<PAGE> 1
SCHEDULE 14A
(Rule 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(1)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[NUVEEN LOGO]
June 18, 1997
DEAR SHAREHOLDER:
We are pleased to invite you to the Annual Meeting of Shareholders of the Nuveen
Premium Income Municipal Fund, Inc. The meeting is scheduled for Wednesday, July
30, 1997 at 10:30 a.m., Chicago time, in the 6th floor auditorium of The
Northern Trust Company, 50 South LaSalle Street, Chicago, Illinois.
At the Annual Meeting, all shareholders will be asked to consider and approve a
very important proposal. The Fund's management seeks to update the terms of the
Fund's preferred stock (Remarketed Preferred Stock or "Nuveen RP") to conform
with the state-of-the-art terms of preferred stock of the more recently issued
Nuveen exchange-traded funds (Municipal Auction Rate Cumulative Preferred Stock
or "MuniPreferred(R)"). We believe the proposal may increase the income
available to the Fund's common stockholders. We also believe that the proposal
will simplify the process of investing in and owning shares of the Fund's
preferred stock. If approved, the terms of the Nuveen RP would be amended to
make the following changes and to offer the following advantages, among others:
- Change from a remarketing to an auction process.
- Permit more flexibility regarding dividend rate periods.
- Permit more flexibility to issue additional shares of preferred stock.
- Eliminate Master Purchaser's Letters.
You will also be asked to elect directors and ratify the selection of
independent auditors.
WHETHER OR NOT YOU PLAN TO JOIN US, PLEASE COMPLETE, DATE AND SIGN YOUR PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE SO THAT YOUR VOTE WILL BE COUNTED.
We appreciate your continued support and confidence in Nuveen and our family of
investments.
Sincerely,
Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
<PAGE> 3
NOTICE OF ANNUAL MEETING 333 West Wacker Drive
OF SHAREHOLDERS -- Chicago, Illinois
JULY 30, 1997 60606
(800) 257-8787
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
June 18, 1997
TO THE SHAREHOLDERS:
Notice is hereby given that the Annual Meeting of Shareholders of Nuveen Premium
Income Municipal Fund, Inc., a Minnesota corporation (the "Fund"), will be held
in the 6th floor auditorium of The Northern Trust Company, 50 South LaSalle
Street, Chicago, Illinois, on Wednesday, July 30, 1997, at 10:30 a.m., Chicago
time, for the following purposes:
MATTERS TO BE VOTED ON BY ALL SHAREHOLDERS OF THE FUND:
1. To elect six (6) directors to serve until the next Annual Meeting and
until their successors shall have been duly elected and qualified.
2. To ratify the selection of Ernst & Young LLP as independent auditors for
the fiscal year ending October 31, 1997.
3. To approve amendments to the terms of the Fund's Remarketed Preferred
Stock.
4. To transact such other business as may properly come before the Annual
Meeting.
MATTER TO BE VOTED ON BY THE FUND'S HOLDERS OF REMARKETED PREFERRED STOCK ONLY:
To elect two (2) directors to serve until the next Annual Meeting and until
their successors shall have been duly elected and qualified.
Shareholders of record of the Fund at the close of business on June 2, 1997 are
entitled to notice of and to vote at the Fund's Annual Meeting.
IN ORDER TO AVOID DELAY AND ADDITIONAL EXPENSE FOR THE FUND, AND TO ASSURE THAT
YOUR SHARES ARE REPRESENTED, IF YOU DO NOT EXPECT TO BE PRESENT IN PERSON AT
YOUR ANNUAL MEETING, YOU ARE REQUESTED TO FILL IN, SIGN AND MAIL THE ENCLOSED
PROXY AS PROMPTLY AS POSSIBLE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
Gifford R. Zimmerman
Vice President and Assistant Secretary
<PAGE> 4
<PAGE> 5
<TABLE>
<S> <C>
PROXY STATEMENT 333 West Wacker Drive
JUNE 18, 1997 Chicago, Illinois
60606
(800) 257-8787
</TABLE>
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Nuveen Premium Income Municipal Fund, Inc. (the "Fund") of
proxies to be voted at the Annual Meeting of Shareholders of the Fund to be held
on July 30, 1997 ("Annual Meeting"), and at any and all adjournments thereof.
On the matters coming before the Fund's Annual Meeting as to which a choice has
been specified by the shareholders of the Fund on the proxy, the shares of the
Fund will be voted accordingly. If no choice is so specified, the shares of the
Fund will be voted FOR the election of the six nominees for director to be
elected by all shareholders and the two nominees for director to be elected by
holders of Remarketed Preferred Stock ("Nuveen RP"), as listed in this Proxy
Statement, FOR ratification of the selection of Ernst & Young LLP as the Fund's
independent auditors and FOR approval of the amendments to the terms of the
Nuveen RP. Shareholders of the Fund who execute proxies may revoke them at any
time before they are voted by filing with the Fund a written notice of
revocation, by delivering a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person.
The following table indicates which shareholders are solicited with respect to
each matter:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Matter Common Stock Nuveen RP
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Election of directors by all shareholders (Robert Bremner, X X
Lawrence Brown, Anthony Dean, Anne Impellizzeri, Peter
Sawers and Judith Stockdale nominated)
- ------------------------------------------------------------------------------------------------
Election of directors by Nuveen RP only (William Schneider X
and Timothy Schwertfeger nominated)
- ------------------------------------------------------------------------------------------------
Ratify selection of auditors X X
- ------------------------------------------------------------------------------------------------
Approval of amendments to the terms of the Nuveen RP X X
- ------------------------------------------------------------------------------------------------
</TABLE>
A quorum of shareholders is required to take action at the Fund's Annual
Meeting. A majority of the shares entitled to vote at the Annual Meeting,
represented in person or by proxy, will constitute a quorum of shareholders at
the Annual Meeting. Votes cast by proxy or in person at the Annual Meeting will
be tabulated by the inspectors of election appointed for the Annual Meeting. The
inspectors of election will determine whether or not a quorum is present at the
Annual Meeting. The inspectors of election will treat abstentions and "broker
non-votes" (i.e., shares held by brokers or nominees, typically in "street
name," as to which (i) instructions have not been received from the beneficial
owners or persons entitled to vote and (ii) the broker or nominee does not have
discretionary voting power on a particular matter) as present for purposes of
determining a quorum.
For purposes of determining the approval of the matters submitted to the
shareholders for a vote, abstentions and broker non-votes will be treated as
shares voted against the election of directors, against ratification of the
selection of independent auditors and against approval of the amendments to the
terms of the Nuveen RP. The details of each proposal to be voted on by the
shareholders of the Fund and the vote required for approval of the proposal are
set forth under the description of each proposal below.
Shares of a series of Nuveen RP held in "street name" as to which voting
instructions have not been received from the beneficial owners or persons
entitled to vote as of one business day before the meeting, or, if adjourned,
one business day before the day to which the meeting is adjourned, and that
would otherwise be treated as "broker non-votes" may, pursuant to Rule 452 of
the New York Stock Exchange, be voted by the broker on each item in the same
proportion as the votes cast by all Nuveen RP shareholders of that series who
have voted on that item. Rule 452 permits proportionate voting for a series of
Nuveen RP with respect to a particular item if, among other things, (i) a
minimum of 30% of the shares of Nuveen RP of that series outstanding has been
voted by the holders of such shares with respect to such item and (ii) less than
10% of the shares of Nuveen RP of that series outstanding has been voted by the
holders of such shares against such item. For the purpose of meeting the 30%
test, abstentions will be treated as shares "voted" and, for the purpose of
meeting the 10% test, abstentions will not be treated as shares "voted" against
the item.
As of June 2, 1997, there were issued and outstanding 63,785,431 shares of
common stock and the following shares of Nuveen RP: Series A--2,800; Series
B--2,800; Series C--2,800; Series D--2,800; and Series E--2,800. Those persons
who were shareholders of record at the close of business on June 2, 1997 will be
entitled to one vote for each share held.
This Proxy Statement is first being mailed to shareholders of the Fund on or
about June 18, 1997.
1
<PAGE> 6
SUMMARY OF PROPOSAL 3
Proposal 3 would amend the terms of the Nuveen RP (as proposed to be amended,
Nuveen RP would be called Municipal Auction Rate Cumulative Preferred Stock or
"MuniPreferred"). Series A Nuveen RP would become Series M MuniPreferred, Series
B Nuveen RP would become Series T MuniPreferred, Series C Nuveen RP would become
Series TH MuniPreferred, Series D Nuveen RP would become Series F MuniPreferred
and Series E Nuveen RP would become Series W MuniPreferred. The proposal would,
among other things, accomplish the following:
1. CHANGE FROM A REMARKETING TO AN AUCTION PROCESS. Fund Management believes
that the Fund could realize certain benefits through the use of so-called "Dutch
auctions," which use an independent auction agent, rather than a remarketing
process, which uses a remarketing agent for the ongoing determinations of the
dividend rate. Of the approximately $7 billion of preferred stock issued by
Nuveen-sponsored closed-end municipal funds, only 5%, the Nuveen RP, sets rates
through remarketings-the remaining 95% use "Dutch auctions" to set rates. By
conforming Nuveen RP to the remainder of the Nuveen-sponsored preferred stock
product line, Fund Management believes it may broaden distribution of the Fund's
preferred stock and may generate efficiencies to the Fund.
2. PROVIDE GREATER RATE PERIOD FLEXIBILITY. The Fund's five outstanding series
of Nuveen RP have limited options for the lengths of their rate periods. Of the
Fund's five outstanding series of Nuveen RP, currently, four series (Series A,
B, C and D) have 28-day rate periods and one series (Series E) has a 7-day rate
period. The Board may designate longer rate periods, but only for periods of 168
days or 364 days.
The proposal would enable the Fund to provide holders of Nuveen RP a greater
number of potential rate periods. Under the proposal, the Fund would have the
option to designate rate periods between 7 days and approximately 5 years
provided that such rate periods are divisible by seven, otherwise the rate
period would be set at 7 days. It is expected that the proposal would reduce the
Fund's annual preferred stock dividend expenses and thereby increase income
available to the Fund's common stockholders.
3. PERMIT MORE FLEXIBILITY TO ISSUE ADDITIONAL SHARES OF PREFERRED
STOCK. Currently, the Fund may not issue additional shares of Nuveen RP without
shareholder approval. The proposal would allow the Fund to issue additional
shares of MuniPreferred without further shareholder approval (subject to Board
and rating agency approval and certain other conditions). If Proposal 3 is
approved by shareholders, the Fund presently intends to issue an additional $125
million of MuniPreferred.
4. ELIMINATE MASTER PURCHASER'S LETTERS. A purchaser of Nuveen RP is presently
required to sign a Master Purchaser's Letter. In order to simplify the
investment process, the proposal would eliminate this requirement.
The foregoing is a summary of certain provisions of Proposal 3 and should be
read in conjunction with the full description of the Proposal. AS DESCRIBED
THEREIN, THE BOARD OF DIRECTORS OF THE FUND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE APPROVAL OF PROPOSAL 3.
2
<PAGE> 7
1. ELECTION OF DIRECTORS OF THE FUND
At the Fund's Annual Meeting, eight (8) directors are to be elected to serve
until the next Annual Meeting and until their successors shall have been duly
elected and qualified. Under the terms of the Fund's Articles of Incorporation,
as amended, under normal circumstances holders of Nuveen RP are entitled to
elect two (2) directors, and the remaining directors are to be elected by
holders of common stock and Nuveen RP, voting together as a single class. Table
I below shows the nominees for director of the Fund to be elected by holders of
common stock and Nuveen RP, voting together as a single class. Table II below
shows the nominees for director of the Fund to be elected by holders of Nuveen
RP only. The affirmative vote of a majority of the shares present and entitled
to vote at the Fund's Annual Meeting will be required to elect the directors of
the Fund.
It is the intention of the persons named in the enclosed proxy to vote the
shares represented thereby for the election of the nominees listed below unless
the proxy is marked otherwise. Each of the nominees has agreed to serve as a
director of the Fund if elected; however, should any nominee become unable or
unwilling to accept nomination or election, the proxies for the Fund will be
voted for one or more substitute nominees designated by the Fund's present Board
of Directors.
Tables I and II below show each nominee's age, principal occupations and other
business affiliations, the year in which each nominee was first elected or
appointed a director of the Fund and the number of shares of common stock of the
Fund and of all funds managed by Nuveen Advisory Corp. (excluding money market
funds) that each nominee beneficially owned as of April 30, 1997. All of the
nominees, except Ms. Stockdale and Messrs. Bremner and Schneider, were last
elected to the Board of Directors at the 1996 annual meeting of shareholders.
Messrs. Bremner and Schneider were appointed to the Fund's Board of Directors in
May 1997 and will be standing for election by the Fund's shareholders for the
first time at the Annual Meeting. Mr. Bremner was appointed to fill the vacancy
that existed on the Fund's Board and the appointment of Mr. Schneider was made
in connection with an expansion in the size of the Board of Directors. In
addition, Ms. Stockdale will also be standing for election by the Fund's
shareholders for the first time at the Annual Meeting. Ms. Stockdale's
appointment, which is effective July 1, 1997, is intended to fill a vacancy that
will occur upon the retirement of Margaret K. Rosenheim from the Fund's Board of
Directors on July 30, 1997. Pursuant to the term limits set by the Board, Mrs.
Rosenheim is not eligible for reelection. The Board of Directors and Fund
Management wish to express their appreciation to Mrs. Rosenheim for her
contributions to the Nuveen Funds. As of April 30, 1997, Mrs. Rosenheim owned
755 shares of the Fund.
The members of the Board of Directors mourn the recent passing of Royce A.
Hoyle, a director from 1984 to 1991 and from 1994 to 1997.
THE FUND'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE ELECTION OF THE NOMINEES NAMED BELOW.
TABLE I
NOMINEES FOR DIRECTOR FOR THE FUND TO BE
ELECTED BY ALL SHAREHOLDERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Full Shares of
Common Stock
Beneficially
Owned on
April 30, 1997
-------------------
All
Name, Age and Principal Occupations Year First Elected or The Nuveen
of Nominees as of April 30, 1997(1) Appointed a Director Fund Funds(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert P. Bremner (56) 1997 0 893(3)
Director of the Fund; private investor and management
consultant.
Lawrence H. Brown (62) 1993 0 3,864
Director of the Fund; retired in August 1989 as Senior Vice
President of The Northern Trust Company.
*Anthony T. Dean (52) 1996 0 5,695
Director and President of the Fund (since July 1996);
Chairman (since July 1996) and Trustee (since July 1994) of
the Nuveen Select Tax-Free Portfolios advised by Nuveen
Institutional Advisory Corp.; President (since July 1996)
and Director of The John Nuveen Company, John Nuveen & Co.
Incorporated, Nuveen Advisory Corp. and Nuveen Institutional
Advisory Corp.
Anne E. Impellizzeri (64) 1994 0 2,000
Director of the Fund; President and Chief Executive Officer
of Blanton-Peale Institute.
</TABLE>
3
<PAGE> 8
TABLE I CONTINUED
NOMINEES FOR DIRECTOR FOR THE FUND TO BE
ELECTED BY ALL SHAREHOLDERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Full Shares of
Common Stock
Beneficially
Owned on
April 30, 1997
-------------------
All
Name, Age and Principal Occupations Year First Elected or The Nuveen
of Nominees as of April 30, 1997(1) Appointed a Director Fund Funds(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Peter R. Sawers (64) 1991 0 9,105
Director of the Fund; Adjunct Professor of Business and
Economics, University of Dubuque, Iowa; Adjunct Professor,
Lake Forest Graduate School of Management, Lake Forest,
Illinois; prior thereto, Executive Director, Towers Perrin
Australia (management consultant); Chartered Financial
Analyst; Certified Management Consultant.
Judith M. Stockdale (49) 1997 0 0
Director of the Fund (effective July 1, 1997); Executive
Director (since 1994) of the Gaylord and Dorothy Donnelley
Foundation; prior thereto, Executive Director (from 1990 to
1994) of the Great Lakes Protection Fund.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
TABLE II
NOMINEES FOR DIRECTOR FOR THE FUND TO BE ELECTED BY HOLDERS OF NUVEEN RP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Full Shares of
Common Stock
Beneficially Owned on
April 30, 1997
-----------------------
All
Name, Age and Principal Occupations of Year First Elected The Nuveen
Nominees as of April 30, 1997(1) or Appointed a Director Fund Funds(2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William J. Schneider (52) 1997 0 16,443
Director of the Fund; Senior Partner, Miller-Valentine
Partners; Vice President, Miller-Valentine Realty, Inc.
*Timothy R. Schwertfeger (48) 1994 11,500(4) 154,499
Director of the Fund and (since July 1996) Chairman of the
Fund; Trustee and President (since July 1996) of the Nuveen
Select Tax-Free Portfolios advised by Nuveen Institutional
Advisory Corp.; Chairman (since July 1996) and Director of
The John Nuveen Company, John Nuveen & Co. Incorporated,
Nuveen Advisory Corp. and Nuveen Institutional Advisory
Corp.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(*) "Interested person" as defined in the Investment Company Act of 1940, as
amended, by reason of being an officer or director of the Funds' investment
adviser, Nuveen Advisory Corp.
(1) The director nominees of the Fund, except Ms. Stockdale, are board members
of 42 Nuveen open-end funds and 52 Nuveen closed-end funds managed by Nuveen
Advisory Corp. ("NAC Funds"). Ms. Stockdale will be a board member of the NAC
Funds effective July 1, 1997. In addition, Messrs. Dean and Schwertfeger are
also board members of eight funds managed by Nuveen Institutional Advisory Corp.
("NIAC Funds").
(2) The number shown reflects the aggregate number of common shares beneficially
owned in all of the NAC Funds referred to in note (1) above (excluding money
market funds).
(3) Represents shares which are owned by Mr. Bremner's spouse. Mr. Bremner
disclaims beneficial ownership of these shares.
(4) Represents 6,500 shares as to which Mr. Schwertfeger has sole voting and
investment power and 5,000 shares held by Mr. Schwertfeger's spouse.
The directors affiliated with John Nuveen & Co. Incorporated ("Nuveen") or
Nuveen Advisory Corp. (the "Adviser") serve without any compensation from the
Fund. Directors who are not affiliated with Nuveen or the Adviser receive a
$32,500 annual retainer for serving as a director or trustee, as the case may
be, of all exchange-traded funds sponsored by Nuveen and managed by the Adviser
and a $1,000 fee per day plus expenses for attendance at all meetings held on a
day on which a regularly scheduled Board meeting is held, a $1,000 fee per day
plus expenses for attendance in person or a $500 fee per day plus expenses for
attendance by telephone at a meeting held on a day on which no regular Board
meeting is held, and a $250 fee per day plus expenses for attendance in person
or by telephone at a meeting of the executive committee. The annual retainer,
fees and expenses are allocated among the exchange-traded funds managed by the
Adviser on the basis of relative net asset sizes. The Fund has adopted a
Directors' Deferred Compensation Plan pursuant to which a director of the Fund
may elect to have all or a portion of the director's fee deferred. Directors may
defer fees for any calendar year by the execution of a Participation Agreement
prior to the beginning of the calendar year during which the director wishes to
begin deferral. In addition, the Directors who are not affiliated with Nuveen or
the Adviser receive a $27,500 annual retainer for
4
<PAGE> 9
services as a director or trustee, as the case may be, of all open-end funds
sponsored by Nuveen and managed by the Adviser and similar per day meeting and
other expenses.
The table below shows, for each director who is not affiliated with Nuveen or
the Adviser, the aggregate compensation paid by the Fund for its fiscal year
ended October 31, 1996 and the total compensation that the Nuveen funds accrued
for each director during the calendar year 1996, including any interest accrued
for directors on deferred compensation. The rate of earnings on deferred
compensation is equivalent to the average net earnings rate, computed on a
quarterly basis, on the shares of the Fund.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
TOTAL
COMPENSATION
NUVEEN FUNDS
AGGREGATE COMPENSATION ACCRUED FOR
NAME OF DIRECTOR PAID BY THE FUND DIRECTORS(1)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert P. Bremner(2) $0 $0
Lawrence H. Brown $1,940 $59,000
Anne E. Impellizzeri $1,940 $59,000
Margaret K. Rosenheim $2,330(3) $66,815(4)
Peter R. Sawers $1,940 $59,000
William J. Schneider(2) $0 $0
Judith M. Stockdale(2) $0 $0
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes compensation for service on the boards of the NAC Funds.
(2) Messrs. Bremner and Schneider were appointed to the Board of the Fund in May
1997 and were elected to the Boards of other NAC Funds effective December
31, 1996 and January 31, 1997. Ms. Stockdale was appointed to the Board of
the NAC Funds, including the Fund, effective July 1, 1997.
(3) Includes $217 in interest accrued on deferred compensation from prior years.
(4) Includes $1,565 in interest accrued on deferred compensation from prior
years.
Anthony T. Dean, Margaret K. Rosenheim and Timothy R. Schwertfeger currently
serve as members of the executive committee of the Board of Directors of the
Fund. The executive committee of the Fund, which meets between regular meetings
of the Board of Directors, is authorized to exercise all of the powers of the
Board of Directors. The executive committee of the Fund held thirteen meetings
during the fiscal year ended October 31, 1996.
The Fund's Board of Directors has an audit committee currently composed of
Robert P. Bremner, Lawrence H. Brown, Anne E. Impellizzeri, Margaret K.
Rosenheim, Peter R. Sawers and William J. Schneider, directors who are not
"interested persons." The audit committee reviews the work and any
recommendations of the Fund's independent auditors. Based on such review, it is
authorized to make recommendations to the Board of Directors. The audit
committee of the Fund held two meetings during the fiscal year ended October 31,
1996.
Nomination of those directors who are not "interested persons" of the Fund is
committed to a nominating committee composed of the directors who are not
"interested persons" of the Fund. It identifies and recommends individuals to be
nominated for election as non-interested directors. The nominating committee of
the Fund held one meeting during the fiscal year ended October 31, 1996. No
policy or procedure has been established as to the recommendation of director
nominees by shareholders.
