ CHARLOTTE E. TIBBETT By: /s/ JEAN C. TEMPLE
- ------------------------ ---------------------------
Title: President
EXHIBIT S
RESOLVED, that the Registration Statement and any and all
amendments thereto may be signed by any one of Margaret W.
Chambers, Stephanie D. Pierce, Douglas C. Conroy, Christopher J.
Kelley, Kathleen K. Morrisey or Elba Vasquez, as the
attorney-in-fact for the proper officers of the Fund, with full
power of substitution and resubstitution; and that the
appointment of each such person as such attorney-in-fact hereby
is authorized and approved; and that such attorneys-in-fact, and
each of them, shall have full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in connection with such registration Statement and any
and all amendments and supplements thereto, as fully to all
intents and purposes as the officer for whom he or she is acting
as attorney-in-fact, might or could do in person; and it was
further
* * * * * * * * * * * * * * *
POWER OF ATTORNEY
The undersigned hereby constitute and appoint Margaret W. Chambers,
Stephanie D. Pierce, Douglas C. Conroy, Christopher J. Kelley, Kathleen K.
Morrisey and Elba Vasquez, and each of them, with full power to act without the
other, his or her true and lawful attorney-in- fact and agent, with full power
of substitution and resubstitution, for him or her, and in his or her name,
place and stead, in any and all capacities (until revoked in writing) to sign
any and all amendments to the Registration Statement of the Fund (including
post-effective amendments and amendments thereto), and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his or her substitutes, may lawfully do or
cause to be done by virtue thereof.
/s/ JOSEPH S. DIMARTINO
- ----------------------------- July 19, 1999
Joseph S. DiMartino
/s/ DAVID W. BURKE
- ----------------------------- July 19, 1999
David W. Burke
/s/ HODDING CARTER, II
- ----------------------------- July 19, 1999
Hodding Carter II
/s/ EHUD HOUMINER
- ----------------------------- July 19, 1999
Ehud Houminer
/s/ RICHARD C. LEONE
- ----------------------------- July 19, 1999
Richard C. Leone
/s/ HANS C. MAUTNER
- ----------------------------- July 19, 1999
Hans C. Mautner
/s/ ROBIN A. PRINGLE
- ----------------------------- July 19, 1999
Robin A. Pringle
/s/ JOHN E. ZUCCOTTI
- ----------------------------- July 19, 1999
John E. Zuccotti