The Fund's Board of Directors held seven meetings during the fiscal year ended
October 31, 1996. During the last fiscal year, each director attended 75% or
more of the Fund's Board meetings and the committee meetings (if a member
thereof).
The following table sets forth information as of April 30, 1997 with respect to
each executive officer of the Fund, other than executive officers who are
directors and reflected above. Officers of the Fund receive no compensation from
the Fund. The term of office of all officers will expire at the first meeting of
the Board of Directors of each Fund after the Annual Meeting, which Board of
Director's meeting is presently scheduled to be held on July 30, 1997 for the
Fund.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
NAME, AGE AND PRINCIPAL OCCUPATIONS FOR PAST FIVE YEARS POSITIONS AND OFFICES WITH THE FUND
- -------------------------------------------------------------------------------------------------
<S> <C>
William M. Fitzgerald, 32 Vice President (since 1996)
Vice President of Nuveen Advisory Corp. (since December
1995); prior thereto, Assistant Vice President (from
September 1992 to December 1995) and Assistant Portfolio
Manager (from June 1988 to September 1992) of Nuveen
Advisory Corp.; Chartered Financial Analyst.
Kathleen M. Flanagan, 49 Vice President (since 1994)
Vice President of John Nuveen & Co. Incorporated; Vice
President (since June 1996) of Nuveen Advisory Corp. and
Nuveen Institutional Advisory Corp.
J. Thomas Futrell, 41 Vice President (since 1991)
Vice President of Nuveen Advisory Corp.; Chartered Financial
Analyst.
</TABLE>
5
<PAGE> 10
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
NAME, AGE AND PRINCIPAL OCCUPATIONS FOR PAST FIVE YEARS POSITIONS AND OFFICES WITH THE FUND
- -------------------------------------------------------------------------------------------------
<S> <C>
Steven J. Krupa, 39 Vice President (since 1990)
Vice President of Nuveen Advisory Corp.
Anna R. Kucinskis, 51 Vice President (since 1991)
Vice President of John Nuveen & Co. Incorporated.
Larry W. Martin, 45 Vice President (since 1993) &
Vice President (since September 1992), Assistant Secretary Assistant Secretary (since 1988)
and Assistant General Counsel of John Nuveen & Co.
Incorporated; Vice President (since May 1993) and Assistant
Secretary of Nuveen Advisory Corp. and Nuveen Institutional
Advisory Corp.; Assistant Secretary (since February 1993) of
The John Nuveen Company.
Edward F. Neild, IV, 31 Vice President (since 1996)
Vice President of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp. (since September 1996); prior
thereto, Assistant Vice President of Nuveen Advisory Corp.
(from December 1993 to September 1996) and Nuveen
Institutional Advisory Corp. (from May 1995 to September
1996); previously, Portfolio Manager of Nuveen Advisory
Corp.; Chartered Financial Analyst.
O. Walter Renfftlen, 57 Vice President & Controller
Vice President and Controller of The John Nuveen Company, (since the Fund's organization)
John Nuveen & Co. Incorporated, Nuveen Advisory Corp. and
Nuveen Institutional Advisory Corp.
Thomas C. Spalding, Jr., 45 Vice President
Vice President of Nuveen Advisory Corp. and Nuveen (since the Fund's organization)
Institutional Advisory Corp.; Chartered Financial Analyst.
H. William Stabenow, 62 Vice President & Treasurer
Vice President and Treasurer of The John Nuveen Company, (since the Fund's organization)
John Nuveen & Co. Incorporated, Nuveen Advisory Corp. and
Nuveen Institutional Advisory Corp.
Gifford R. Zimmerman, 40 Vice President (since 1993) &
Vice President (since September 1992), Assistant Secretary Assistant Secretary (since 1988)
and Assistant General Counsel of John Nuveen & Co.
Incorporated; Vice President (since May 1993) and Assistant
Secretary of Nuveen Advisory Corp. and Nuveen Institutional
Advisory Corp.
- -------------------------------------------------------------------------------------------------
</TABLE>
On April 30, 1997, directors and executive officers of the Fund as a group
beneficially owned 12,255 shares of common stock of the Fund (less than 1%) and
did not beneficially own any shares of Nuveen RP. On April 30, 1997, directors,
director nominees and executive officers of the Fund as a group beneficially
owned 289,486 common shares of all funds managed by the Adviser (excluding
market funds). As of April 30, 1997, no person is known to the Fund to have
owned beneficially more than five percent of the shares of common stock or
Nuveen RP of the Fund.
The parties have settled certain legal actions challenging the Fund's January
1994 rights offering which were filed in January 1994 and thereafter by certain
shareholders of the Fund in federal district court in Chicago and in state court
in Minneapolis, Minnesota against John Nuveen & Co. Incorporated, Nuveen
Advisory Corp., the directors of the Fund at the time of the rights offering,
the Fund's former outside legal counsel and in-house counsel to John Nuveen &
Co. Incorporated. The actions included allegations that the defendants violated
federal and state law and the Fund's Articles of Incorporation in connection
with the rights offering. As described in a court approved notice of the
proposed settlement sent to shareholders, the Fund will not bear any cost of the
settlement and will be reimbursed for attorney's fees it incurred in the
litigation as part of the settlement. The Fund may also receive additional money
if any of the settlement amounts go undistributed or unclaimed. The cost of the
settlement will be paid one-half each by insurers for the Fund's former outside
counsel and for Nuveen. The federal district court approved the settlement on
June 3, 1997; the settlement will become final absent any appeal. If an appeal
is taken, the settlement will become final if and when the approval of the
federal district court is upheld.
2. SELECTION OF INDEPENDENT AUDITORS
The members of the Fund's Board of Directors who are not "interested persons" of
the Fund have unanimously selected Ernst & Young LLP, independent public
accountants, as independent auditors, to audit the books and records of the Fund
for the fiscal year ending October 31, 1997. Ernst & Young LLP has served the
Fund in this capacity since the Fund was organized and has no direct or indirect
financial interest in the Fund except as independent auditors. The selection of
Ernst & Young LLP as independent auditors of the Fund is being submitted to the
shareholders for ratification, which requires the
6
<PAGE> 11
affirmative vote of a majority of the shares of the Fund present and entitled to
vote on the matter. A representative of Ernst & Young LLP is expected to be
present at the Annual Meeting and will be available to respond to any
appropriate questions raised at the Annual Meeting and to make a statement if he
or she wishes.
THE FUND'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS.
3. AMENDMENT AND RESTATEMENT OF THE STATEMENT ESTABLISHING AND FIXING THE RIGHTS
AND PREFERENCES OF NUVEEN RP
The Board of Directors of the Fund has proposed that the Statement Establishing
and Fixing the Rights and Preferences of Nuveen RP (the "Statement") for the
Fund, be amended and restated. The proposed Amendment and Restatement (the
"Amendment") would make certain changes to the terms of the Statement in order
to change existing preferred stock from "remarketed" to "auction rate" and, in
general, bring the Statement into conformity with the terms of preferred stock
issued by other more recent Nuveen-sponsored exchange-traded funds (which is
called Municipal Auction Rate Cumulative Preferred Stock or "MuniPreferred"). As
amended, the Nuveen RP would likewise be called MuniPreferred and is referred to
as such, where appropriate, in this proxy statement.
THE FUND'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE APPROVAL OF THE AMENDMENT.
Approval of the Amendment requires: (1) the affirmative vote of the holders of
at least a majority of the shares of common stock and shares of Nuveen RP
present in person or by proxy and entitled to vote, voting as a single class;
(2) the affirmative vote of the holders of at least a majority of the shares of
common stock, voting as a single class; and (3) the affirmative vote of the
holders of at least 66 2/3% of the outstanding shares of each series of Nuveen
RP, each voting as a separate class.
Set forth below is a description and explanation of the various revisions to the
Fund's Statement that are embodied in the Amendment.
Unless the context requires otherwise, capitalized terms used but not defined
shall have the meanings ascribed to such terms in the Statement or the
Amendment, as the case may be. The summary of the Amendment set forth below is
qualified in its entirety by reference to the Amendment, the form of which is
attached as Annex A.
A. BACKGROUND OF NUVEEN RP AND MUNIPREFERRED
The Fund, which was created in 1988, was the first leveraged closed-end
municipal bond fund publicly offered in the U.S. Through its use of a capital
structure utilizing both common and preferred stock, the Fund is designed to
allow common stockholders to realize a higher current rate of return than if the
Fund were not leveraged. The Fund seeks to invest its assets in Municipal
Obligations that pay long-term rates, which are typically, although not always,
higher than short-term rates, while the Fund pays dividends on its Nuveen RP
based upon short-term rates (which are redetermined periodically pursuant to a
remarketing procedure). So long as the Fund's portfolio is invested in
securities that provide a higher return than the then current dividend rate of
the Nuveen RP, the effect of leverage causes common stockholders to realize a
higher current rate of return than if the Fund were not leveraged. Similarly,
since any net capital appreciation in the Fund's assets generally is reflected
in an increase in the net asset value attributable to the Fund's common stock,
if there is an increase in the net asset value of the Fund's investment
portfolio the effect of leverage is to increase the net asset value per share of
common stock to a greater extent than if the Fund were not leveraged. However,
there are risks associated with the leveraging of the common stock, including
higher volatility of both the net asset value and market value of common stock,
and fluctuations in the short-term dividend rates on Nuveen RP may affect the
yield to common stockholders. To the extent that the current dividend rate on
Nuveen RP approaches the net return on the Fund's investment portfolio, the
benefit of leverage to common stockholders is reduced, and if the current
dividend rate on Nuveen RP exceeds the net return on the Fund's portfolio, the
Fund's leveraged capital structure results in a lower rate of return to common
stockholders than if the Fund were not leveraged. Similarly, since any decline
in the net asset value of the Fund's investments is borne entirely by common
stockholders, the effect of leverage in a declining market results in a greater
decrease in net asset value to common stockholders than if the Fund were not
leveraged, which would likely be reflected in a greater decline in the market
price for its common stock. In an extreme case, if the Fund's current investment
income were not sufficient to meet dividend requirements on Nuveen RP, it could
be necessary for the Fund to liquidate certain of its investments, thereby
reducing the net asset value attributable to the Fund's common stock. To the
extent the Fund issues additional shares of preferred stock, which it intends to
do, both the benefits and risks of the leveraged structure would increase.
After the introduction of Nuveen RP, subsequent Nuveen-sponsored leveraged
closed-end municipal bond funds used an auction, rather than a remarketing
procedure for determining the short-term rates for their preferred stock. Fund
Management believes that, over time, some market participants active in
Nuveen-sponsored funds have come to expect for such funds the use of so called
"Dutch auctions", which use an independent auction agent, rather than a
remarketing process, which uses a remarketing agent. Fund Management believes
that the "Dutch auction" process may broaden distribution of the Fund's
preferred stock.
7
<PAGE> 12
B. DIFFERENCES BETWEEN NUVEEN RP AND MUNIPREFERRED
1. NUVEEN RP REMARKETING PROCEDURE.
The remarketing of shares of Nuveen RP takes place over a three-day period
consisting of the Tender Date (normally a Tuesday), the Dividend Reset Date
(normally a Wednesday) and the Settlement Date (normally a Thursday). By 12:00
noon, New York City time, on each Tender Date for shares of Nuveen RP (the
Business Day preceding the related Dividend Reset Date), the Remarketing Agents,
after canvassing the market and considering prevailing market conditions,
provide to holders of shares of Nuveen RP subject to Tender and Dividend Reset
non-binding indications of the Applicable Dividend Rate or Rates for the next
succeeding 28-day Dividend Period (in the case of Series A-D Nuveen RP), 7-day
Dividend Period (in the case of Series E Nuveen RP) and Special Dividend Period,
if any; provided that, if the Board of Directors has designated a Special
Dividend Period with respect to all shares of a series of Nuveen RP subject to
Tender and Dividend Reset, the Remarketing Agents provide to holders of shares
of such series a non-binding indication only of the Applicable Dividend Rate for
such Special Dividend Period. By 1:00 p.m., New York City time, on such Tender
Date, each holder of shares of Nuveen RP subject to Tender and Dividend Reset
notifies a Remarketing Agent of its desire (on a share-by-share basis) either to
tender such share at a price of $25,000 per share or to continue to hold such
share for a 28-day Dividend Period (in the case of Series A-D Nuveen RP) or a
7-day Dividend Period (in the case of Series E Nuveen RP) or, if applicable, to
accept a Special Dividend Period. Any holder or prospective purchaser may
informally indicate to a Remarketing Agent its Applicable Dividend Rate
preferences. However, any such notice given to a Remarketing Agent to tender or
hold shares for a particular Dividend Period is irrevocable and may not be
conditioned upon the level at which Applicable Dividend Rates are set.
Accordingly, the Applicable Dividend Rate with respect to a Dividend Period may
be greater or less than such rate preferences. Any such notice may not be waived
by the Remarketing Agents; provided that, prior to 4:00 p.m., New York City
time, on the Dividend Reset Date, a Remarketing Agent may, in its sole
discretion, (i) at the request of a holder that has tendered one or more shares
of Nuveen RP to such Remarketing Agent, waive such holder's tender and thereby
enable such holder to continue to hold such share or shares for a 28-day
Dividend Period (in the case of Series A-D Nuveen RP), a 7-day Dividend Period
(in the case of Series E Nuveen RP), or a Special Dividend Period, if
applicable, as agreed to by the holder and such Remarketing Agent at such time,
so long as such tendering holder has indicated that it would accept the new
Applicable Dividend Rate for such Dividend Period, such waiver to be contingent
upon the Remarketing Agents' being able to remarket all shares tendered to them
in such Remarketing, and (ii) at the request of a holder that has elected to
hold one or more of its shares of Nuveen RP, waive such holder's election with
respect thereto. Subject to the last sentence of this paragraph, holders of
shares of Nuveen RP that fail on a Tender Date for such shares to elect to
tender or hold such shares are deemed to have elected to continue to hold such
shares for the next 28-day Dividend Period (in the case of Series A-D Nuveen RP)
or 7-day Dividend Period (in the case of Series E Nuveen RP). If, on a Tender
Date for shares of Nuveen RP, the current Dividend Period with respect to such
shares is a Special Dividend Period, or the succeeding Dividend Period has been
designated by the Board of Directors as a Special Dividend Period with respect
to such shares, then holders of such shares that fail to elect to tender or hold
such shares are deemed to have elected to tender such shares.
Between 1:00 p.m., New York City time, on each Tender Date for shares of Nuveen
RP and 4:00 p.m., New York City time, on the succeeding Dividend Reset Date for
such shares, except during a Non-Payment Period, the Remarketing Agents
determine the Applicable Dividend Rate or Rates for the next Dividend Period or
Periods, which is the lowest rate or rates per annum (but not greater than the
applicable Maximum Dividend Rate or Rates) available which enable the
Remarketing Agents to remarket on behalf of the holders thereof all shares of
Nuveen RP tendered to them on such Tender Date at a price of $25,000 per share.
Such determination is made in the sole discretion of the Remarketing Agents and
is conclusive and binding on the Fund and on the holders of shares of Nuveen RP.
If an Applicable Dividend Rate has not been set on any Dividend Reset Date for a
28-day Dividend Period (except in the case of Series E Nuveen RP), a 7-day
Dividend Period (in the case of Series E Nuveen RP) and a Special Dividend
Period, if any (other than because there are no Remarketing Agents or the
Remarketing Agents are not required to conduct a Remarketing pursuant to the
terms of the Remarketing Agreement), the Remarketing Agents, if necessary and
except during a Non-Payment Period, determine each such Applicable Dividend Rate
which, if each case, shall be the dividend rate per annum that would be equal to
the initial dividend rate per annum fixed in an offering on such Dividend Reset
Date, assuming in each case a comparable dividend period, issuer and security.
If a Remarketing for shares of Nuveen RP does not take place because there are
no Remarketing Agents or the Remarketing Agents are not required to conduct a
Remarketing pursuant to the terms of the Remarketing Agreement, then, except
during a Non-Payment Period, the Applicable Dividend Rate for the subsequent
Dividend Period for such shares is the applicable Maximum Dividend Rate, and the
next succeeding Dividend Period for such shares is, in the case of Series A-D
Nuveen RP, a 28-day Dividend Period or, in the case of Series E Nuveen RP, a
7-day Dividend Period. If, in a Remarketing of shares of Nuveen RP, the
Remarketing Agents are unable to remarket on the Dividend Reset Date all shares
of such series tendered (or deemed tendered) to them at a price of $25,000 per
share, the next Dividend Period for all shares of such series is a 28-day
Dividend Period (in the case of Series A-D Nuveen RP) or a 7-day Dividend Period
(in the case of Series E Nuveen RP) and the Applicable Dividend Rate is the
Maximum Dividend Rate for such 28-day Dividend Period or 7-day Dividend Period,
as the case may be.
8
<PAGE> 13
There can be no assurance that the Remarketing Agents will be able to remarket
all shares of Nuveen RP tendered in a Remarketing. If any shares of Nuveen RP
tendered in a Remarketing therefor are not remarketed, a holder thereof is
required to hold some or all of its shares at least until the end of the next
Dividend Period (a 28-day Dividend Period in the case of Series A-D Nuveen RP or
a 7-day Dividend Period in the case of Series E Nuveen RP) or to sell its shares
outside a Remarketing. In such case, the remarketing procedures may require an
allocation of shares of Nuveen RP on a pro rata basis, to the extent
practicable, or by lot, as determined by the Remarketing Agents in their sole
discretion, which may result in a holder's selling a number of shares of Nuveen
RP that is less than the number of shares of Nuveen RP specified in such
holder's tender order.
On a Settlement Date for shares of Nuveen RP, which is the first Business Day
following each Dividend Reset Date therefor, the Agent Member of each person
purchasing shares of Nuveen RP as a result of a Remarketing pays the purchase
price against delivery of such shares by the holder thereof or its Agent Member.
Shares of Nuveen RP tendered in a Remarketing are purchased solely out of the
proceeds received from purchasers of shares of Nuveen RP in such Remarketing.
Neither the Fund, the Paying Agent nor any Remarketing Agent is obligated to
provide funds to make payment upon any holder's tender in a Remarketing.
Tendered shares of Nuveen RP are also subject to purchase in a Remarketing by
any Remarketing Agent, although the Remarketing Agents are not obligated to
purchase any shares.
2. AUCTION PROCEDURES FOR MUNIPREFERRED.
On each Auction Date for shares of a series of MuniPreferred each customer of a
Broker-Dealer who is listed on the records of that Broker-Dealer (or, if
applicable, the Auction Agent) as a holder of shares of such series (a
"Beneficial Owner") may submit Orders with respect to shares of such series to
that Broker-Dealer as follows:
- - Hold Order--indicating its desire to hold shares of such series without regard
to the Applicable Rate for shares of such series for the next Rate Period
thereof.
- - Bid--indicating its desire to sell shares of such series if the Applicable
Rate for shares of such series for the next Rate Period thereof is less than
the rate specified in such Bid.
- - Sell Order--indicating its desire to sell shares of such series without regard
to the Applicable Rate for shares of such series for the next Rate Period
thereof.
A Beneficial Owner may submit different types of Orders to its Broker-Dealer
with respect to shares of a series of MuniPreferred then held by such Beneficial
Owner. A Beneficial Owner of shares of such series that submits a Bid with
respect to shares of such series to its Broker-Dealer having a rate higher than
the Maximum Rate for shares of such series on the Auction Date therefor is
treated as having submitted a Sell Order with respect to such shares to its
Broker-Dealer. A Beneficial Owner of shares of such series that fails to submit
an Order with respect to shares of such series to its Broker-Dealer is deemed to
have submitted a Hold Order with respect to such shares to its Broker-Dealer;
provided, however, that if a Beneficial Owner of shares of such series fails to
submit an Order with respect to shares of such series to its Broker-Dealer for
an Auction relating to a Rate Period of more than 28 Rate Period Days, such
Beneficial Owner is deemed to have submitted a Sell Order with respect to such
shares to its Broker-Dealer. A Sell Order constitutes an irrevocable offer to
sell the shares of MuniPreferred subject thereto. A Beneficial Owner that offers
to become the Beneficial Owner of additional shares of MuniPreferred is, for
purposes of such offer, a Potential Beneficial Owner as discussed below.
A customer of a Broker-Dealer that is not a Beneficial Owner of shares of a
series of MuniPreferred but that wishes to purchase shares of such series, or
that is a Beneficial Owner of shares of such series that wishes to purchase
additional shares of such series (in each case, a "Potential Beneficial Owner"),
may submit to its Broker-Dealer Bids in which it offers to purchase shares of
such series if the Applicable Rate for shares of such series for the next Rate
Period thereof is not less than the rate specified in such Bid. A Bid placed by
a Potential Beneficial Owner of shares of such series specifying a rate higher
than the Maximum Rate for shares of such series is not accepted.
The Broker-Dealers in turn submit the Orders of their respective customers who
are Beneficial Owners and Potential Beneficial Owners to the Auction Agent,
designating themselves (unless otherwise permitted by the Fund) 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. However, neither the
Fund nor the Auction Agent is responsible for a Broker-Dealer's failure to
comply with the foregoing. Any Order placed with the Auction Agent by a
Broker-Dealer as or on behalf of an Existing Holder or a Potential Holder is
treated in the same manner as an Order placed with a Broker-Dealer by a
Beneficial Owner or Potential Beneficial Owner. Similarly, any failure to submit
to the Auction Agent an Order in respect of any shares of MuniPreferred held by
it or customers who are Beneficial Owners is treated in the same manner as a
Beneficial Owner's failure to submit to its Broker-Dealer an Order in respect of
shares of MuniPreferred held by it. A Broker-Dealer may also submit Orders to
the Auction Agent for its own account as an Existing Holder or Potential Holder,
provided it is not an affiliate of the Fund.
9
<PAGE> 14
If Sufficient Clearing Bids for shares of a series of MuniPreferred exist (that
is, the number of shares of such series subject to Bids submitted or deemed
submitted to the Auction Agent by Broker-Dealers as or on behalf of Potential
Holders with rates equal to or lower than the Maximum Rate for shares of such
series is at least equal to the number of shares of such series subject to Sell
Orders submitted or deemed submitted to the Auction Agent by Broker-Dealers as
or on behalf of Existing Holders), the Applicable Rate for shares of such series
is the lowest rate specified in the Submitted Bids which, taking into account
such rate and all lower rates bid by Broker-Dealers as or on behalf of Existing
Holders and Potential Holders, results in Existing Holders and Potential Holders
owning all the shares of such series available for purchase in the Auction. If
Sufficient Clearing Bids for shares of a series of MuniPreferred do not exist,
the Applicable Rate for shares of such series is the Maximum Rate for shares of
such series on the Auction Date therefor. In such event, Beneficial Owners that
have submitted or are deemed to have submitted Sell Orders may not be able to
sell in such Auction all shares of such series subject to such Sell Orders. If
Broker-Dealers submit or are deemed to have submitted to the Auction Agent Hold
Orders with respect to all Existing Holders of shares of a series of
MuniPreferred, the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series is the lesser of the Kenny Index
(if such Rate Period consists of fewer than 183 Rate Period Days) or the product
of (i) the Benchmark Rate, and (ii) 1 minus the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income,
whichever is greater; provided, however, that if the Fund has notified the
Auction Agent of its intent to allocate to shares of such series in such Rate
Period any net capital gains or other income taxable for Federal income tax
purposes ("Taxable Income"), the Applicable Rate for shares of such series for
such Rate Period is (A) if the Taxable Yield Rate is greater than the Benchmark
Rate, then the Benchmark Rate, or (B) if the Taxable Yield Rate is less than or
equal to the Benchmark Rate, then the rate equal to the sum of (x) the lesser of
the Kenny Index (if such Rate Period consists of fewer than 183 Rate Period
Days) or the product of the Benchmark Rate multiplied by the factor set forth in
the preceding clause (ii) and (y) the product of the maximum marginal regular
Federal individual income tax rate applicable to ordinary income or the maximum
marginal regular Federal corporate income tax rate applicable to ordinary
income, whichever is greater, multiplied by the Taxable Yield Rate.
The Auction Procedures include a pro rata allocation of shares for purchase and
sale, which may result in an Existing Holder continuing to hold or selling, or a
Potential Holder purchasing, a number of shares of MuniPreferred that is fewer
than the number of shares of MuniPreferred specified in its Order. To the extent
the allocation procedures have that result, Broker-Dealers that have designated
themselves as Existing Holders or Potential Holders in respect of customer
Orders are required to make appropriate pro rata allocations among their
respective customers.
Settlement of purchases and sales is made on the next Business Day (also a
Dividend Payment Date) after the Auction Date through the Securities Depository.
Purchasers make payment through their Agent Members in same-day funds to the
Securities Depository against delivery to their respective Agent Members. The
Securities Depository makes payment to the sellers' Agent Members in accordance
with the Securities Depository's normal procedures, which now provide for
payment against delivery by their Agent Members in same-day funds.
Whenever the Fund intends to include any net capital gains or other income
taxable for Federal income tax purposes in any dividend on shares of
MuniPreferred, the Fund shall, in the case of Minimum Rate Periods or Special
Rate Periods of 28 Rate Period Days or fewer, and may, in the case of any other
Special Rate Period, notify the Auction Agent of the amount to be so included
not later than the Dividend Payment Date next preceding the Auction Date on
which the Applicable Rate for such dividend is to be established. Whenever the
Auction Agent receives such notice from the Fund, it will be required in turn to
notify each Broker-Dealer, who, on or prior to such Auction Date, in accordance
with its Broker-Dealer Agreement, will be required to notify its customers who
are Beneficial Owners and Potential Beneficial Owners believed by it to be
interested in submitting an Order in the Auction to be held on such Auction
Date.
3. OTHER DIFFERENCES BETWEEN NUVEEN RP AND MUNIPREFERRED.
A) INCREASED ABILITY TO ISSUE ADDITIONAL SHARES OF PREFERRED STOCK.
Under the terms of the Amendment, the Fund would be allowed to authorize, create
or issue additional shares of MuniPreferred or other classes or series of shares
of Preferred Stock ranking on a parity with MuniPreferred, without the vote of
holders of Preferred Stock, provided that (i) if the shares of MuniPreferred are
rated by Moody's or S&P, the Fund obtains written confirmation from Moody's or
S&P that the issuance of any such additional shares or other class or series of
shares would not impair the rating then assigned by such rating agency to the
MuniPreferred or (ii) if Moody's or S&P is not then rating the shares of
MuniPreferred, the aggregate liquidation preference of all Preferred Stock of
the Fund outstanding after any such issuance, exclusive of accumulated and
unpaid dividends, may not exceed $350,000,000. Under the terms of the current
Statement, the affirmative vote of 66 2/3% of the outstanding shares of such
class or series, as the case may be, voting as a class, is required to increase
the authorized number of shares of such class or series.
The Fund believes that the ceiling amount of $350,000,000 (the amount of Nuveen
RP currently outstanding) will adequately protect existing holders of preferred
stock in the event the Fund issues additional shares of preferred stock at a
time when neither Moody's nor S&P is rating the Fund's Preferred Stock. In
addition, so long as either Moody's or S&P is rating the shares of MuniPreferred
and the Fund is required--as a precondition for issuing additional shares of
Preferred Stock--to
10
<PAGE> 15
obtain written confirmation from each rating agency then rating the shares of
MuniPreferred that any such additional issuance would not impair the rating then
assigned to shares of MuniPreferred by such rating agency, the Fund believes
that holders of shares of Preferred Stock will be adequately assured that any
such additional issuance will not result in any significant diminution of the
Fund's overall creditworthiness. Elimination of the voting requirement under the
Fund's current terms would enable the Fund to manage its capital structure more
efficiently in response to changing market conditions.
B) ELIMINATE MASTER PURCHASER'S LETTER.
Shareholders of Nuveen RP are required to sign and deliver a Master Purchaser's
Letter in which the purchaser of Nuveen RP agrees that ownership of shares of
Nuveen RP will be maintained in book entry form by the Securities Depository for
the account of a designated Agent Member which, in turn, will maintain records
of such purchaser's beneficial ownership. The Amendment, however, eliminates the
Fund's cumbersome requirement of a Master Purchaser's Letter in order to
simplify the investment process. In its place, unless the Fund permits
otherwise, only Broker-Dealers (who, in their broker-dealer agreements with the
Fund, will bind themselves to the types of provisions contained in a Master
Purchaser's Letter) will be considered Existing Holders for purposes of
submitting orders to an Auction Agent. The Amendment also provides that, unless
the Fund permits otherwise, a beneficial owner of shares of MuniPreferred may
sell, transfer or otherwise dispose of shares of MuniPreferred only pursuant to
a bid or sell order placed by such beneficial owner's Broker-Dealer with an
Auction Agent or to a Broker-Dealer (provided that a sale, transfer or other
disposition of shares of MuniPreferred from a customer of a Broker-Dealer who is
listed on the records of that Broker-Dealer shall not be deemed to be a sale,
transfer or other disposition for purposes of the foregoing if such
Broker-Dealer remains the Existing Holder of the shares to be sold, transferred
or disposed of immediately after such sale, transfer or disposition).
C) ELIMINATE SUPERMAJORITY VOTE TO AUTHORIZE CERTAIN ACTIONS.
Currently, the affirmative vote of the holders of 66 2/3% of the outstanding
shares of a class or series of Preferred Stock, as the case may be, voting as a
class, is required to (i) amend, alter or repeal the provisions of the Articles
so as to affect any preference, right or power of such shares and (ii) increase
the authorized number of shares of such class or series. However, only the
affirmative vote of the holders of a majority of the outstanding shares of a
class or series of Preferred Stock, voting as a class, is required under the
terms of the Amendment. The Fund believes that decreasing the number of shares
required to approve these actions to a majority is in the best interest of the
Fund, because it will eliminate the ability of the holders of a minority of
shares of preferred stock to prevent the Fund from taking action that has been
approved by the holders of a least a majority of such shares.
D) MORE FLEXIBLE RATE PERIODS.
Currently, the Dividend Periods for shares of Series A-D Nuveen RP are 28
consecutive days and the Dividend Period for shares of Series E Nuveen RP is 7
consecutive days. The Board of Directors may designate a Dividend Period as a
Special Dividend Period of 168 consecutive days or 364 consecutive days, as the
case may be. Under the terms of the Amendment, all Subsequent Rate Periods are a
Minimum Rate Period of 7 consecutive days, unless the Fund, subject to certain
conditions, designates such Subsequent Rate period as a Special Rate Period
consisting of a specified number of days evenly divisible by seven and not more
than 1,820 (approximately 5 years), subject to certain adjustments. The Fund
believes that the additional flexibility in rate periods gained by the Amendment
will allow the Fund to manage its capital structure more efficiently in response
to changing market conditions.
E) "GROSS UP PAYMENTS."
Currently, under a special "grandfather" provision contained in Revenue Ruling
89-81, the Fund makes non-proportionate designations of dividends between its
Nuveen RP and common stockholders such that dividends paid to holders of Nuveen
RP are designated as exempt interest dividends to the extent such dividends do
not exceed the Fund's exempt interest income. As noted below under "Description
of MuniPreferred--Taxation," however, any future issuance of additional shares
of MuniPreferred, as permitted by the Amendment, may cause the Fund to lose its
"grandfathered" status and require the Fund to allocate proportionately the
Fund's taxable ordinary income and capital gains, if any, to both common and
preferred stockholders. The Fund is seeking a private letter ruling from the
Internal Revenue Service (the "IRS") to the effect that the Amendment and the
issuance of additional shares will not result in the loss of the Fund's
"grandfathered" status. However, no assurance can be given that the IRS will so
rule. Accordingly, the Amendment provides for the Fund to make "gross up"
payments to offset any such allocation of taxable income and capital gains to
preferred stockholders if, in the case of any Minimum Rate Period or any Special
Rate Period of 28 Rate Period Days or fewer, the Fund allocates any net capital
gains or other income taxable for Federal income tax purposes to a dividend paid
on shares of MuniPreferred without having given advance notice thereof to the
Auction Agent (a "Taxable Allocation") solely by reason of the fact that such
allocation is made retroactively as a result of the redemption of all or a
portion of the outstanding shares of MuniPreferred or the liquidation of the
Fund. See "Differences Between Nuveen RP and MuniPreferred--Auction Procedure
for MuniPreferred." If, in the case of any Special Rate Period of more than 28
Rate Period Days, the Fund makes a Taxable Allocation to a dividend paid on
shares of MuniPreferred, the Fund shall, prior to the end of the calendar year
in which such dividend was paid, provide notice thereof to the Auction Agent and
direct the Fund's dividend disbursing agent to send such notice with a Gross-up
Payment to each Holder of shares that was entitled to such dividend payment
during such calendar year at such Holder's address as the same appears or last
appeared on the stock books of the Fund. A "gross up payment" means
11
<PAGE> 16
payment to a holder of shares of MuniPreferred of an amount which, when taken
together with the aggregate amount of Taxable Allocations made to such holder to
which such gross up payment relates, would cause such holder's dividends in
dollars (after Federal income tax consequences) from the aggregate of such
Taxable Allocations and the related gross up payment to be equal to the dollar
amount of the dividends which would have been received by such holder if the
amount of the aggregate Taxable Allocations were not subject to regular federal
income tax.
C. DESCRIPTION OF MUNIPREFERRED
The Amendment would convert Series A Nuveen RP into Series M MuniPreferred,
Series B Nuveen RP into Series T MuniPreferred, Series C Nuveen RP into Series
TH MuniPreferred, Series D Nuveen RP into Series F MuniPreferred and Series E
Nuveen RP into Series W MuniPreferred. In addition, the Amendment would increase
the number of shares of preferred stock authorized for each series by 7,200
shares from 2,800 shares to 10,000 shares per series. The following is a brief
description of the major features of MuniPreferred.
1. DIVIDENDS AND DIVIDEND PERIODS
The Initial Rate Period of the shares of MuniPreferred, Series M, T, TH, F and
W, will be a period consisting of the number of days following the effective
time of the Amendment that would have remained in the rate period of the shares
of Nuveen RP, Series A, B, C, D and E, respectively, in effect immediately prior
to the effective time of the Amendment. The dividend rate for the shares of
MuniPreferred, Series M, T, TH, F and W, for the Initial Rate Period thereof,
will be the dividend rate in effect immediately prior to the effective time of
the Amendment for the shares of Nuveen RP, Series A, B, C, D and E,
respectively. The initial Auction for the shares of MuniPreferred, Series M, T,
TH, F and W will be held on the first Wednesday immediately prior to the
Dividend Payment Date for the Initial Rate Period of shares of such series.
For MuniPreferred Series M, T, TH and F, in order to move from a Wednesday
remarketing schedule to a Monday, Tuesday, Thursday and Friday auction schedule,
respectively, the shares of such series will have a Transitional Rate Period.
The Transitional Rate Period of the shares of MuniPreferred, Series M, T, TH and
F, will be a period consisting of the number of days commencing on the Dividend
Payment Date for the Initial Rate Period of shares of such series to but
excluding the date that would otherwise be the next succeeding Dividend Payment
Date for a Subsequent Rate Period, except that if that number of days would be
less than five days, then the Transitional Rate Period will be a period
consisting of the number of days commencing on the initial Dividend Payment Date
to but excluding the date that would otherwise be the second succeeding Dividend
Payment Date for a Subsequent Rate Period.
Subsequent Rate Periods of the shares of MuniPreferred (after the Transitional
Rate Period in the case of Series M, T, TH and F and after the Initial Rate
Period in the case of Series W) will be the period from and including the first
day following such Initial or Transitional Rate Period, as the case may be, of
shares of such series to but excluding the next Dividend Payment Date for shares
of such series and for any period thereafter from and including one Dividend
Payment Date for shares of such series to but excluding the next succeeding
Dividend Payment Date for shares of such series, unless the Fund designates such
Subsequent Rate Period as a Special Rate Period.
By way of example, if the Amendment were effective on August 4, 1997, the
Initial Rate Period for Series TH MuniPreferred would be 9 days (ending on
August 13, 1997), which is the number of days that would have remained in the
28-day rate period for Series C Nuveen RP. The initial Auction would be held on
Wednesday, August 13, 1997, and would be for a Transitional Rate Period of 8
days (ending on Thursday, August 21, 1997). The next Auction would be held on
Thursday, August 21, 1997, and thereafter normally would be held every Thursday.
2. TAXATION
In general, dividends on shares of MuniPreferred will be exempt from regular
Federal income taxes in the hands of owners of such shares, subject to the
possible application of the Federal alternative minimum tax. The IRS currently
requires that a regulated investment company that has two or more classes of
shares must designate to each such class proportionate amounts of each type of
its income for each tax year based upon the percentage of total dividends
distributed to each class for such year. Under a special "grandfather" provision
contained in Revenue Ruling 89-81, regulated investment companies can make
non-proportionate designations pursuant to a rule described in a registration
statement filed with the Securities and Exchange Commission prior to June 13,
1989. The Fund has designated exempt-interest dividends disproportionately to
Nuveen RP and designated capital gains and any ordinary income to its common
stock pursuant to this grandfather provision. Any future issuance of additional
shares of MuniPreferred, as permitted by the Amendment, may result in the Fund
not being allowed to rely on the "grandfather" provision. The Fund is seeking a
private letter ruling from the IRS that such actions will not result in a loss
of such "grandfathered" status. However, no assurance can be given that the IRS
will issue such ruling. In the event that the Fund's disproportionate allocation
of exempt-interest dividends is not allowed under the Code, holders of new
MuniPreferred would be treated as receiving a pro rata portion, if any, of the
Fund's ordinary income and capital gains. Such amounts, however, are not
expected to be significant and, in any event, the Fund, under certain
circumstances will make certain "gross up" payments to holders of shares of
MuniPreferred to offset any such amounts as described above under "Differences
Between Nuveen RP and MuniPreferred--Other Differences Between Nuveen RP and
MuniPreferred--'Gross Up Payments'."
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<PAGE> 17
3. ASSET MAINTENANCE
The Fund must maintain (i) assets having in the aggregate a Discounted Value at
least equal to the MuniPreferred Basic Maintenance Amount, and (ii) 1940 Act
MuniPreferred Asset Coverage of at least 200%.
4. MANDATORY REDEMPTION
If the MuniPreferred Basic Maintenance Amount or the 1940 Act MuniPreferred
Asset Coverage is not maintained or restored, shares of MuniPreferred will be
subject to mandatory redemption on a date fixed by the Board of Directors, out
of funds legally available, at a redemption price equal to $25,000 per share
plus accumulated but unpaid dividends thereon (whether or not earned or
declared) to (but not including) the date fixed for redemption. Any such
redemption will be limited to the number of shares of MuniPreferred necessary to
restore the MuniPreferred Basic Maintenance Amount or the 1940 Act MuniPreferred
Asset Coverage, as the case may be.
5. OPTIONAL REDEMPTION
Except as otherwise provided in the Amendment, (i) shares of MuniPreferred of
each series are redeemable, in whole or in part, at the option of the Fund, on
the second Business Day preceding any Dividend Payment Date for shares of such
series, out of funds legally available therefor, at the redemption price per
share equal to the sum of $25,000 per share plus an amount equal to accumulated
but unpaid dividends thereon (whether or not earned or declared) to (but not
including) the date fixed for redemption; provided, however, that the Notice of
Special Rate Period relating to a Special Rate Period of shares of a series of
MuniPreferred, as delivered to the Auction Agent and filed with the Secretary of
the Fund, may provide that shares of such series shall not be redeemable during
the whole or any part of such Special Rate Period (except as provided in (ii)
below) or shall be redeemable during the whole or any part of such Special Rate
Period only upon payment of such redemption premium or premiums as shall be
specified therein; and (ii) shares of each series of MuniPreferred are
redeemable, at the option of the Fund, as a whole but not in part, out of funds
legally available therefor, on the first day following any Dividend Period
thereof included in a Rate Period of more than 364 Rate Period Days if, on the
date of determination of the Applicable Rate for shares of such series for such
Rate Period, such Applicable Rate equaled or exceeded on such date of
determination of the Treasury Note Rate for such Rate Period, at a redemption
price per share equal to the sum of $25,000 plus an amount equal to accumulated
but unpaid dividends thereon (whether or not earned or declared) to (but not
including) the date fixed for redemption.
6. LIQUIDATION PREFERENCE
The liquidation preference of the shares of each series of MuniPreferred will be
$25,000 per share plus accumulated but unpaid dividends, if any, thereon.
7. VOTING RIGHTS
The 1940 Act requires that the holders of Preferred Stock, including
MuniPreferred, 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 two
years' dividends on the Preferred Stock are unpaid. In each case, the remaining
directors will be elected by holders of shares of Common Stock and shares of
Preferred Stock, including MuniPreferred, voting together as a single class. The
holders of shares of Preferred Stock, including MuniPreferred, will vote as a
separate class or classes on certain other matters as required under the
Articles, the 1940 Act and Minnesota law.
D. REASONS FOR THE AMENDMENT.
The Board of Directors has identified several benefits of the Amendment. With
respect to the Fund's common stockholders, the Amendment may provide increased
income to such common stockholders because the Amendment should enable the Fund
to pay relatively lower dividends to the holders of the Fund's preferred stock.
In addition, the Amendment would enable the Fund to issue additional shares of
MuniPreferred, which would increase the benefits and risks of its leveraged
structure. With respect to the holders of the Fund's Preferred Stock, however,
the Amendment would likely have the opposite effect; namely, decreasing the
level of dividends. The Board of Directors believes, though, that the dividends
paid on the Fund's preferred stock should be competitive market rates. In
addition, the Amendment would standardize the Nuveen closed-end product line,
which would provide administrative benefits to both the Fund and to Nuveen and
its affiliates.
1. REMARKETING VS. AUCTION PROCESS.
Fund Management believes that, over time, some market participants active in
Nuveen-sponsored funds have come to expect for such Funds the use of so-called
"Dutch auctions", which use an independent auction agent, rather than a
remarketing process, which uses a remarketing agent. The proposal would change
to an auction process, which may broaden distribution of the Fund's Preferred
Stock.
13
<PAGE> 18
2. INCREASE INCOME TO COMMON STOCKHOLDERS.
The Amendment may provide increased income to common stockholders of the Fund in
two ways: (1) by decreasing the rate period from 28-days to 7-days and (2) using
the auction process. As noted above, Series A-D Nuveen RP have a 28-day rate
period while Series E Nuveen RP has a 7-day rate period. The Amendment would
reduce the length of the Fund's 28 day rate periods for Series A-D and take
advantage of historically lower dividend rates for 7-day rate periods.
Additionally, the Amendment would allow the Fund to issue additional
MuniPreferred under the circumstances discussed above. See "Differences Between
Nuveen RP and MuniPreferred--Other Differences Between Nuveen RP and
MuniPreferred--Increased Ability to Issue Additional Shares of Preferred Stock."
If the Amendment is approved, the Fund presently intends to issue an additional
$125 million of MuniPreferred. The Fund is currently benefiting from the long
and short-term interest rate differential on its $350 million of preferred
stock. The issuance of additional preferred stock would provide common
stockholders with additional income generated by the difference between the
expected short-term MuniPreferred rates and the long-term rates at which the
offering proceeds would be invested.
3. STANDARDIZE NUVEEN PRODUCT LINE.
The convergence of the terms and conditions underlying Nuveen-sponsored auction
rate preferred stock to a single standard has facilitated the use of the product
by investors, traders and administrators alike. All of the preferred stock of
Nuveen-sponsored funds, with the sole exception being the Fund's preferred
stock, conform to a single standard set of terms. The Amendment would bring the
Fund's preferred stock into conformity with the Nuveen family's standard
state-of-the-art MuniPreferred.
E. EFFECTIVE TIME OF THE AMENDMENT
If approved by shareholders, the Fund intends to file the Amendment as soon as
practicable with the Secretary of State of Minnesota. The Amendment will be
effective as of the close of business on the date of filing ("Effective Time").
SECTION 16 REPORTING COMPLIANCE
Section 30(f) of the Investment Company Act of 1940, as amended (the "1940
Act"), and Section 16(a) of the Securities Exchange Act of 1934, as amended,
require the Fund's officers and directors, investment adviser, affiliated
persons of the investment adviser and persons who own more than ten percent of a
registered class of the Fund's equity securities to file forms reporting their
affiliation with the Fund and reports of ownership and changes in ownership of
the Fund's shares with the Securities and Exchange Commission (the "SEC") and
the New York Stock Exchange. These persons and entities are required by SEC
regulation to furnish the Fund with copies of all Section 16(a) forms they file.
Based on a review of these forms furnished to the Fund, the Fund believes that
during the fiscal year ended October 31, 1996, all Section 16(a) filing
requirements applicable to the Fund's officers and directors, investment adviser
and affiliated persons of the investment adviser were complied with.
INFORMATION ABOUT THE FUND'S INVESTMENT ADVISER
The Adviser, located at 333 West Wacker Drive, Chicago, Illinois, serves as
investment adviser and manager for the Fund. The Adviser is a wholly-owned
subsidiary of Nuveen, 333 West Wacker Drive, Chicago, Illinois 60606. Nuveen is
a subsidiary of The John Nuveen Company which in turn is approximately 78% owned
by The St. Paul Companies, Inc. ("St. Paul"). St. Paul is located at 385
Washington Street, St. Paul, Minnesota 55102, and is principally engaged in
providing property-liability insurance through subsidiaries. Nuveen acted as
co-managing underwriter for the Fund, in its initial public offering of common
stock in June 1988, its public offering of Nuveen RP in October 1988 and its
rights offering for common stock in December 1993.
SHAREHOLDER PROPOSALS
To be considered for presentation at the Annual Meeting of Shareholders of the
Fund to be held in 1998, a shareholder proposal must be received at the offices
of the Fund, 333 West Wacker Drive, Chicago, Illinois 60606, not later than
February 18, 1998.
EXPENSES OF PROXY SOLICITATION
The cost of preparing, printing and mailing the enclosed proxy, accompanying
notice and proxy statement, and all other costs in connection with the
solicitation of proxies, will be paid by the Fund. Additional solicitation may
be made by letter, telephone or telegraph by officers of the Fund, by officers
or employees of John Nuveen & Co. Incorporated or Nuveen Advisory Corp., or by
dealers and their representatives, who will not receive any extra compensation
for their services.
ANNUAL REPORT DELIVERY
Annual reports were sent to shareholders of record of the Fund following the
Fund's fiscal year end. THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS
ANNUAL REPORT AND SEMI-ANNUAL REPORT (WHICH WILL SOON BE AVAILABLE) UPON
REQUEST.
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<PAGE> 19
SUCH WRITTEN OR ORAL REQUESTS SHOULD BE DIRECTED TO THE FUND AT 333 WEST WACKER
DRIVE, CHICAGO, ILLINOIS 60606 OR BY CALLING 1-800-257-8787.
GENERAL
Management does not intend to present and does not have reason to believe that
others will present any other items of business at the Fund's Annual Meeting.
However, if other matters are properly presented to the Annual Meeting for a
vote, the proxies will be voted upon such matters in accordance with the
judgment of the persons acting under the proxies.
A list of shareholders entitled to be present and to vote at the Fund's Annual
Meeting will be available at the offices of the Fund, 333 West Wacker Drive,
Chicago, Illinois, for inspection by any shareholder during regular business
hours for ten days prior to the date of the Annual Meeting.
Failure of a quorum to be present at the Annual Meeting will necessitate
adjournment and will subject the Fund to additional expense. The persons named
in the enclosed proxy may also move for an adjournment of any Annual Meeting to
permit further solicitation of proxies with respect to any of the proposals if
they determine that adjournment and further solicitation is reasonable and in
the best interests of the shareholders. Under the Fund's By-Laws, an adjournment
of a meeting requires the affirmative vote of a majority of the shares present
in person or represented by proxy at the meeting.
IF YOU CANNOT BE PRESENT IN PERSON, YOU ARE REQUESTED TO FILL IN, SIGN AND
RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
Gifford R. Zimmerman
Vice President and Assistant Secretary
15
<PAGE> 20
ANNEX A
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
FORM OF
AMENDMENT AND RESTATEMENT OF
STATEMENT ESTABLISHING AND FIXING THE RIGHTS
AND PREFERENCES OF
MUNICIPAL AUCTION RATE
CUMULATIVE PREFERRED STOCK ("MUNIPREFERRED(R)")
<PAGE> 21
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DEFINITIONS................................................. 1
"AA" Composite Commercial Paper Rate...................... 1
Accountant's Confirmation................................. 1
Affiliate................................................. 1
Agent Member.............................................. 1
Anticipation Notes........................................ 2
Applicable Rate........................................... 2
Articles.................................................. 2
Auction................................................... 2
Auction Agency Agreement.................................. 2
Auction Agent............................................. 2
Auction Date.............................................. 2
Auction Procedures........................................ 2
Available MuniPreferred................................... 2
Benchmark Rate............................................ 2
Beneficial Owner.......................................... 2
Bid and Bids.............................................. 2
Bidder and Bidders........................................ 2
Board of Directors........................................ 2
Broker-Dealer............................................. 2
Broker-Dealer Agreement................................... 2
Business Day.............................................. 2
Code...................................................... 2
Commercial Paper Dealers.................................. 2
Common Stock.............................................. 2
Cure Date................................................. 2
Date of Original Issue.................................... 2
Deposit Securities........................................ 2
Discounted Value.......................................... 3
Dividend Payment Date..................................... 3
Dividend Period........................................... 3
Existing Holder........................................... 3
Failure to Deposit........................................ 3
Federal Tax Rate Increase................................. 3
Fund...................................................... 3
Gross-up Payment.......................................... 3
Holder.................................................... 3
Hold Order and Hold Orders................................ 3
Independent Accountant.................................... 3
Initial Rate Period....................................... 3
Interest Equivalent....................................... 3
Issue Type Category....................................... 3
Kenny Index............................................... 3
Late Charge............................................... 3
Liquidation Preference.................................... 4
Market Value.............................................. 4
Maximum Potential Gross-up Payment Liability.............. 4
Maximum Rate.............................................. 4
Minimum Rate Period....................................... 4
Moody's................................................... 4
Moody's Discount Factor................................... 4
Moody's Eligible Asset.................................... 4
Moody's Exposure Period................................... 4
Moody's Volatility Factor................................. 4
MuniPreferred............................................. 5
MuniPreferred Basic Maintenance Amount.................... 5
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
PAGE
<S> <C>
MuniPreferred Basic Maintenance Cure Date................. 6
MuniPreferred Basic Maintenance Report.................... 6
Municipal Obligations..................................... 6
1940 Act.................................................. 6
1940 Act Cure Date........................................ 6
1940 Act MuniPreferred Asset Coverage..................... 6
Notice of Redemption...................................... 6
Notice of Special Rate Period............................. 6
Order..................................................... 6
Original Issue Insurance.................................. 6
Other Issues.............................................. 6
Outstanding............................................... 6
Permanent Insurance....................................... 6
Person.................................................... 6
Portfolio Insurance....................................... 6
Potential Beneficial Owner................................ 6
Potential Holder.......................................... 6
Preferred Stock........................................... 7
Quarterly Valuation Date.................................. 7
Rate Multiple............................................. 7
Rate Period............................................... 7
Rate Period Days.......................................... 7
Receivables for Municipal Obligations Sold................ 7
Redemption Price.......................................... 7
Reference Rate............................................ 7
Registration Statement.................................... 7
S&P....................................................... 7
S&P Discount Factor....................................... 7
S&P Eligible Asset........................................ 7
S&P Exposure Period....................................... 7
S&P Volatility Factor..................................... 7
Secondary Market Insurance................................ 7
Securities Depository..................................... 7
Sell Order and Sell Orders................................ 7
Special Rate Period....................................... 7
Special Redemption Provisions............................. 7
Submission Deadline....................................... 8
Submitted Bid and Submitted Bids.......................... 8
Submitted Hold Order and Submitted Hold Orders............ 8
Submitted Order and Submitted Orders...................... 8
Submitted Sell Order and Submitted Sell Orders............ 8
Subsequent Rate Period.................................... 8
Substitute Commercial Paper Dealer........................ 8
Substitute U.S. Government Securities Dealer.............. 8
Sufficient Clearing Bids.................................. 8
Taxable Allocation........................................ 8
Taxable Income............................................ 8
Taxable Equivalent of the Short-Term Municipal Bond
Rate................................................... 8
Transitional Rate Period.................................. 8
Treasury Bill............................................. 8
Treasury Bill Rate........................................ 8
Treasury Note............................................. 9
Treasury Note Rate........................................ 9
U.S. Government Securities Dealer......................... 9
Valuation Date............................................ 9
Volatility Factor......................................... 9
Voting Period............................................. 9
Winning Bid Rate.......................................... 9
</TABLE>
2
<PAGE> 23
<TABLE>
<S> <C>
PART I...................................................................................................... 10
1. Number of Authorized Shares.......................................................................... 10
2. Dividends............................................................................................ 10
(a) Ranking........................................................................................ 10
(b) Cumulative Cash Dividends....................................................................... 10
(c) Dividends Cumulative From Date of Original Issue................................................ 10
(d) Dividend Payment Dates and Adjustment Thereof................................................... 10
(e) Dividend Rates and Calculation of Dividends..................................................... 10
(i) Dividend Rates............................................................................. 10
(ii) Calculation of Dividends................................................................... 11
(f) Curing a Failure to Deposit.................................................................... 12
(g) Dividend Payments by Fund to Auction Agent...................................................... 12
(h) Auction Agent as Trustee of Dividend Payments by Fund........................................... 12
(i) Dividends Paid to Holders...................................................................... 12
(j) Dividends Credited Against Earliest Accumulated But Unpaid Dividends........................... 12
(k) Dividends Designated as Exempt-Interest Dividends............................................... 12
3. Gross-up Payments.................................................................................... 12
(a) Minimum Rate Periods and Special Rate Periods of 28 Rate Period Days or Fewer.................. 12
(b) Special Rate Periods of More Than 28 Rate Period Days........................................... 12
(c) No Gross-up Payments In the Event of a Reallocation............................................. 12
4. Designation of Special Rate Periods.................................................................. 13
(a) Length of and Preconditions for Special Rate Period............................................ 13
(b) Adjustment of Length of Special Rate Period..................................................... 13
(c) Notice of Proposed Special Rate Period.......................................................... 13
(d) Notice of Special Rate Period................................................................... 13
(e) Failure to Deliver Notice of Special Rate Period................................................ 14
5. Voting Rights........................................................................................ 14
(a) One Vote Per Share of MuniPreferred............................................................ 14
(b) Voting For Additional Directors................................................................. 14
(i) Voting Period.............................................................................. 14
(ii) Notice of Special Meeting.................................................................. 14
(iii) Terms of Office of Existing Directors..................................................... 15
(iv) Terms of Office of Certain Directors to Terminate Upon Termination of Voting Period........ 15
(c) Holders of MuniPreferred To Vote On Certain Other Matters....................................... 15
(i) Increases in Capitalization................................................................ 15
(ii) 1940 Act Matters........................................................................... 15
(d) Board May Take Certain Actions Without Shareholder Approval..................................... 16
(e) Voting Rights Set Forth Herein Are Sole Voting Rights........................................... 16
(f) No Preemptive Rights or Cumulative Voting...................................................... 16
(g) Voting for Directors Sole Remedy for Fund's Failure to Pay Dividends............................ 16
(h) Holders Entitled to Vote........................................................................ 16
6. 1940 Act MuniPreferred Asset Coverage................................................................ 16
7. MuniPreferred Basic Maintenance Amount............................................................... 17
8. [Reserved]........................................................................................... 18
9. Restrictions on Dividends and Other Distributions.................................................... 18
(a) Dividends on Preferred Stock Other Than MuniPreferred.......................................... 18
(b) Dividends and Other Distributions With Respect to Common Stock Under the 1940 Act............... 18
(c) Other Restrictions On Dividends and Other Distributions......................................... 18
10. Rating Agency Restrictions........................................................................... 19
11. Redemption........................................................................................... 19
(a) Optional Redemption............................................................................ 19
(b) Mandatory Redemption............................................................................ 20
(c) Notice of Redemption............................................................................ 20
(d) No Redemption Under Certain Circumstances....................................................... 20
(e) Absence of Funds Available for Redemption....................................................... 21
(f) Auction Agent as Trustee of Redemption Payments by Fund........................................ 21
(g) Shares for Which Notice of Redemption Has Been Given Are No Longer Outstanding.................. 21
(h) Compliance With Applicable Law.................................................................. 21
(i) Only Whole Shares of MuniPreferred May Be Redeemed............................................. 21
</TABLE>
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<PAGE> 24
<TABLE>
<S> <C>
12. Liquidation Rights................................................................................... 21
(a) Ranking........................................................................................ 21
(b) Distributions Upon Liquidation.................................................................. 21
(c) Pro Rata Distributions.......................................................................... 22
(d) Rights of Junior Stock.......................................................................... 22
(e) Certain Events Not Constituting Liquidation..................................................... 22
13. Miscellaneous........................................................................................ 22
(a) Amendment of Appendix A to Add Additional Series............................................... 22
(b) Appendix A Incorporated By Reference............................................................ 22
(c) No Fractional Shares............................................................................ 22
(d) Status of Shares of MuniPreferred Redeemed, Exchanged or Otherwise Acquired by the Fund......... 22
(e) Board May Resolve Ambiguities................................................................... 22
(f) Headings Not Determinative..................................................................... 22
(g) Notices......................................................................................... 22
PART II..................................................................................................... 23
1. Orders............................................................................................... 23
2. Submission of Orders by Broker-Dealers to Auction Agent.............................................. 24
3. Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate...................... 25
4. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares........ 26
5. Notification of Allocations.......................................................................... 27
6. Auction Agent........................................................................................ 27
7. Transfer of Shares of MuniPreferred.................................................................. 28
8. Global Certificate................................................................................... 28
Appendix A.................................................................................................. A-1
Section 1. Designation As To Series...................................................................... A-1
Section 2. Number of Authorized Shares Per Series........................................................ A-2
Section 3. Exceptions to Certain Definitions............................................................. A-2
Section 4. Certain Definitions........................................................................... A-2
Section 5. Initial and Transitional Rate Periods......................................................... A-5
Section 6. Date for Purposes of Paragraph (yyy) Contained Under the Heading "Definitions" in this
Statement..................................................................................... A-5
Section 7. Party Named for Purposes of the Definition of "Rate Multiple" in this Statement............... A-6
Section 8. Additional Definitions........................................................................ A-6
Section 9. Dividend Payment Dates........................................................................ A-6
Section 10. Amount for Purposes of Subparagraph (c)(i) of Section 5 of Part I
of this Statement............................................................................ A-6
Section 11. Redemption Provisions Applicable to Initial Rate Periods...................................... A-6
Section 12. Applicable Rate for Purposes of Subparagraph(b)(iii) of Section 3 of Part II of this
Statement..................................................................................... A-6
</TABLE>
4
<PAGE> 25
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC., a Minnesota corporation (the
"Fund"), certifies to the Secretary of State of the State of Minnesota that:
First: Pursuant to authority expressly vested in the Board of Directors of the
Fund by Article FIFTH of the Fund's Articles of Incorporation, as amended
(which, as hereafter restated or amended from time to time are, together with
this Statement, herein called the "Articles"), the Board of Directors has, by
resolution, designated the preferences, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of redemption of
shares of the Fund's authorized Preferred Stock, par value $.01 per share,
liquidation preference $25,000 per share, having such designation or
designations as to series as is set forth in Section 1 of Appendix A hereto and
such number of shares per such series as is set forth in Section 2 of Appendix A
hereto.
Second: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the shares
of each series of MuniPreferred described in Section 1 of Appendix A hereto are
as follows (each such series being referred to herein as a series of
MuniPreferred, and shares of all such series being referred to herein
individually as a share of MuniPreferred and collectively as shares of
MuniPreferred):
DEFINITIONS
Except as otherwise specifically provided in Section 3 of Appendix A hereto, as
used in Parts I and II of this Statement, the following terms shall have the
following meanings (with terms defined in the singular having comparable
meanings when used in the plural and vice versa), unless the context otherwise
requires:
(a) "AA" COMPOSITE COMMERCIAL PAPER RATE," on any date for any Rate Period
of shares of a series of MuniPreferred, shall mean (i) (A) in the case of
any Minimum Rate Period or any Special Rate Period of fewer than 49 Rate
Period Days, the interest equivalent of the 30-day rate; provided, however,
that if such Rate Period is a Minimum Rate Period and the "AA" Composite
Commercial Paper Rate is being used to determine the Applicable Rate for
shares of such series when all of the Outstanding shares of such series are
subject to Submitted Hold Orders, then the interest equivalent of the
seven-day rate, and (B) in the case of any Special Rate Period of (1) 49 or
more but fewer than 70 Rate Period Days, the interest equivalent of the
60-day rate; (2) 70 or more but fewer than 85 Rate Period Days, the
arithmetic average of the interest equivalent of the 60-day and 90-day
rates; (3) 85 or more but fewer than 99 Rate Period Days, the interest
equivalent of the 90-day rate; (4) 99 or more but fewer than 120 Rate
Period Days, the arithmetic average of the interest equivalent of the
90-day and 120-day rates; (5) 120 or more but fewer than 141 Rate Period
Days, the interest equivalent of the 120-day rate; (6) 141 or more but
fewer than 162 Rate Period Days, the arithmetic average of the 120-day and
180-day rates; and (7) 162 or more but fewer than 183 Rate Period Days, the
interest equivalent of the 180-day rate, in each case on commercial paper
placed on behalf of issuers whose corporate bonds are rated "AA" by S&P or
the equivalent of such rating by S&P or another rating agency, as made
available on a discount basis or otherwise by the Federal Reserve Bank of
New York for the Business Day next preceding such date; or (ii) in the
event that the Federal Reserve Bank of New York does not make available any
such rate, then the arithmetic average of such rates, as quoted on a
discount basis or otherwise, by the Commercial Paper Dealers to the Auction
Agent for the close of business on the Business Day next preceding such
date. If any Commercial Paper Dealer does not quote a rate required to
determine the "AA" Composite Commercial Paper Rate, the "AA" Composite
Commercial Paper Rate shall be determined on the basis of the quotation or
quotations furnished by the remaining Commercial Paper Dealer or Commercial
Paper Dealers and any Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers selected by the Fund to provide such rate or rates
not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers, as the case may be, or, if the Fund does not select any such
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers,
by the remaining Commercial Paper Dealer or Commercial Paper Dealers. For
purposes of this definition, the "interest equivalent" of a rate stated on
a discount basis (a "discount rate") for commercial paper of a given days'
maturity shall be equal to the quotient (rounded upwards to the next higher
one-thousandth (.001) of 1%) of (A) the discount rate divided by (B) the
difference between (x) 1.00 and (y) a fraction, the numerator of which
shall be the product of the discount rate times the number of days in which
such commercial paper matures and the denominator of which shall be 360.
(b) "ACCOUNTANT'S CONFIRMATION" shall have the meaning specified in
paragraph (c) of Section 7 of Part I of this Statement.
(c) "AFFILIATE" shall mean, for purposes of the definition of
"Outstanding," any Person known to the Auction Agent to be controlled by,
in control of or under common control with the Fund; provided, however,
that no Broker-Dealer controlled by, in control of or under common control
with the Fund shall be deemed to be an Affiliate nor shall any corporation
or any Person controlled by, in control of or under common control with
such corporation one of the directors, trustees or executive officers of
which is a director of the Fund be deemed to be an Affiliate solely because
such director, trustee or executive officer is also a director of the Fund.
(d) "AGENT MEMBER" shall mean a member of or participant in the Securities
Depository that will act on behalf of a Bidder.
1
<PAGE> 26
(e) "ANTICIPATION NOTES" shall mean Tax Anticipation Notes (TANs), Revenue
Anticipation Notes (RANs), Tax and Revenue Anticipation Notes (TRANs),
Grant Anticipation Notes (GANs) that are rated by S&P and Bond Anticipation
Notes (BANs) that are rated by S&P.
(f) "APPLICABLE RATE" shall have the meaning specified in subparagraph
(e)(i) of Section 2 of Part I of this Statement.
(g) "ARTICLES" shall have the meaning specified on the first page of this
Statement.
(h) "AUCTION" shall mean each periodic implementation of the Auction
Procedures.
(i) "AUCTION AGENCY AGREEMENT" shall mean the agreement between the Fund
and the Auction Agent which provides, among other things, that the Auction
Agent will follow the Auction Procedures for purposes of determining the
Applicable Rate for shares of a series of MuniPreferred so long as the
Applicable Rate for shares of such series is to be based on the results of
an Auction.
(j) "AUCTION AGENT" shall mean the entity appointed as such by a resolution
of the Board of Directors in accordance with Section 6 of Part II of this
Statement.
(k) "AUCTION DATE," with respect to any Rate Period, shall mean the
Business Day next preceding the first day of such Rate Period.
(l) "AUCTION PROCEDURES" shall mean the procedures for conducting Auctions
set forth in Part II of this Statement.
(m) "AVAILABLE MUNIPREFERRED" shall have the meaning specified in paragraph
(a) of Section 3 of Part II of this Statement.
(n) "BENCHMARK RATE" shall have the meaning specified in Section 12 of
Appendix A hereto.
(o) "BENEFICIAL OWNER," with respect to shares of a series of
MuniPreferred, means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the Auction Agent) as a
holder of shares of such series.
(p) "BID" and "BIDS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement.
(q) "BIDDER" and "BIDDERS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement; provided, however,
that neither the Fund nor any affiliate thereof shall be permitted to be a
Bidder in an Auction, except that any Broker-Dealer that is an affiliate of
the Fund may be a Bidder in an Auction, but only if the Orders placed by
such Broker-Dealer are not for its own account.
(r) "BOARD OF DIRECTORS" shall mean the Board of Directors of the Fund or
any duly authorized committee thereof.
(s) "BROKER-DEALER" shall mean any broker-dealer, commercial bank or other
entity permitted by law to perform the functions required of a
Broker-Dealer in Part II of this Statement, that is a member of, or a
participant in, the Securities Depository or is an affiliate of such member
or participant, has been selected by the Fund and has entered into a
Broker-Dealer Agreement that remains effective.
(t) "BROKER-DEALER AGREEMENT" shall mean an agreement among the Fund, the
Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer
agrees to follow the procedures specified in Part II of this Statement.
(u) "BUSINESS DAY" shall mean a day on which the New York Stock Exchange is
open for trading and which is neither a Saturday, Sunday nor any other day
on which banks in The City of New York, New York, are authorized by law to
close.
(v) "CODE" means the Internal Revenue Code of 1986, as amended.
(w) "COMMERCIAL PAPER DEALERS" shall mean Lehman Commercial Paper
Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated or, in lieu of any thereof, their respective affiliates
or successors, if such entity is a commercial paper dealer.
(x) "COMMON STOCK" shall mean the common stock, par value $.01 per share,
of the Fund.
(y) "CURE DATE" shall mean the MuniPreferred Basic Maintenance Cure Date or
the 1940 Act Cure Date, as the case may be.
(z) "DATE OF ORIGINAL ISSUE," with respect to shares of a series of
MuniPreferred, shall mean the date on which the Fund initially issued such
shares.
(aa) "DEPOSIT SECURITIES" shall mean cash and Municipal Obligations rated
at least A-1+ or SP-1+ by S&P, except that, for purposes of subparagraph
(a)(v) of Section 11 of Part I of this Statement, such Municipal
Obligations shall be considered "Deposit Securities" only if they are also
rated P-1, MIG-1 or VMIG-1 by Moody's.
2
<PAGE> 27
(bb) "DISCOUNTED VALUE," as of any Valuation Date, shall mean, (i) with
respect to an S&P Eligible Asset, the quotient of the Market Value thereof
divided by the applicable S&P Discount Factor and (ii)(a) with respect to a
Moody's Eligible Asset that is not currently callable as of such Valuation
Date at the option of the issuer thereof, the quotient of the Market Value
thereof divided by the applicable Moody's Discount Factor, or (b) with
respect to a Moody's Eligible Asset that is currently callable as of such
Valuation Date at the option of the issuer thereof, the quotient of (1) the
lesser of the Market Value or call price thereof, including any call
premium, divided by (2) the applicable Moody's Discount Factor.
(cc) [Reserved]
(dd) [Reserved]
(ee) "DIVIDEND PAYMENT DATE," with respect to shares of a series of
MuniPreferred, shall mean any date on which dividends are payable on shares
of such series pursuant to the provisions of paragraph (d) of Section 2 of
Part I of this Statement.
(ff) "DIVIDEND PERIOD," with respect to shares of a series of
MuniPreferred, shall mean the period from and including the Date of
Original Issue of shares of such series to but excluding the initial
Dividend Payment Date for shares of such series and any period thereafter
from and including one Dividend Payment Date for shares of such series to
but excluding the next succeeding Dividend Payment Date for shares of such
series.
(gg) "EXISTING HOLDER," with respect to shares of a series of
MuniPreferred, shall mean a Broker-Dealer (or any such other Person as may
be permitted by the Fund) that is listed on the records of the Auction
Agent as a holder of shares of such series.
(hh) "FAILURE TO DEPOSIT," with respect to shares of a series of
MuniPreferred, shall mean a failure by the Fund to pay to the Auction
Agent, not later than 12:00 noon, New York City time, (A) on the Business
Day next preceding any Dividend Payment Date for shares of such series, in
funds available on such Dividend Payment Date in The City of New York, New
York, the full amount of any dividend (whether or not earned or declared)
to be paid on such Dividend Payment Date on any share of such series or (B)
on the Business Day next preceding any redemption date in funds available
on such redemption date for shares of such series in The City of New York,
New York, the Redemption Price to be paid on such redemption date for any
share of such series after notice of redemption is mailed pursuant to
paragraph (c) of Section 11 of Part I of this Statement; provided, however,
that the foregoing clause (B) shall not apply to the Fund's failure to pay
the Redemption Price in respect of shares of MuniPreferred when the related
Notice of Redemption provides that redemption of such shares is subject to
one or more conditions precedent and any such condition precedent shall not
have been satisfied at the time or times and in the manner specified in
such Notice of Redemption.
(ii) "FEDERAL TAX RATE INCREASE" shall have the meaning specified in the
definition of "Moody's Volatility Factor."
(jj) "FUND" shall mean the entity named on the first page of this
Statement, which is the issuer of the shares of MuniPreferred.
(kk) "GROSS-UP PAYMENT" shall have the meaning specified in Section 4 of
Appendix A hereto.
(ll) "HOLDER," with respect to shares of a series of MuniPreferred, shall
mean the registered holder of such shares as the same appears on the stock
books of the Fund.
(mm) "HOLD ORDER" and "HOLD ORDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(nn) "INDEPENDENT ACCOUNTANT" shall mean a nationally recognized
accountant, or firm of accountants, that is with respect to the Fund an
independent public accountant or firm of independent public accountants
under the Securities Act of 1933, as amended from time to time.
(oo) "INITIAL RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall have the meaning specified with respect to shares of
such series in Section 5 of Appendix A hereto.
(pp) "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.
(qq) "ISSUE TYPE CATEGORY," if defined in Section 4 of Appendix A hereto,
shall have the meaning specified in that section.
(rr) "KENNY INDEX" shall have the meaning specified in the definition of
"Taxable Equivalent of the Short-Term Municipal Bond Rate."
(ss) "LATE CHARGE" shall have the meaning specified in subparagraph
(e)(1)(B) of Section 2 of Part I of this Statement.
3
<PAGE> 28
(tt) "LIQUIDATION PREFERENCE," with respect to a given number of shares of
MuniPreferred, means $25,000 times that number.
(uu) "MARKET VALUE" of any asset of the Fund shall mean the market value
thereof determined by the pricing service designated from time to time by
the Board of Directors. Market Value of any asset shall include any
interest accrued thereon. The pricing service values portfolio securities
at the mean between the quoted bid and asked price or the yield equivalent
when quotations are readily available. Securities for which quotations are
not readily available are valued at fair value as determined by the pricing
service using methods which include consideration of: yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating; indications as to value from dealers; and general market
conditions. The pricing service may employ electronic data processing
techniques or a matrix system, or both, to determine valuations.
(vv) "MAXIMUM POTENTIAL GROSS-UP PAYMENT LIABILITY," as of any Valuation
Date, shall mean the aggregate amount of Gross-up Payments that would be
due if the Fund were to make Taxable Allocations, with respect to any
taxable year, estimated based upon dividends paid and the amount of
undistributed realized net capital gains and other taxable income earned by
the Fund, as of the end of the calendar month immediately preceding such
Valuation Date, and assuming such Gross-up Payments are fully taxable.
(ww) "MAXIMUM RATE," for shares of a series of MuniPreferred on any Auction
Date for shares of such series, shall mean:
(i) in the case of any Auction Date which is not the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Fund pursuant to Section 4 of Part I of this
Statement, the product of (A) the Reference Rate on such Auction Date
for the next Rate Period of shares of such series and (B) the Rate
Multiple on such Auction Date, unless shares of such series have or had
a Special Rate Period (other than a Special Rate Period of 28 Rate
Period Days or fewer) and an Auction at which Sufficient Clearing Bids
existed has not yet occurred for a Minimum Rate Period of shares of such
series after such Special Rate Period, in which case the higher of:
(A) the dividend rate on shares of such series for the then-ending
Rate Period; and
(B) the product of (1) the higher of (x) the Reference Rate on such
Auction Date for a Rate Period equal in length to the then-ending
Rate Period of shares of such series, if such then-ending Rate Period
was 364 Rate Period Days or fewer, or the Treasury Note Rate on such
Auction Date for a Rate Period equal in length to the then-ending
Rate Period of shares of such series, if such then-ending Rate Period
was more than 364 Rate Period Days, and (y) the Reference Rate on
such Auction Date for a Rate Period equal in length to such Special
Rate Period of shares of such series, if such Special Rate Period was
364 Rate Period Days or fewer, or the Treasury Note Rate on such
Auction Date for a Rate Period equal in length to such Special Rate
Period, if such Special Rate Period was more than 364 Rate Period
Days and (2) the Rate Multiple on such Auction Date; or
(ii) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Fund pursuant to Section 4 of Part I of this
Statement, the product of (A) the highest of (1) the Reference Rate on
such Auction Date for a Rate Period equal in length to the then-ending
Rate Period of shares of such series, if such then-ending Rate Period
was 364 Rate Period Days or fewer, or the Treasury Note Rate on such
Auction Date for a Rate Period equal in length to the then-ending Rate
Period of shares of such series, if such then-ending Rate Period was
more than 364 Rate Period Days, (2) the Reference Rate on such Auction
Date for the Special Rate Period for which the Auction is being held if
such Special Rate Period is 364 Rate Period Days or fewer or the
Treasury Note Rate on such Auction Date for the Special Rate Period for
which the Auction is being held if such Special Rate Period is more than
364 Rate Period Days, and (3) the Reference Rate on such Auction Date
for Minimum Rate Periods and (B) the Rate Multiple on such Auction Date.
(xx) [Reserved]
(yy) "MINIMUM RATE PERIOD" shall mean any Rate Period consisting of 7 Rate
Period Days.
(zz) "MOODY'S" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors.
(aaa) "MOODY'S DISCOUNT FACTOR" shall have the meaning specified in Section
4 of Appendix A hereto.
(bbb) "MOODY'S ELIGIBLE ASSET" shall have the meaning specified in Section
4 of Appendix A hereto.
(ccc) "MOODY'S EXPOSURE PERIOD" shall mean the period commencing on a given
Valuation Date and ending 56 days thereafter.
(ddd) "MOODY'S VOLATILITY FACTOR" shall mean, as of any Valuation Date, (i)
in the case of any Minimum Rate Period, any Special Rate Period of 28 Rate
Period Days or fewer, or any Special Rate Period of 57 Rate Period Days or
more, a
4
<PAGE> 29
multiplicative factor equal to 275%, except as otherwise provided in the
last sentence of this definition; (ii) in the case of any Special Rate
Period of more than 28 but fewer than 36 Rate Period Days, a multiplicative
factor equal to 203%; (iii) in the case of any Special Rate Period of more
than 35 but fewer than 43 Rate Period Days, a multiplicative factor equal
to 217%; (iv) in the case of any Special Rate Period of more than 42 but
fewer than 50 Rate Period Days, a multiplicative factor equal to 226%; and
(v) in the case of any Special Rate Period of more than 49 but fewer than
57 Rate Period Days, a multiplicative factor equal to 235%. If, as a result
of the enactment of changes to the Code, the greater of the maximum
marginal Federal individual income tax rate applicable to ordinary income
and the maximum marginal Federal corporate income tax rate applicable to
ordinary income will increase, such increase being rounded up to the next
five percentage points (the "Federal Tax Rate Increase"), until the
effective date of such increase, the Moody's Volatility Factor in the case
of any Rate Period described in (i) above in this definition instead shall
be determined by reference to the following table:
<TABLE>
<CAPTION>
----------------------------------------------------
FEDERAL TAX RATE INCREASE VOLATILITY FACTOR
----------------------------------------------------
<S> <C>
5% 295%
10% 317%
15% 341%
20% 369%
25% 400%
30% 436%
35% 477%
40% 525%
----------------------------------------------------
</TABLE>
(eee) "MUNIPREFERRED" shall have the meaning set forth on the first page of
this Statement.
(fff) "MUNIPREFERRED BASIC MAINTENANCE AMOUNT," as of any Valuation Date,
shall mean the dollar amount equal to the sum of (i)(A) the product of the
number of shares of MuniPreferred outstanding on such date multiplied by
$25,000 (plus the product of the number of shares of any other series of
Preferred Stock outstanding on such date multiplied by the liquidation
preference of such shares), plus any redemption premium applicable to
shares of MuniPreferred (or other Preferred Stock) then subject to
redemption; (B) the aggregate amount of dividends that will have
accumulated at the respective Applicable Rates (whether or not earned or
declared) to (but not including) the first respective Dividend Payment
Dates for shares of MuniPreferred outstanding that follow such Valuation
Date (plus the aggregate amount of dividends, whether or not earned or
declared, that will have accumulated in respect of other outstanding shares
of Preferred Stock to, but not including, the first respective dividend
payment dates for such other shares that follow such Valuation Date); (C)
the aggregate amount of dividends that would accumulate on shares of each
series of MuniPreferred outstanding from such first respective Dividend
Payment Date therefor through the 56th day after such Valuation Date, at
the Maximum Rate (calculated as if such Valuation Date were the Auction
Date for the Rate Period commencing on such Dividend Payment Date) for a
Minimum Rate Period of shares of such series to commence on such Dividend
Payment Date, assuming, solely for purposes of the foregoing, that if on
such Valuation Date the Fund shall have delivered a Notice of Special Rate
Period to the Auction Agent pursuant to Section 4(d)(i) of this Part I with
respect to shares of such series, such Maximum Rate shall be the higher of
(a) the Maximum Rate for the Special Rate Period of shares of such series
to commence on such Dividend Payment Date and (b) the Maximum Rate for a
Minimum Rate Period of shares of such series to commence on such Dividend
Payment Date, multiplied by the Volatility Factor applicable to a Minimum
Rate Period, or, in the event the Fund shall have delivered a Notice of
Special Rate Period to the Auction Agent pursuant to Section 4(d)(i) of
this Part I with respect to shares of such series designating a Special
Rate Period consisting of 56 Rate Period Days or more, the Volatility
Factor applicable to a Special Rate Period of that length (plus the
aggregate amount of dividends that would accumulate at the maximum dividend
rate or rates on any other shares of Preferred Stock outstanding from such
respective dividend payment dates through the 56th day after such Valuation
Date, as established by or pursuant to the respective statements
establishing and fixing the rights and preferences of such other shares of
Preferred Stock) (except that (1) if such Valuation Date occurs at a time
when a Failure to Deposit (or, in the case of shares of Preferred Stock
other than MuniPreferred, a failure similar to a Failure to Deposit) has
occurred that has not been cured, the dividend for purposes of calculation
would accumulate at the current dividend rate then applicable to the shares
in respect of which such failure has occurred and (2) for those days during
the period described in this subparagraph (C) in respect of which the
Applicable Rate in effect immediately prior to such Dividend Payment Date
will remain in effect (or, in the case of shares of Preferred Stock other
than MuniPreferred, in respect of which the dividend rate or rates in
effect immediately prior to such respective dividend payment dates will
remain in effect), the dividend for purposes of calculation would
accumulate at such Applicable Rate (or other rate or rates, as the case may
be) in respect of those days); (D) the amount of anticipated expenses of
the Fund for the 90 days subsequent to such Valuation Date; (E) the amount
of the Fund's Maximum Potential Gross-up Payment Liability in respect of
shares of MuniPreferred (and similar amounts payable in respect of other
shares of Preferred Stock pursuant to provisions similar to those contained
in Section 3 of Part I of this Statement) as of such Valuation Date; and
(F) any current liabilities as of such Valuation Date to the
5
<PAGE> 30
extent not reflected in any of (i)(A) through (i)(E) (including, without
limitation, any payables for Municipal Obligations purchased as of such
Valuation Date and any liabilities incurred for the purpose of clearing
securities transactions) less (ii) the value (i.e., for purposes of current
Moody's guidelines, the face value of cash, short-term Municipal
Obligations rated MIG-1, VMIG-1 or P-1, and short-term securities that are
the direct obligation of the U.S. government, provided in each case that
such securities mature on or prior to the date upon which any of (i)(A)
through (i)(F) become payable, otherwise the Moody's Discounted Value) of
any of the Fund's assets irrevocably deposited by the Fund for the payment
of any of (i)(A) through (i)(F).
(ggg) "MUNIPREFERRED BASIC MAINTENANCE CURE DATE," with respect to the
failure by the Fund to satisfy the MuniPreferred Basic Maintenance Amount
(as required by paragraph (a) of Section 7 of Part I of this Statement) as
of a given Valuation Date, shall mean the seventh Business Day following
such Valuation Date.
(hhh) "MUNIPREFERRED BASIC MAINTENANCE REPORT" shall mean a report signed
by the President, Treasurer or any Senior Vice President or Vice President
of the Fund which sets forth, as of the related Valuation Date, the assets
of the Fund, the Market Value and the Discounted Value thereof (seriatim
and in aggregate), and the MuniPreferred Basic Maintenance Amount.
(iii) "MUNICIPAL OBLIGATIONS" shall mean "Municipal Obligations" as defined
in the Fund's registration statement on Form N-2 on file with the
Securities and Exchange Commission, as such registration statement may be
amended from time to time (the "Registration Statement").
(jjj) "1940 ACT" shall mean the Investment Company Act of 1940, as amended
from time to time.
(kkk) "1940 ACT CURE DATE," with respect to the failure by the Fund to
maintain the 1940 Act MuniPreferred Asset Coverage (as required by Section
6 of Part I of this Statement) as of the last Business Day of each month,
shall mean the last Business Day of the following month.
(lll) "1940 ACT MUNIPREFERRED ASSET COVERAGE" shall mean asset coverage, as
defined in Section 18(h) of the 1940 Act, of at least 200% with respect to
all outstanding senior securities of the Fund which are stock, including
all outstanding shares of MuniPreferred (or such other asset coverage as
may in the future be specified in or under the 1940 Act as the minimum
asset coverage for senior securities which are stock of a closed-end
investment company as a condition of declaring dividends on its common
stock).
(mmm) "NOTICE OF REDEMPTION" shall mean any notice with respect to the
redemption of shares of MuniPreferred pursuant to paragraph (c) of Section
11 of Part I of this Statement.
(nnn) "NOTICE OF SPECIAL RATE PERIOD" shall mean any notice with respect to
a Special Rate Period of shares of MuniPreferred pursuant to subparagraph
(d)(i) of Section 4 of Part I of this Statement.
(ooo) "ORDER" AND "ORDERS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement.
(ppp) "ORIGINAL ISSUE INSURANCE," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.
(qqq) "OTHER ISSUES," if defined in Section 4 of Appendix A hereto, shall
have the meaning specified in that section.
(rrr) "OUTSTANDING" shall mean, as of any Auction Date with respect to
shares of a series of MuniPreferred, the number of shares of such series
theretofore issued by the Fund except, without duplication, (i) any shares
of such series theretofore cancelled or delivered to the Auction Agent for
cancellation or redeemed by the Fund, (ii) any shares of such series as to
which the Fund or any Affiliate thereof shall be an Existing Holder and
(iii) any shares of such series represented by any certificate in lieu of
which a new certificate has been executed and delivered by the Fund.
(sss) "PERMANENT INSURANCE," if defined in Section 4 of Appendix A hereto,
shall have the meaning specified in that section.
(ttt) "PERSON" shall mean and include an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or
other entity or a government or any agency or political subdivision
thereof.
(uuu) "PORTFOLIO INSURANCE," if defined in Section 4 of Appendix A hereto,
shall have the meaning specified in that section.
(vvv) "POTENTIAL BENEFICIAL OWNER," with respect to shares of a series of
MuniPreferred, shall mean a customer of a Broker-Dealer that is not a
Beneficial Owner of shares of such series but that wishes to purchase
shares of such series, or that is a Beneficial Owner of shares of such
series that wishes to purchase additional shares of such series.
(www) "POTENTIAL HOLDER," with respect to shares of a series of
MuniPreferred, shall mean a Broker-Dealer (or any such other person as may
be permitted by the Fund) that is not an Existing Holder of shares of such
series or that is an Existing Holder of shares of such series that wishes
to become the Existing Holder of additional shares of such series.
6
<PAGE> 31
(xxx) "PREFERRED STOCK" shall mean the preferred stock of the Fund, and
includes the shares of MuniPreferred.
(yyy) "QUARTERLY VALUATION DATE" shall mean the last Business Day of each
February, May, August and November of each year, commencing on the date set
forth in Section 6 of Appendix A hereto.
(zzz) "RATE MULTIPLE" shall have the meaning specified in Section 4 of
Appendix A hereto.
(aaaa) "RATE PERIOD," with respect to shares of a series of MuniPreferred,
shall mean the Initial Rate Period, and any Transitional Rate Period, of
shares of such series and any Subsequent Rate Period, including any Special
Rate Period, of shares of such series.
(bbbb) "RATE PERIOD DAYS," for any Rate Period or Dividend Period, means
the number of days that would constitute such Rate Period or Dividend
Period but for the application of paragraph (d) of Section 2 of Part I of
this Statement or paragraph (b) of Section 4 of Part I of this Statement.
(cccc) "RECEIVABLES FOR MUNICIPAL OBLIGATIONS SOLD" shall mean (A) for
purposes of calculation of Moody's Eligible Assets as of any Valuation
Date, no more than the aggregate of the following: (i) the book value of
receivables for Municipal Obligations sold as of or prior to such Valuation
Date if such receivables are due within five business days of such
Valuation Date, and if the trades which generated such receivables are (x)
settled through clearing house firms with respect to which the Fund has
received prior written authorization from Moody's or (y) with
counterparties having a Moody's long-term debt rating of at least Baa3; and
(ii) the Moody's Discounted Value of Municipal Obligations sold as of or
prior to such Valuation Date which generated receivables, if such
receivables are due within five business days of such Valuation Date but do
not comply with either of the conditions specified in (i) above, and (B)
for purposes of calculation of S&P Eligible Assets as of any Valuation
Date, the book value of receivables for Municipal Obligations sold as of or
prior to such Valuation Date if such receivables are due within five
business days of such Valuation Date.
(dddd) "REDEMPTION PRICE" shall mean the applicable redemption price
specified in paragraph (a) or (b) of Section 11 of Part I of this
Statement.
(eeee) "REFERENCE RATE" shall mean (i) the higher of the Taxable Equivalent
of the Short-Term Municipal Bond Rate and the "AA" Composite Commercial
Paper Rate in the case of Minimum Rate Periods and Special Rate Periods of
28 Rate Period Days or fewer; (ii) the "AA" Composite Commercial Paper Rate
in the case of Special Rate Periods of more than 28 Rate Period Days but
fewer than 183 Rate Period Days; and (iii) the Treasury Bill Rate in the
case of Special Rate Periods of more than 182 Rate Period Days but fewer
than 365 Rate Period Days.
(ffff) "REGISTRATION STATEMENT" has the meaning specified in the definition
of "Municipal Obligations."
(gggg) "S&P" shall mean Standard & Poor's Corporation, a New York
corporation, and its successors.
(hhhh) "S&P DISCOUNT FACTOR" shall have the meaning specified in Section 4
of Appendix A hereto.
(iiii) "S&P ELIGIBLE ASSET" shall have the meaning specified in Section 4
of Appendix A hereto.
(jjjj) "S&P EXPOSURE PERIOD" shall mean the maximum period of time
following a Valuation Date that the Fund has under this Statement to cure
any failure to maintain, as of such Valuation Date, the Discounted Value
for its portfolio at least equal to the MuniPreferred Basic Maintenance
Amount (as described in paragraph (a) of Section 7 of Part I of this
Statement).
(kkkk) "S&P VOLATILITY FACTOR" shall mean, as of any Valuation Date, a
multiplicative factor equal to (i) 305% in the case of any Minimum Rate
Period or any Special Rate Period of 28 Rate Period Days or fewer; (ii)
268% in the case of any Special Rate Period of more than 28 Rate Period
Days but fewer than 183 Rate Period Days; and (iii) 204% in the case of any
Special Rate Period of more than 182 Rate Period Days.
(llll) "SECONDARY MARKET INSURANCE," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.
(mmmm) "SECURITIES DEPOSITORY" shall mean The Depository Trust Company and
its successors and assigns or any other securities depository selected by
the Fund which agrees to follow the procedures required to be followed by
such securities depository in connection with shares of MuniPreferred.
(nnnn) "SELL ORDER" and "SELL ORDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(oooo) "SPECIAL RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall have the meaning specified in paragraph (a) of Section
4 of Part I of this Statement.
(pppp) "SPECIAL REDEMPTION PROVISIONS" shall have the meaning specified in
subparagraph (a)(i) of Section 11 of Part I of this Statement.
7
<PAGE> 32
(qqqq) "SUBMISSION DEADLINE" shall mean 1:30 P.M., New York City time, on
any Auction Date or such other time on any Auction Date by which
Broker-Dealers are required to submit Orders to the Auction Agent as
specified by the Auction Agent from time to time.
(rrrr) "SUBMITTED BID" and "SUBMITTED BIDS" shall have the respective
meanings specified in paragraph (a) of Section 3 of Part II of this
Statement.
(ssss) "SUBMITTED HOLD ORDER" and "SUBMITTED HOLD ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of
this Statement.
(tttt) "SUBMITTED ORDER" and "SUBMITTED ORDERS" shall have the respective
meanings specified in paragraph (a) of Section 3 of Part II of this
Statement.
(uuuu) "SUBMITTED SELL ORDER" and "SUBMITTED SELL ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of
this Statement.
(vvvv) "SUBSEQUENT RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall mean the period from and including the first day
following the Transitional Rate Period (or, if no Transitional Rate Period,
the Initial Rate Period) of shares of such series to but excluding the next
Dividend Payment Date for shares of such series and any period thereafter
from and including one Dividend Payment Date for shares of such series to
but excluding the next succeeding Dividend Payment Date for shares of such
series; provided, however, that if any Subsequent Rate Period is also a
Special Rate Period, such term shall mean the period commencing on the
first day of such Special Rate Period and ending on the last day of the
last Dividend Period thereof.
(wwww) "SUBSTITUTE COMMERCIAL PAPER DEALER" shall mean The First Boston
Company or Morgan Stanley & Co. Incorporated or their respective affiliates
or successors, if such entity is a commercial paper dealer; provided,
however, that none of such entities shall be a Commercial Paper Dealer.
(xxxx) "SUBSTITUTE U.S. GOVERNMENT SECURITIES DEALER" shall mean The First
Boston Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated or
their respective affiliates or successors, if such entity is a U.S.
Government securities dealer; provided, however, that none of such entities
shall be a U.S. Government Securities Dealer.
(yyyy) "SUFFICIENT CLEARING BIDS" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(zzzz) "TAXABLE ALLOCATION" shall have the meaning specified in Section 3
of Part I of this Statement.
(aaaaa) "TAXABLE INCOME" shall have the meaning specified in Section 12 of
Appendix A hereto.
(bbbbb) "TAXABLE EQUIVALENT OF THE SHORT-TERM MUNICIPAL BOND RATE," on any
date for any Minimum Rate Period or Special Rate Period of 28 Rate Period
Days or fewer, shall mean 90% of the quotient of (A) the per annum rate
expressed on an interest equivalent basis equal to the Kenny S&P 30 day
High Grade Index or any successor index (the "Kenny Index") (provided,
however, that any such successor index must be approved by Moody's (if
Moody's is then rating the shares of MuniPreferred) and S&P (if S&P is then
rating the shares of MuniPreferred)), 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 S&P Evaluation Services or any
successor thereto, based upon 30-day yield evaluations at par of short-term
bonds the interest on which is excludable for regular Federal income tax
purposes under the Code of "high grade" component issuers selected by Kenny
S&P Evaluation Services or any such successor from time to time in its
discretion, which component issuers shall include, without limitation,
issuers of general obligation bonds, but shall exclude any bonds the
interest on which constitutes an item of tax preference under Section
57(a)(5) of the Code, or successor provisions, for purposes of the
"alternative minimum tax," divided by (B) 1.00 minus the maximum marginal
regular Federal individual income tax rate applicable to ordinary income or
the maximum marginal regular Federal corporate income tax rate applicable
to ordinary income (in each case expressed as a decimal), whichever is
greater; provided, however, that if the Kenny Index is not made so
available by 8:30 A.M., New York City time, on such date by Kenny S&P
Evaluation Services or any successor, the Taxable Equivalent of the
Short-Term Municipal Bond Rate shall mean the quotient of (A) the per annum
rate expressed on an interest equivalent basis equal to the most recent
Kenny Index so made available for any preceding Business Day, divided by
(B) 1.00 minus the maximum marginal regular Federal individual income tax
rate applicable to ordinary income or the maximum marginal regular Federal
corporate income tax rate applicable to ordinary income (in each case
expressed as a decimal), whichever is greater.
(ccccc) "TRANSITIONAL RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall have the meaning specified with respect to shares of
such series in Section 5 of Appendix A hereto.
(ddddd) "TREASURY BILL" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of 364 days or less.
(eeeee) "TREASURY BILL RATE," on any date for any Rate Period, shall mean
(i) the bond equivalent yield, calculated in accordance with prevailing
industry convention, of the rate on the most recently auctioned Treasury
Bill with a
8
<PAGE> 33
remaining maturity closest to the length of such Rate Period, as quoted in
The Wall Street Journal on such date for the Business Day next preceding
such date; or (ii) in the event that any such rate is not published in The
Wall Street Journal, then the bond equivalent yield, calculated in
accordance with prevailing industry convention, as calculated by reference
to the arithmetic average of the bid price quotations of the most recently
auctioned Treasury Bill with a remaining maturity closest to the length of
such Rate Period, as determined by bid price quotations as of the close of
business on the Business Day immediately preceding such date obtained from
the U.S. Government Securities Dealers to the Auction Agent.
(fffff) "TREASURY NOTE" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of five years or less
but more than 364 days.
(ggggg) "TREASURY NOTE RATE," on any date for any Rate Period, shall mean
(i) the yield on the most recently auctioned Treasury Note with a remaining
maturity closest to the length of such Rate Period, as quoted in The Wall
Street Journal on such date for the Business Day next preceding such date;
or (ii) in the event that any such rate is not published in The Wall Street
Journal, then the yield as calculated by reference to the arithmetic
average of the bid price quotations of the most recently auctioned Treasury
Note with a remaining maturity closest to the length of such Rate Period,
as determined by bid price quotations as of the close of business on the
Business Day immediately preceding such date obtained from the U.S.
Government Securities Dealers to the Auction Agent. If any U.S. Government
Securities Dealer does not quote a rate required to determine the Treasury
Bill Rate or the Treasury Note Rate, the Treasury Bill Rate or the Treasury
Note Rate shall be determined on the basis of the quotation or quotations
furnished by the remaining U.S. Government Securities Dealer or U.S.
Government Securities Dealers and any Substitute U.S. Government Securities
Dealers selected by the Fund to provide such rate or rates not being
supplied by any U.S. Government Securities Dealer or U.S. Government
Securities Dealers, as the case may be, or, if the Fund does not select any
such Substitute U.S. Government Securities Dealer or Substitute U.S.
Government Securities Dealers, by the remaining U.S. Government Securities
Dealer or U.S. Government Securities Dealers.
(hhhhh) "U.S. GOVERNMENT SECURITIES DEALER" shall mean Lehman Government
Securities Incorporated, Goldman, Sachs & Co., Salomon Brothers Inc and
Morgan Guaranty Trust Company of New York or their respective affiliates or
successors, if such entity is a U.S. Government securities dealer.
(iiiii) "VALUATION DATE" shall mean, for purposes of determining whether
the Fund is maintaining the MuniPreferred Basic Maintenance Amount, each
Business Day.
(jjjjj) "VOLATILITY FACTOR" shall mean, as of any Valuation Date, the
greater of the Moody's Volatility Factor and the S&P Volatility Factor.
(kkkkk) "VOTING PERIOD" shall have the meaning specified in paragraph (b)
of Section 5 of Part I of this Statement.
(lllll) "WINNING BID RATE" shall have the meaning specified in paragraph
(a) of Section 3 of Part II of this Statement.
Any additional definitions specifically set forth in Section 8 of Appendix A
hereto shall be incorporated herein and made part hereof by reference thereto.
9
<PAGE> 34
PART I
1. NUMBER OF AUTHORIZED SHARES.
The number of authorized shares constituting a series of MuniPreferred shall be
as set forth with respect to such series in Section 2 of Appendix A hereto.
2. DIVIDENDS.
(a) RANKING. The shares of a series of MuniPreferred shall rank on a parity with
each other, with shares of any other series of MuniPreferred and with shares of
any other series of Preferred Stock as to the payment of dividends by the Fund.
(b) CUMULATIVE CASH DIVIDENDS. The Holders of shares of MuniPreferred of any
series shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available therefor, cumulative cash dividends at
the Applicable Rate for shares of such series, determined as set forth in
paragraph (e) of this Section 2, and no more (except to the extent set forth in
Section 3 of this Part I), payable on the Dividend Payment Dates with respect to
shares of such series determined pursuant to paragraph (d) of this Section 2.
Holders of shares of MuniPreferred shall not be entitled to any dividend,
whether payable in cash, property or stock, in excess of full cumulative
dividends, as herein provided, on shares of MuniPreferred. No interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on shares of MuniPreferred which may be in arrears, and,
except to the extent set forth in subparagraph (e)(i) of this Section 2, no
additional sum of money shall be payable in respect of any such arrearage.
(c) DIVIDENDS CUMULATIVE FROM DATE OF ORIGINAL ISSUE. Dividends on shares of
MuniPreferred of any series shall accumulate at the Applicable Rate for shares
of such series from the Date of Original Issue thereof.
(d) DIVIDEND PAYMENT DATES AND ADJUSTMENT THEREOF. The Dividend Payment Dates
with respect to shares of a series of MuniPreferred shall be as set forth with
respect to shares of such series in Section 9 of Appendix A hereto; provided,
however, that:
(i) (A) in the case of a series of MuniPreferred designated as "Series F
MuniPreferred" or "Series M MuniPreferred" in Section 1 of Appendix A
hereto, if the Monday or Tuesday, as the case may be, on which dividends
would otherwise be payable on shares of such series is not a Business Day,
then such dividends shall be payable on such shares on the first Business
Day that falls after such Monday or Tuesday, as the case may be, and (B) in
the case of a series of MuniPreferred designated as "Series T
MuniPreferred," "Series W MuniPreferred" or "Series TH MuniPreferred" in
Section 1 of Appendix A hereto, if the Wednesday, Thursday or Friday, as
the case may be, on which dividends would otherwise be payable on shares of
such series is not a Business Day, then such dividends shall be payable on
such shares on the first Business Day that falls prior to such Wednesday,
Thursday or Friday, as the case may be; and
(ii) notwithstanding Section 9 of Appendix A hereto, the Fund in its
discretion may establish the Dividend Payment Dates in respect of any
Special Rate Period of shares of a series of MuniPreferred consisting of
more than 28 Rate Period Days; provided, however, that such dates shall be
set forth in the Notice of Special Rate Period relating to such Special
Rate Period, as delivered to the Auction Agent, which Notice of Special
Rate Period shall be filed with the Secretary of the Fund; and further
provided that (1) any such Dividend Payment Date shall be a Business Day
and (2) the last Dividend Payment Date in respect of such Special Rate
Period shall be the Business Day immediately following the last day
thereof, as such last day is determined in accordance with paragraph (b) of
Section 4 of this Part I.
(e) DIVIDEND RATES AND CALCULATION OF DIVIDENDS. (i) DIVIDEND RATES. The
dividend rate on shares of MuniPreferred of any series during the period from
and after the Date of Original Issue of shares of such series to and including
the last day of the Initial Rate Period of shares of such series shall be equal
to the rate per annum set forth with respect to shares of such series under
"Designation" in Section 1 of Appendix A hereto. For any Transitional Rate
Period and for each Subsequent Rate Period of shares of such series thereafter,
the dividend rate on shares of such series shall be equal to the rate per annum
that results from an Auction for shares of such series on the Auction Date next
preceding such Transitional Rate Period or Subsequent Rate Period, as the case
may be; provided, however, that if:
(A) an Auction for any such Transitional Rate Period or Subsequent Rate
Period is not held for any reason other than as described below, the
dividend rate on shares of such series for such Transitional Rate Period or
Subsequent Rate Period will be the Maximum Rate for shares of such series
on the Auction Date therefor;
(B) any Failure to Deposit shall have occurred with respect to shares of
such series during any Rate Period thereof (other than any Special Rate
Period consisting of more than 364 Rate Period Days or any Rate Period
succeeding any Special Rate Period consisting of more than 364 Rate Period
Days during which a Failure to Deposit occurred that has not been cured),
but, prior to 12:00 Noon, New York City time, on the third Business Day
next succeeding the date on which such Failure to Deposit occurred, such
Failure to Deposit shall have been cured in accordance with paragraph (f)
of this Section 2 and the Fund shall have paid to the Auction Agent a late
charge ("Late Charge") equal to the sum of (1) if such Failure to Deposit
consisted of the failure timely to pay to the Auction Agent the full amount
of dividends with respect to any Dividend Period of the shares of such
series, an amount computed by multiplying (x) 200% of the
10
<PAGE> 35
Reference Rate for the Rate Period during which such Failure to Deposit
occurs on the Dividend Payment Date for such Dividend Period by (y) a
fraction, the numerator of which shall be the number of days for which such
Failure to Deposit has not been cured in accordance with paragraph (f) of
this Section 2 (including the day such Failure to Deposit occurs and
excluding the day such Failure to Deposit is cured) and the denominator of
which shall be 360, and applying the rate obtained against the aggregate
Liquidation Preference of the outstanding shares of such series and (2) if
such Failure to Deposit consisted of the failure timely to pay to the
Auction Agent the Redemption Price of the shares, if any, of such series
for which Notice of Redemption has been mailed by the Fund pursuant to
paragraph (c) of Section 11 of this Part I, an amount computed by
multiplying (x) 200% of the Reference Rate for the Rate Period during which
such Failure to Deposit occurs on the redemption date by (y) a fraction,
the numerator of which shall be the number of days for which such Failure
to Deposit is not cured in accordance with paragraph (f) of this Section 2
(including the day such Failure to Deposit occurs and excluding the day
such Failure to Deposit is cured) and the denominator of which shall be
360, and applying the rate obtained against the aggregate Liquidation
Preference of the outstanding shares of such series to be redeemed, no
Auction will be held in respect of shares of such series for the
Transitional Rate Period or Subsequent Rate Period thereof and the dividend
rate for shares of such series for such Transitional Rate Period or
Subsequent Rate Period will be the Maximum Rate for shares of such series
on the Auction Date for such Transitional Rate Period or Subsequent Rate
Period;
(C) any Failure to Deposit shall have occurred with respect to shares of
such series during any Rate Period thereof (other than any Special Rate
Period consisting of more than 364 Rate Period Days or any Rate Period
succeeding any Special Rate Period consisting of more than 364 Rate Period
Days during which a Failure to Deposit occurred that has not been cured),
and, prior to 12:00 Noon, New York City time, on the third Business Day
next succeeding the date on which such Failure to Deposit occurred, such
Failure to Deposit shall not have been cured in accordance with paragraph
(f) of this Section 2 or the Fund shall not have paid the applicable Late
Charge to the Auction Agent, no Auction will be held in respect of shares
of such series for the Transitional Rate Period or first Subsequent Rate
Period thereof thereafter (or for any Rate Period thereof thereafter to and
including the Rate Period during which (1) such Failure to Deposit is cured
in accordance with paragraph (f) of this Section 2 and (2) the Fund pays
the applicable Late Charge to the Auction Agent (the condition set forth in
this clause (2) to apply only in the event Moody's is rating such shares at
the time the Fund cures such Failure to Deposit), in each case no later
than 12:00 Noon, New York City time, on the fourth Business Day prior to
the end of such Rate Period), and the dividend rate for shares of such
series for the Transitional Rate Period or each such Subsequent Rate Period
shall be a rate per annum equal to the Maximum Rate for shares of such
series on the Auction Date for such Transitional Rate Period or Subsequent
Rate Period (but with the prevailing rating for shares of such series, for
purposes of determining such Maximum Rate, being deemed to be "Below
"ba3'/BB-"); or
(D) any Failure to Deposit shall have occurred with respect to shares of
such series during a Special Rate Period thereof consisting of more than
364 Rate Period Days, or during any Rate Period thereof succeeding any
Special Rate Period consisting of more than 364 Rate Period Days during
which a Failure to Deposit occurred that has not been cured, and, prior to
12:00 Noon, New York City time, on the fourth Business Day preceding the
Auction Date for the Rate Period subsequent to such Rate Period, such
Failure to Deposit shall not have been cured in accordance with paragraph
(f) of this Section 2 or, in the event Moody's is then rating such shares,
the Fund shall not have paid the applicable Late Charge to the Auction
Agent (such Late Charge, for purposes of this subparagraph (D), to be
calculated by using, as the Reference Rate, the Reference Rate applicable
to a Rate Period (x) consisting of more than 182 Rate Period Days but fewer
than 365 Rate Period Days and (y) commencing on the date on which the Rate
Period during which Failure to Deposit occurs commenced), no Auction will
be held in respect of shares of such series for such Subsequent Rate Period
(or for any Rate Period thereof thereafter to and including the Rate Period
during which (1) such Failure to Deposit is cured in accordance with
paragraph (f) of this Section 2 and (2) the Fund pays the applicable Late
Charge to the Auction Agent (the condition set forth in this clause (2) to
apply only in the event Moody's is rating such shares at the time the Fund
cures such Failure to Deposit), in each case no later than 12:00 Noon, New
York City time, on the fourth Business Day prior to the end of such Rate
Period), and the dividend rate for shares of such series for each such
Subsequent Rate Period shall be a rate per annum equal to the Maximum Rate
for shares of such series on the Auction Date for such Subsequent Rate
Period (but with the prevailing rating for shares of such series, for
purposes of determining such Maximum Rate, being deemed to be "Below
"ba3'/BB-") (the rate per annum at which dividends are payable on shares of
a series of MuniPreferred for any Rate Period thereof being herein referred
to as the "Applicable Rate" for shares of such series).
(ii) CALCULATION OF DIVIDENDS. The amount of dividends per share payable on
shares of a series of MuniPreferred on any date on which dividends shall be
payable on shares of such series shall be computed by multiplying the Applicable
Rate for shares of such series in effect for such Dividend Period or Dividend
Periods or part thereof for which dividends have not been paid by a fraction,
the numerator of which shall be the number of days in such Dividend Period or
Dividend Periods or part thereof and the denominator of which shall be 365 if
such Dividend Period consists of 7 Rate Period Days and 360 for all other
Dividend Periods, and applying the rate obtained against $25,000.
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<PAGE> 36
(f) CURING A FAILURE TO DEPOSIT. A Failure to Deposit with respect to shares of
a series of MuniPreferred shall have been cured (if such Failure to Deposit is
not solely due to the willful failure of the Fund to make the required payment
to the Auction Agent) with respect to any Rate Period of shares of such series
if, within the respective time periods described in subparagraph (e)(i) of this
Section 2, the Fund shall have paid to the Auction Agent (A) all accumulated and
unpaid dividends on shares of such series and (B) without duplication, the
Redemption Price for shares, if any, of such series for which Notice of
Redemption has been mailed by the Fund pursuant to paragraph (c) of Section 11
of Part I of this Statement; provided, however, that the foregoing clause (B)
shall not apply to the Fund's failure to pay the Redemption Price in respect of
shares of MuniPreferred when the related Redemption Notice provides that
redemption of such shares is subject to one or more conditions precedent and any
such condition precedent shall not have been satisfied at the time or times and
in the manner specified in such Notice of Redemption.
(g) DIVIDEND PAYMENTS BY FUND TO AUCTION AGENT. The Fund shall pay to the
Auction Agent, not later than 12:00 Noon, New York City time, on the Business
Day next preceding each Dividend Payment Date for shares of a series of
MuniPreferred, an aggregate amount of funds available on the next Business Day
in The City of New York, New York, equal to the dividends to be paid to all
Holders of shares of such series on such Dividend Payment Date.
(h) AUCTION AGENT AS TRUSTEE OF DIVIDEND PAYMENTS BY FUND. All moneys paid to
the Auction Agent for the payment of dividends (or for the payment of any Late
Charge) shall be held in trust for the payment of such dividends (and any such
Late Charge) by the Auction Agent for the benefit of the Holders specified in
paragraph (i) of this Section 2. Any moneys paid to the Auction Agent in
accordance with the foregoing but not applied by the Auction Agent to the
payment of dividends (and any such Late Charge) will, to the extent permitted by
law, be repaid to the Fund at the end of 90 days from the date on which such
moneys were so to have been applied.
(i) DIVIDENDS PAID TO HOLDERS. Each dividend on shares of MuniPreferred shall be
paid on the Dividend Payment Date therefor to the Holders thereof as their names
appear on the stock books of the Fund on the Business Day next preceding such
Dividend Payment Date.
(j) DIVIDENDS CREDITED AGAINST EARLIEST ACCUMULATED BUT UNPAID DIVIDENDS. Any
dividend payment made on shares of MuniPreferred shall first be credited against
the earliest accumulated but unpaid dividends due with respect to such shares.
Dividends in arrears for any past Dividend Period may be declared and paid at
any time, without reference to any regular Dividend Payment Date, to the Holders
as their names appear on the stock books of the Fund on such date, not exceeding
15 days preceding the payment date thereof, as may be fixed by the Board of
Directors.
(k) DIVIDENDS DESIGNATED AS EXEMPT-INTEREST DIVIDENDS. Dividends on shares of
MuniPreferred shall be designated as exempt-interest dividends up to the amount
of tax-exempt income of the Fund, to the extent permitted by, and for purposes
of, Section 852 of the Code.
3. GROSS-UP PAYMENTS.
Holders of shares of MuniPreferred shall be entitled to receive, when, as and if
declared by the Board of Directors, out of funds legally available therefor,
dividends in an amount equal to the aggregate Gross-up Payments as follows:
(a) MINIMUM RATE PERIODS AND SPECIAL RATE PERIODS OF 28 RATE PERIOD DAYS OR
FEWER. If, in the case of any Minimum Rate Period or any Special Rate
Period of 28 Rate Period Days or fewer, the Fund allocates any net capital
gains or other income taxable for Federal income tax purposes to a dividend
paid on shares of MuniPreferred without having given advance notice thereof
to the Auction Agent as provided in Section 5 of Part II of this Statement
(such allocation being referred to herein as a "Taxable Allocation") solely
by reason of the fact that such allocation is made retroactively as a
result of the redemption of all or a portion of the outstanding shares of
MuniPreferred or the liquidation of the Fund, the Fund shall, prior to the
end of the calendar year in which such dividend was paid, provide notice
thereof to the Auction Agent and direct the Fund's dividend disbursing
agent to send such notice with a Gross-up Payment to each Holder of such
shares that was entitled to such dividend payment during such calendar year
at such Holder's address as the same appears or last appeared on the stock
books of the Fund.
(b) SPECIAL RATE PERIODS OF MORE THAN 28 RATE PERIOD DAYS. If, in the case
of any Special Rate Period of more than 28 Rate Period Days, the Fund makes
a Taxable Allocation to a dividend paid on shares of MuniPreferred, the
Fund shall, prior to the end of the calendar year in which such dividend
was paid, provide notice thereof to the Auction Agent and direct the Fund's
dividend disbursing agent to send such notice with a Gross-up Payment to
each Holder of shares that was entitled to such dividend payment during
such calendar year at such Holder's address as the same appears or last
appeared on the stock books of the Fund.
(c) NO GROSS-UP PAYMENTS IN THE EVENT OF A REALLOCATION. The Fund shall not
be required to make Gross-up Payments with respect to any net capital gains
or other taxable income determined by the Internal Revenue Service to be
allocable in a manner different from that allocated by the Fund.
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<PAGE> 37
4. DESIGNATION OF SPECIAL RATE PERIODS.
(a) LENGTH OF AND PRECONDITIONS FOR SPECIAL RATE PERIOD. The Fund, at its
option, may designate any succeeding Subsequent Rate Period of shares of a
series of MuniPreferred as a Special Rate Period consisting of a specified
number of Rate Period Days evenly divisible by seven and not more than 1,820,
subject to adjustment as provided in paragraph (b) of this Section 4. A
designation of a Special Rate Period shall be effective only if (A) notice
thereof shall have been given in accordance with paragraph (c) and subparagraph
(d)(i) of this Section 4, (B) an Auction for shares of such series shall have
been held on the Auction Date immediately preceding the first day of such
proposed Special Rate Period and Sufficient Clearing Bids for shares of such
series shall have existed in such Auction, and (C) if any Notice of Redemption
shall have been mailed by the Fund pursuant to paragraph (c) of Section 11 of
this Part I with respect to any shares of such series, the Redemption Price with
respect to such shares shall have been deposited with the Auction Agent. In the
event the Fund wishes to designate any succeeding Subsequent Rate Period for
shares of a series of MuniPreferred as a Special Rate Period consisting of more
than 28 Rate Period Days, the Fund shall notify S&P (if S&P is then rating such
series) and Moody's (if Moody's is then rating such series) in advance of the
commencement of such Subsequent Rate Period that the Fund wishes to designate
such Subsequent Rate Period as a Special Rate Period and shall provide S&P (if
S&P is then rating such series) and Moody's (if Moody's is then rating such
series) with such documents as either may request.
(b) ADJUSTMENT OF LENGTH OF SPECIAL RATE PERIOD. In the event the Fund wishes to
designate a Subsequent Rate Period as a Special Rate Period, but the day
following what would otherwise be the last day of such Special Rate Period is
not (a) a Tuesday that is a Business Day in the case of a series of
MuniPreferred designated as "Series M MuniPreferred" in Section 1 of Appendix A
hereto, (b) a Wednesday that is a Business Day in the case of a series of
MuniPreferred designated as "Series T MuniPreferred" in Section 1 of Appendix A
hereto, (c) a Thursday that is a Business Day in the case of a series of
MuniPreferred designated as "Series W MuniPreferred" in Section 1 of Appendix A
hereto, (d) a Friday that is a Business Day in the case of a series of
MuniPreferred designated as "Series TH MuniPreferred" in Section 1 of Appendix A
hereto, or (e) a Monday that is a Business Day in the case of a series of
MuniPreferred designated as "Series F MuniPreferred" in Section 1 of Appendix A
hereto, then the Fund shall designate such Subsequent Rate Period as a Special
Rate Period consisting of the period commencing on the first day following the
end of the immediately preceding Rate Period and ending (a) on the first Monday
that is followed by a Tuesday that is a Business Day preceding what would
otherwise be such last day, in the case of Series M MuniPreferred, (b) on the
first Tuesday that is followed by a Wednesday that is a Business Day preceding
what would otherwise be such last day, in the case of Series T MuniPreferred,
(c) on the first Wednesday that is followed by a Thursday that is a Business Day
preceding what would otherwise be such last day, in the case of Series W
MuniPreferred, (d) on the first Thursday that is followed by a Friday that is a
Business Day preceding what would otherwise be such last day, in the case of
Series TH MuniPreferred, and (e) on the first Sunday that is followed by a
Monday that is a Business Day preceding what would otherwise be such last day,
in the case of Series F MuniPreferred.
(c) NOTICE OF PROPOSED SPECIAL RATE PERIOD. If the Fund proposes to designate
any succeeding Subsequent Rate Period of shares of a series of MuniPreferred as
a Special Rate Period pursuant to paragraph (a) of this Section 4, not less than
20 (or such lesser number of days as may be agreed to from time to time by the
Auction Agent) nor more than 30 days prior to the date the Fund proposes to
designate as the first day of such Special Rate Period (which shall be such day
that would otherwise be the first day of a Minimum Rate Period), notice shall be
(i) published or caused to be published by the Fund in a newspaper of general
circulation to the financial community in The City of New York, New York, which
carries financial news, and (ii) mailed by the Fund by first-class mail, postage
prepaid, to the Holders of shares of such series. Each such notice shall state
(A) that the Fund may exercise its option to designate a succeeding Subsequent
Rate Period of shares of such series as a Special Rate Period, specifying the
first day thereof and (B) that the Fund will, by 11:00 A.M., New York City time,
on the second Business Day next preceding such date (or by such later time or
date, or both, as may be agreed to by the Auction Agent) notify the Auction
Agent of either (x) its determination, subject to certain conditions, to
exercise such option, in which case the Fund shall specify the Special Rate
Period designated, or (y) its determination not to exercise such option.
(d) NOTICE OF SPECIAL RATE PERIOD. No later than 11:00 A.M., New York City time,
on the second Business Day next preceding the first day of any proposed Special
Rate Period of shares of a series of MuniPreferred as to which notice has been
given as set forth in paragraph (c) of this Section 4 (or such later time or
date, or both, as may be agreed to by the Auction Agent), the Fund shall deliver
to the Auction Agent either:
(i) a notice ("Notice of Special Rate Period") stating (A) that the Fund
has determined to designate the next succeeding Rate Period of shares of
such series as a Special Rate Period, specifying the same and the first day
thereof, (B) the Auction Date immediately prior to the first day of such
Special Rate Period, (C) that such Special Rate Period shall not commence
if (1) an Auction for shares of such series shall not be held on such
Auction Date for any reason or (2) an Auction for shares of such series
shall be held on such Auction Date but Sufficient Clearing Bids for shares
of such series shall not exist in such Auction, (D) the scheduled Dividend
Payment Dates for shares of such series during such Special Rate Period and
(E) the Special Redemption Provisions, if any, applicable to shares of such
series in respect of such Special Rate Period; such notice to be
accompanied by a MuniPreferred Basic Maintenance Report showing that, as of
the third Business Day next preceding such proposed Special Rate Period,
Moody's Eligible Assets (if Moody's is then rating such series) and S&P
Eligible Assets (if S&P is then rating such series) each have an
13
<PAGE> 38
aggregate Discounted Value at least equal to the MuniPreferred Basic
Maintenance Amount as of such Business Day (assuming for purposes of the
foregoing calculation that (a) the Maximum Rate is the Maximum Rate on such
Business Day as if such Business Day were the Auction Date for the proposed
Special Rate Period, and (b) the Moody's Discount Factors applicable to
Moody's Eligible Assets are determined by reference to the first Exposure
Period longer than the Exposure Period then applicable to the Fund, as
described in the definition of Moody's Discount Factor herein); or
(ii) a notice stating that the Fund has determined not to exercise its
option to designate a Special Rate Period of shares of such series and that
the next succeeding Rate Period of shares of such series shall be a Minimum
Rate Period.
(e) FAILURE TO DELIVER NOTICE OF SPECIAL RATE PERIOD. If the Fund fails to
deliver either of the notices described in subparagraphs (d)(i) or (d)(ii) of
this Section 4 (and, in the case of the notice described in subparagraph (d)(i)
of this Section 4, a MuniPreferred Basic Maintenance Report to the effect set
forth in such subparagraph (if either Moody's or S&P is then rating the series
in question)) with respect to any designation of any proposed Special Rate
Period to the Auction Agent by 11:00 A.M., New York City time, on the second
Business Day next preceding the first day of such proposed Special Rate Period
(or by such later time or date, or both, as may be agreed to by the Auction
Agent), the Fund shall be deemed to have delivered a notice to the Auction Agent
with respect to such Special Rate Period to the effect set forth in subparagraph
(d)(ii) of this Section 4. In the event the Fund delivers to the Auction Agent a
notice described in subparagraph (d)(i) of this Section 4, it shall file a copy
of such notice with the Secretary of the Fund, and the contents of such notice
shall be binding on the Fund. In the event the Fund delivers to the Auction
Agent a notice described in subparagraph (d)(ii) of this Section 4, the Fund
will provide Moody's (if Moody's is then rating the series in question) and S&P
(if S&P is then rating the series in question) a copy of such notice.
5. VOTING RIGHTS.
(a) ONE VOTE PER SHARE OF MUNIPREFERRED. Except as otherwise provided in the
Articles or as otherwise required by law, (i) each Holder of shares of
MuniPreferred shall be entitled to one vote for each share of MuniPreferred held
by such Holder on each matter submitted to a vote of shareholders of the Fund,
and (ii) the holders of outstanding shares of Preferred Stock, including each
share of MuniPreferred, and of shares of Common Stock shall vote together as a
single class; provided, however, that, at any meeting of the shareholders of the
Fund held for the election of directors, the holders of outstanding shares of
Preferred Stock, including MuniPreferred, represented in person or by proxy at
said meeting, shall be entitled, as a class, to the exclusion of the holders of
all other securities and classes of capital stock of the Fund, to elect two
directors of the Fund, each share of Preferred Stock, including each share of
MuniPreferred, entitling the holder thereof to one vote. Subject to paragraph
(b) of this Section 5, the holders of outstanding shares of Common Stock and
Preferred Stock, including MuniPreferred, voting together as a single class,
shall elect the balance of the directors.
(b) VOTING FOR ADDITIONAL DIRECTORS. (i) VOTING PERIOD. During any period in
which any one or more of the conditions described in subparagraphs (A) or (B) of
this subparagraph (b)(i) shall exist (such period being referred to herein as a
"Voting Period"), the number of directors constituting the Board of Directors
shall be automatically increased by the smallest number that, when added to the
two directors elected exclusively by the holders of shares of Preferred Stock,
including shares of MuniPreferred, would constitute a majority of the Board of
Directors as so increased by such smallest number; and the holders of shares of
Preferred Stock, including MuniPreferred, shall be entitled, voting as a class
on a one-vote-per-share basis (to the exclusion of the holders of all other
securities and classes of capital stock of the Fund), to elect such smallest
number of additional directors, together with the two directors that such
holders are in any event entitled to elect. A Voting Period shall commence:
(A) if at the close of business on any dividend payment date accumulated
dividends (whether or not earned or declared) on any outstanding share of
Preferred Stock, including MuniPreferred, equal to at least two full years'
dividends shall be due and unpaid and sufficient cash or specified
securities shall not have been deposited with the Auction Agent for the
payment of such accumulated dividends; or
(B) if at any time holders of shares of Preferred Stock are entitled under
the 1940 Act to elect a majority of the directors of the Fund.
Upon the termination of a Voting Period, the voting rights described in this
subparagraph (b)(i) shall cease, subject always, however, to the revesting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this subparagraph (b)(i).
(ii) NOTICE OF SPECIAL MEETING. As soon as practicable after the accrual of
any right of the holders of shares of Preferred Stock to elect additional
directors as described in subparagraph (b)(i) of this Section 5, the Fund
shall notify the Auction Agent and the Auction Agent shall call a special
meeting of such holders, by mailing a notice of such special meeting to
such holders, such meeting to be held not less than 10 nor more than 20
days after the date of mailing of such notice. If the Fund fails to send
such notice to the Auction Agent or if the Auction Agent does not call such
a special meeting, it may be called by any such holder on like notice. The
record date for determining the holders entitled to notice of and to vote
at such special meeting shall be the close of business on the fifth
Business Day
14
<PAGE> 39
preceding the day on which such notice is mailed. At any such special
meeting and at each meeting of holders of shares of Preferred Stock held
during a Voting Period at which directors are to be elected, such holders,
voting together as a class (to the exclusion of the holders of all other
securities and classes of capital stock of the Fund), shall be entitled to
elect the number of directors prescribed in subparagraph (b)(i) of this
Section 5 on a one-vote-per-share basis.
(iii) TERMS OF OFFICE OF EXISTING DIRECTORS. The terms of office of all
persons who are directors of the Fund at the time of a special meeting of
Holders and holders of other Preferred Stock to elect directors shall
continue, notwithstanding the election at such meeting by the Holders and
such other holders of the number of directors that they are entitled to
elect, and the persons so elected by the Holders and such other holders,
together with the two incumbent directors elected by the Holders and such
other holders of Preferred Stock and the remaining incumbent directors
elected by the holders of the Common Stock and Preferred Stock, shall
constitute the duly elected directors of the Fund.
(iv) TERMS OF OFFICE OF CERTAIN DIRECTORS TO TERMINATE UPON TERMINATION OF
VOTING PERIOD. Simultaneously with the termination of a Voting Period, the
terms of office of the additional directors elected by the Holders and
holders of other Preferred Stock pursuant to subparagraph (b)(i) of this
Section 5 shall terminate, the remaining directors shall constitute the
directors of the Fund and the voting rights of the Holders and such other
holders to elect additional directors pursuant to subparagraph (b)(i) of
this Section 5 shall cease, subject to the provisions of the last sentence
of subparagraph (b)(i) of this Section 5.
(c) HOLDERS OF MUNIPREFERRED TO VOTE ON CERTAIN OTHER MATTERS. (i) INCREASES IN
CAPITALIZATION. So long as any shares of MuniPreferred are outstanding, the Fund
shall not, without the affirmative vote or consent of the Holders of at least a
majority of the shares of MuniPreferred outstanding at the time, in person or by
proxy, either in writing or at a meeting, voting as a separate class: (a)
authorize, create or issue any class or series of stock ranking prior to or on a
parity with shares of MuniPreferred with respect to the payment of dividends or
the distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Fund, or authorize, create or issue additional shares of any
series of MuniPreferred (except that, notwithstanding the foregoing, but subject
to the provisions of paragraph (c) of Section 10 of this Part I, the Board of
Directors, without the vote or consent of the Holders of MuniPreferred, may from
time to time authorize and create, and the Fund may from time to time issue,
additional shares of any series of MuniPreferred or classes or series of
Preferred Stock ranking on a parity with shares of MuniPreferred with respect to
the payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Fund; provided, however, that if
Moody's or S&P is not then rating the shares of MuniPreferred, the aggregate
liquidation preference of all Preferred Stock of the Fund outstanding after any
such issuance, exclusive of accumulated and unpaid dividends, may not exceed the
amount set forth in Section 10 of Appendix A hereto) or (b) amend, alter or
repeal the provisions of the Articles, including this Statement, whether by
merger, consolidation or otherwise, so as to affect any preference, right or
power of such shares of MuniPreferred or the Holders thereof; provided, however,
that (i) none of the actions permitted by the exception to (a) above will be
deemed to affect such preferences, rights or powers, (ii) a division of a share
of MuniPreferred will be deemed to affect such preferences, rights or powers
only if the terms of such division adversely affect the Holders of shares of
MuniPreferred and (iii) the authorization, creation and issuance of classes or
series of stock ranking junior to shares of MuniPreferred with respect to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Fund, will be deemed to affect
such preferences, rights or powers only if Moody's or S&P is then rating shares
of MuniPreferred and such issuance would, at the time thereof, cause the Fund
not to satisfy the 1940 Act MuniPreferred Asset Coverage or the MuniPreferred
Basic Maintenance Amount. So long as any shares of MuniPreferred are
outstanding, the Fund shall not, without the affirmative vote or consent of the
Holders of at least 66 2/3% of the shares of MuniPreferred outstanding at the
time, in person or by proxy, either in writing or at a meeting, voting as a
separate class, file a voluntary application for relief under Federal bankruptcy
law or any similar application under state law for so long as the Fund is
solvent and does not foresee becoming insolvent. To the extent that shares of
MuniPreferred constitute a series of stock under Minnesota law and to the extent
the Holders of such shares are empowered under the Minnesota Business
Corporation Act to vote as a class on the actions set forth above in this
subparagraph (c)(i), the Fund shall not approve any such action without the
affirmative vote or consent of the Holders of at least a majority of the shares
of MuniPreferred of such series outstanding at the time, in person or by proxy,
either in writing or at a meeting (voting as a separate class).
(ii) 1940 ACT MATTERS. Unless a higher percentage is provided for in the
Articles, (A) the affirmative vote of the Holders of at least a majority of
the shares of Preferred Stock, including MuniPreferred, outstanding at the
time, voting as a separate class, shall be required to approve any
conversion of the Fund from a closed-end to an open-end investment company
and (B) the affirmative vote of the Holders of a "majority of the
outstanding shares of Preferred Stock," including MuniPreferred, voting as
a separate class, shall be required to approve any plan of reorganization
(as such term is used in the 1940 Act) adversely affecting such shares. The
affirmative vote of the Holders of a "majority of the outstanding shares of
Preferred Stock," including MuniPreferred, voting as a separate class,
shall be required to approve any action not described in the first sentence
of this Section 5(c)(ii) requiring a vote of security holders of the Fund
under Section 13(a) of the 1940 Act. For purposes of the foregoing,
"majority of the outstanding shares of
15
<PAGE> 40
Preferred Stock" means (i) 67% or more of such shares present at a meeting,
if the Holders of more than 50% of such shares are present or represented
by proxy, or (ii) more than 50% of such shares, whichever is less. In the
event a vote of Holders of MuniPreferred is required pursuant to the
provisions of Section 13(a) of the 1940 Act, the Fund shall, not later than
ten Business Days prior to the date on which such vote is to be taken,
notify Moody's (if Moody's is then rating the shares of MuniPreferred) and
S&P (if S&P is then rating the shares of MuniPreferred) that such vote is
to be taken and the nature of the action with respect to which such vote is
to be taken. The Fund shall, not later than ten Business Days after the
date on which such vote is taken, notify Moody's (if Moody's is then rating
the shares of MuniPreferred) of the results of such vote.
(d) BOARD MAY TAKE CERTAIN ACTIONS WITHOUT SHAREHOLDER APPROVAL. The Board of
Directors, without the vote or consent of the shareholders of the Fund, may from
time to time amend, alter or repeal any or all of the definitions of the terms
listed below, or any provision of this Statement viewed by Moody's or S&P as a
predicate for any such definition, and any such amendment, alteration or repeal
will not be deemed to affect the preferences, rights or powers of shares of
MuniPreferred or the Holders thereof; provided, however, that the Board of
Directors receives written confirmation from Moody's (such confirmation being
required to be obtained only in the event Moody's is rating the shares of
MuniPreferred and in no event being required to be obtained in the case of the
definitions of (x) Deposit Securities, Discounted Value, Receivables for
Municipal Obligations Sold, Issue Type Category and Other Issues as such terms
apply to S&P Eligible Assets and (y) S&P Discount Factor, S&P Eligible Asset,
S&P Exposure Period and S&P Volatility Factor) and S&P (such confirmation being
required to be obtained only in the event S&P is rating the shares of
MuniPreferred and in no event being required to be obtained in the case of the
definitions of (x) Discounted Value, Receivables for Municipal Obligations Sold,
Issue Type Category and Other Issues as such terms apply to Moody's Eligible
Assets, and (y) Moody's Discount Factor, Moody's Eligible Asset, Moody's
Exposure Period and Moody's Volatility Factor) that any such amendment,
alteration or repeal would not impair the ratings then assigned by Moody's or
S&P, as the case may be, to shares of MuniPreferred:
<TABLE>
<S> <C>
Deposit Securities Moody's Volatility Factor
Discounted Value 1940 Act Cure Date
Escrowed Bonds 1940 Act MuniPreferred Asset Coverage
Issue Type Category Other Issues
Market Value Quarterly Valuation Date
Maximum Potential Gross-up Payment Liability Receivables for Municipal Obligations Sold
MuniPreferred Basic Maintenance Amount S&P Discount Factor
MuniPreferred Basic Maintenance Cure Date S&P Eligible Asset
MuniPreferred Basic Maintenance Report S&P Exposure Period
Moody's Discount Factor S&P Volatility Factor
Moody's Eligible Asset Valuation Date
Moody's Exposure Period Volatility Factor
</TABLE>
(e) VOTING RIGHTS SET FORTH HEREIN ARE SOLE VOTING RIGHTS. Unless otherwise
required by law, the Holders of shares of MuniPreferred shall not have any
relative rights or preferences or other special rights other than those
specifically set forth herein.
(f) NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING. The Holders of shares of
MuniPreferred shall have no preemptive rights or rights to cumulative voting.
(g) VOTING FOR DIRECTORS SOLE REMEDY FOR FUND'S FAILURE TO PAY DIVIDENDS. In the
event that the Fund fails to pay any dividends on the shares of MuniPreferred,
the exclusive remedy of the Holders shall be the right to vote for directors
pursuant to the provisions of this Section 5.
(h) HOLDERS ENTITLED TO VOTE. For purposes of determining any rights of the
Holders to vote on any matter, whether such right is created by this Statement,
by the other provisions of the Articles, by statute or otherwise, no Holder
shall be entitled to vote any share of MuniPreferred and no share of
MuniPreferred shall be deemed to be "outstanding" for the purpose of voting or
determining the number of shares required to constitute a quorum if, prior to or
concurrently with the time of determination of shares entitled to vote or shares
deemed outstanding for quorum purposes, as the case may be, the requisite Notice
of Redemption with respect to such shares shall have been mailed as provided in
paragraph (c) of Section 11 of this Part I and the Redemption Price for the
redemption of such shares shall have been deposited in trust with the Auction
Agent for that purpose. No share of MuniPreferred held by the Fund or any
affiliate of the Fund (except for shares held by a Broker-Dealer that is an
affiliate of the Fund for the account of its customers) shall have any voting
rights or be deemed to be outstanding for voting or other purposes.
6. 1940 ACT MUNIPREFERRED ASSET COVERAGE.
The Fund shall maintain, as of the last Business Day of each month in which any
share of MuniPreferred is outstanding, the 1940 Act MuniPreferred Asset
Coverage.
16
<PAGE> 41
7. MUNIPREFERRED BASIC MAINTENANCE AMOUNT.
(a) So long as shares of MuniPreferred are outstanding, the Fund shall maintain,
on each Valuation Date, and shall verify to its satisfaction that it is
maintaining on such Valuation Date, (i) S&P Eligible Assets having an aggregate
Discounted Value equal to or greater than the MuniPreferred Basic Maintenance
Amount (if S&P is then rating the shares of MuniPreferred) and (ii) Moody's
Eligible Assets having an aggregate Discounted Value equal to or greater than
the MuniPreferred Basic Maintenance Amount (if Moody's is then rating the shares
of MuniPreferred).
(b) On or before 5:00 P.M., New York City time, on the third Business Day after
a Valuation Date on which the Fund fails to satisfy the MuniPreferred Basic
Maintenance Amount, and on the third Business Day after the MuniPreferred Basic
Maintenance Cure Date with respect to such Valuation Date, the Fund shall
complete and deliver to S&P (if S&P is then rating the shares of MuniPreferred),
Moody's (if Moody's is then rating the shares of MuniPreferred) and the Auction
Agent (if either S&P or Moody's is then rating the shares of MuniPreferred) a
MuniPreferred Basic Maintenance Report as of the date of such failure or such
MuniPreferred Basic Maintenance Cure Date, as the case may be, which will be
deemed to have been delivered to the Auction Agent if the Auction Agent receives
a copy or telecopy, telex or other electronic transcription thereof and on the
same day the Fund mails to the Auction Agent for delivery on the next Business
Day the full MuniPreferred Basic Maintenance Report. The Fund shall also deliver
a MuniPreferred Basic Maintenance Report to (i) the Auction Agent (if either
Moody's or S&P is then rating the shares of MuniPreferred) as of (A) the
fifteenth day of each month (or, if such day is not a Business Day, the next
succeeding Business Day) and (B) the last Business Day of each month, (ii)
Moody's (if Moody's is then rating the shares of MuniPreferred) and S&P (if S&P
is then rating the shares of MuniPreferred) as of any Quarterly Valuation Date,
in each case on or before the third Business Day after such day, and (iii) S&P,
if and when requested for any Valuation Date, on or before the third Business
Day after such request. A failure by the Fund to deliver a MuniPreferred Basic
Maintenance Report pursuant to the preceding sentence shall be deemed to be
delivery of a MuniPreferred Basic Maintenance Report indicating the Discounted
Value for all assets of the Fund is less than the MuniPreferred Basic
Maintenance Amount, as of the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery of a MuniPreferred Basic
Maintenance Report in accordance with paragraph (b) of this Section 7 relating
to a Quarterly Valuation Date, the Fund shall cause the Independent Accountant
to confirm in writing to S&P (if S&P is then rating the shares of
MuniPreferred), Moody's (if Moody's is then rating the shares of MuniPreferred)
and the Auction Agent (if either S&P or Moody's is then rating the shares of
MuniPreferred) (i) the mathematical accuracy of the calculations reflected in
such Report (and in any other MuniPreferred Basic Maintenance Report, randomly
selected by the Independent Accountant, that was delivered by the Fund during
the quarter ending on such Quarterly Valuation Date) and (ii) that, in such
Report (and in such randomly selected Report), the Fund determined in accordance
with this Statement whether the Fund had, at such Quarterly Valuation Date (and
at the Valuation Date addressed in such randomly-selected Report), S&P Eligible
Assets (if S&P is then rating the shares of MuniPreferred) of an aggregate
Discounted Value at least equal to the MuniPreferred Basic Maintenance Amount
and Moody's Eligible Assets (if Moody's is then rating the shares of
MuniPreferred) of an aggregate Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount (such confirmation being herein called
the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery of a MuniPreferred Basic
Maintenance Report in accordance with paragraph (b) of this Section 7 relating
to any Valuation Date on which the Fund failed to satisfy the MuniPreferred
Basic Maintenance Amount, and relating to the MuniPreferred Basic Maintenance
Cure Date with respect to such failure to satisfy the MuniPreferred Basic
Maintenance Amount, the Fund shall cause the Independent Accountant to provide
to S&P (if S&P is then rating the shares of MuniPreferred), Moody's (if Moody's
is then rating the shares of MuniPreferred) and the Auction Agent (if either S&P
or Moody's is then rating the shares of MuniPreferred) an Accountant's
Confirmation as to such MuniPreferred Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to paragraph (c) or (d)
of this Section 7 shows that an error was made in the MuniPreferred Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation was required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all S&P Eligible Assets (if S&P is then
rating the shares of MuniPreferred) or Moody's Eligible Assets (if Moody's is
then rating the shares of MuniPreferred), as the case may be, of the Fund was
determined by the Independent Accountant, the calculation or determination made
by such Independent Accountant shall be final and conclusive and shall be
binding on the Fund, and the Fund shall accordingly amend and deliver the
MuniPreferred Basic Maintenance Report to S&P (if S&P is then rating the shares
of MuniPreferred), Moody's (if Moody's is then rating the shares of
MuniPreferred) and the Auction Agent (if either S&P or Moody's is then rating
the shares of MuniPreferred) promptly following receipt by the Fund of such
Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business Day after
the Date of Original Issue of any shares of MuniPreferred, the Fund shall
complete and deliver to S&P (if S&P is then rating the shares of MuniPreferred)
and Moody's (if Moody's is then rating the shares of MuniPreferred) a
MuniPreferred Basic Maintenance Report as of the close of business on such Date
of Original Issue. Within five Business Days of such Date of Original Issue, the
Fund shall cause the Independent Accountant to confirm in writing to S&P (if S&P
is then rating the shares of MuniPreferred) (i) the mathematical
17
<PAGE> 42
accuracy of the calculations reflected in such Report and (ii) that the
Discounted Value of S&P Eligible Assets reflected thereon equals or exceeds the
MuniPreferred Basic Maintenance Amount reflected thereon.
(g) On or before 5:00 p.m., New York City time, on the third Business Day after
either (i) the Fund shall have redeemed Common Stock or (ii) the ratio of the
Discounted Value of S&P Eligible Assets or the Discounted Value of Moody's
Eligible Assets to the MuniPreferred Basic Maintenance Amount is less than or
equal to 105%, the Fund shall complete and deliver to S&P (if S&P is then rating
the shares of MuniPreferred) or Moody's (if Moody's is then rating the shares of
MuniPreferred), as the case may be, a MuniPreferred Basic Maintenance Report as
of the date of either such event.
8. [RESERVED]
9. RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS.
(a) DIVIDENDS ON PREFERRED STOCK OTHER THAN MUNIPREFERRED. Except as set forth
in the next sentence, no dividends shall be declared or paid or set apart for
payment on the shares of any class or series of stock ranking, as to the payment
of dividends, on a parity with shares of MuniPreferred for any period unless
full cumulative dividends have been or contemporaneously are declared and paid
on the shares of each series of MuniPreferred through its most recent Dividend
Payment Date. When dividends are not paid in full upon the shares of each series
of MuniPreferred through its most recent Dividend Payment Date or upon the
shares of any other class or series of stock ranking on a parity as to the
payment of dividends with shares of MuniPreferred through their most recent
respective dividend payment dates, all dividends declared upon shares of
MuniPreferred and any other such class or series of stock ranking on a parity as
to the payment of dividends with shares of MuniPreferred shall be declared pro
rata so that the amount of dividends declared per share on shares of
MuniPreferred and such other class or series of stock shall in all cases bear to
each other the same ratio that accumulated dividends per share on the shares of
MuniPreferred and such other class or series of stock bear to each other (for
purposes of this sentence, the amount of dividends declared per share of
MuniPreferred shall be based on the Applicable Rate for such share for the
Dividend Periods during which dividends were not paid in full).
(b) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO COMMON STOCK UNDER THE
1940 ACT. The Board of Directors shall not declare any dividend (except a
dividend payable in shares of Common Stock), or declare any other distribution,
upon shares of Common Stock, or purchase shares of Common Stock, unless in every
such case the shares of Preferred Stock have, at the time of any such
declaration or purchase, an asset coverage (as defined in and determined
pursuant to the 1940 Act) of at least 200% (or such other asset coverage as may
in the future be specified in or under the 1940 Act as the minimum asset
coverage for senior securities which are stock of a closed-end investment
company as a condition of declaring dividends on its common stock) after
deducting the amount of such dividend, distribution or purchase price, as the
case may be.
(c) OTHER RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. For so long as any
share of MuniPreferred is outstanding, and except as set forth in paragraph (a)
of this Section 9 and paragraph (c) of Section 12 of this Part I, (A) the Fund
shall not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or in
options, warrants or rights to subscribe for or purchase, Common Stock or other
stock, if any, ranking junior to the shares of MuniPreferred as to the payment
of dividends and the distribution of assets upon dissolution, liquidation or
winding up) in respect of the Common Stock or any other stock of the Fund
ranking junior to or on a parity with the shares of MuniPreferred as to the
payment of dividends or the distribution of assets upon dissolution, liquidation
or winding up, or call for redemption, redeem, purchase or otherwise acquire for
consideration any shares of Common Stock or any other such junior stock (except
by conversion into or exchange for stock of the Fund ranking junior to the
shares of MuniPreferred as to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up), or any such parity stock
(except by conversion into or exchange for stock of the Fund ranking junior to
or on a parity with MuniPreferred as to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up), unless (i)
full cumulative dividends on shares of each series of MuniPreferred through its
most recently ended Dividend Period shall have been paid or shall have been
declared and sufficient funds for the payment thereof deposited with the Auction
Agent and (ii) the Fund has redeemed the full number of shares of MuniPreferred
required to be redeemed by any provision for mandatory redemption pertaining
thereto, and (B) the Fund shall not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or in options, warrants or rights to subscribe for or purchase,
Common Stock or other stock, if any, ranking junior to shares of MuniPreferred
as to the payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up) in respect of Common Stock or any other stock of the
Fund ranking junior to shares of MuniPreferred as to the payment of dividends or
the distribution of assets upon dissolution, liquidation or winding up, or call
for redemption, redeem, purchase or otherwise acquire for consideration any
shares of Common Stock or any other such junior stock (except by conversion into
or exchange for stock of the Fund ranking junior to shares of MuniPreferred as
to the payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up), unless immediately after such transaction the
Discounted Value of Moody's Eligible Assets (if Moody's is then rating the
shares of MuniPreferred) and S&P Eligible Assets (if S&P is then rating the
shares of MuniPreferred) would each at least equal the MuniPreferred Basic
Maintenance Amount.
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<PAGE> 43
10. RATING AGENCY RESTRICTIONS.
For so long as any shares of MuniPreferred are outstanding and Moody's or S&P,
or both, are rating such shares, the Fund will not, unless it has received
written confirmation from Moody's or S&P, or both, as appropriate, that any such
action would not impair the ratings then assigned by such rating agency to such
shares, engage in any one or more of the following transactions:
(a) buy or sell futures or write put or call options;
(b) borrow money, except that the Fund may, without obtaining the written
confirmation described above, borrow money for the purpose of clearing
securities transactions if (i) the MuniPreferred Basic Maintenance Amount
would continue to be satisfied after giving effect to such borrowing and
(ii) such borrowing (A) is privately arranged with a bank or other person
and is evidenced by a promissory note or other evidence of indebtedness
that is not intended to be publicly distributed or (B) is for "temporary
purposes," is evidenced by a promissory note or other evidence of
indebtedness and is in an amount not exceeding 5 per centum of the value of
the total assets of the Fund at the time of the borrowing; for purposes of
the foregoing, "temporary purpose" means that the borrowing is to be repaid
within sixty days and is not to be extended or renewed;
(c) issue additional shares of any series of MuniPreferred or any class or
series of stock ranking prior to or on a parity with shares of
MuniPreferred with respect to the payment of dividends or the distribution
of assets upon dissolution, liquidation or winding up of the Fund, or
reissue any shares of MuniPreferred previously purchased or redeemed by the
Fund;
(d) engage in any short sales of securities;
(e) lend securities;
(f) merge or consolidate into or with any other corporation;
(g) change the pricing service (currently J.J. Kenny) referred to in the
definition of Market Value; or
(h) enter into reverse repurchase agreements.
11. REDEMPTION.
(a) OPTIONAL REDEMPTION. (i) Subject to the provisions of subparagraph (v) of
this paragraph (a), shares of MuniPreferred of any series may be redeemed, at
the option of the Fund, as a whole or from time to time in part, on the second
Business Day preceding any Dividend Payment Date for shares of such series, out
of funds legally available therefor, at a redemption price per share equal to
the sum of $25,000 plus an amount equal to accumulated but unpaid dividends
thereon (whether or not earned or declared) to (but not including) the date
fixed for redemption; provided, however, that (1) shares of a series of
MuniPreferred may not be redeemed in part if after such partial redemption fewer
than 500 shares of such series remain outstanding; (2) unless otherwise provided
in Section 11 of Appendix A hereto, shares of a series of MuniPreferred are
redeemable by the Fund during the Initial Rate Period thereof only on the second
Business Day next preceding the last Dividend Payment Date for such Initial Rate
Period; and (3) subject to subparagraph (ii) of this paragraph (a), the Notice
of Special Rate Period relating to a Special Rate Period of shares of a series
of MuniPreferred, as delivered to the Auction Agent and filed with the Secretary
of the Fund, may provide that shares of such series shall not be redeemable
during the whole or any part of such Special Rate Period (except as provided in
subparagraph (iv) of this paragraph (a)) or shall be redeemable during the whole
or any part of such Special Rate Period only upon payment of such redemption
premium or premiums as shall be specified therein ("Special Redemption
Provisions").
(ii) A Notice of Special Rate Period relating to shares of a series of
MuniPreferred for a Special Rate Period thereof may contain Special
Redemption Provisions only if the Fund's Board of Directors, after
consultation with the Broker-Dealer or Broker-Dealers for such Special Rate
Period of shares of such series, determines that such Special Redemption
Provisions are in the best interest of the Fund.
(iii) If fewer than all of the outstanding shares of a series of
MuniPreferred are to be redeemed pursuant to subparagraph (i) of this
paragraph (a), the number of shares of such series to be redeemed shall be
determined by the Board of Directors, and such shares shall be redeemed pro
rata from the Holders of shares of such series in proportion to the number
of shares of such series held by such Holders.
(iv) Subject to the provisions of subparagraph (v) of this paragraph (a),
shares of any series of MuniPreferred may be redeemed, at the option of the
Fund, as a whole but not in part, out of funds legally available therefor,
on the first day following any Dividend Period thereof included in a Rate
Period consisting of more than 364 Rate Period Days if, on the date of
determination of the Applicable Rate for shares of such series for such
Rate Period, such Applicable Rate equalled or exceeded on such date of
determination the Treasury Note Rate for such Rate Period, at a redemption
price per share equal to the sum of $25,000 plus an amount equal to
accumulated but unpaid dividends thereon (whether or not earned or
declared) to (but not including) the date fixed for redemption.
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<PAGE> 44
(v) The Fund may not on any date mail a Notice of Redemption pursuant to
paragraph (c) of this Section 11 in respect of a redemption contemplated to
be effected pursuant to this paragraph (a) unless on such date (a) the Fund
has available Deposit Securities with maturity or tender dates not later
than the day preceding the applicable redemption date and having a value
not less than the amount (including any applicable premium) due to Holders
of shares of MuniPreferred by reason of the redemption of such shares on
such redemption date and (b) the Discounted Value of Moody's Eligible
Assets (if Moody's is then rating the shares of MuniPreferred) and the
Discounted Value of S&P Eligible Assets (if S&P is then rating the shares
of MuniPreferred) each at least equal the MuniPreferred Basic Maintenance
Amount, and would at least equal the MuniPreferred Basic Maintenance Amount
immediately subsequent to such redemption if such redemption were to occur
on such date. For purposes of determining in clause (b) of the preceding
sentence whether the Discounted Value of Moody's Eligible Assets at least
equals the MuniPreferred Basic Maintenance Amount, the Moody's Discount
Factors applicable to Moody's Eligible Assets shall be determined by
reference to the first Exposure Period longer than the Exposure Period then
applicable to the Fund, as described in the definition of Moody's Discount
Factor herein.
(b) MANDATORY REDEMPTION. The Fund shall redeem, at a redemption price equal to
$25,000 per share plus accumulated but unpaid dividends thereon (whether or not
earned or declared) to (but not including) the date fixed by the Board of
Directors for redemption, certain of the shares of MuniPreferred, if the Fund
fails to have either Moody's Eligible Assets with a Discounted Value or S&P
Eligible Assets with a Discounted Value greater than or equal to the
MuniPreferred Basic Maintenance Amount or fails to maintain the 1940 Act
MuniPreferred Asset Coverage, in accordance with the requirements of the rating
agency or agencies then rating the shares of MuniPreferred, and such failure is
not cured on or before the MuniPreferred Basic Maintenance Cure Date or the 1940
Act Cure Date, as the case may be. The number of shares of MuniPreferred to be
redeemed shall be equal to the lesser of (i) the minimum number of shares of
MuniPreferred, together with all shares of other Preferred Stock subject to
redemption or retirement, the redemption of which, if deemed to have occurred
immediately prior to the opening of business on the Cure Date, would have
resulted in the Fund's having both Moody's Eligible Assets with a Discounted
Value and S&P Eligible Assets with a Discounted Value greater than or equal to
the MuniPreferred Basic Maintenance Amount or maintaining the 1940 Act
MuniPreferred Asset Coverage, as the case may be, on such Cure Date (provided,
however, that if there is no such minimum number of shares of MuniPreferred and
shares of other Preferred Stock the redemption or retirement of which would have
had such result, all shares of MuniPreferred and Preferred Stock then
outstanding shall be redeemed), and (ii) the maximum number of shares of
MuniPreferred, together with all shares of other Preferred Stock subject to
redemption or retirement, that can be redeemed out of funds expected to be
legally available therefor. In determining the shares of MuniPreferred required
to be redeemed in accordance with the foregoing, the Fund shall allocate the
number required to be redeemed to satisfy the MuniPreferred Basic Maintenance
Amount or the 1940 Act MuniPreferred Asset Coverage, as the case may be, pro
rata among shares of MuniPreferred and other Preferred Stock (and, then, pro
rata among each series of MuniPreferred) subject to redemption or retirement.
The Fund shall effect such redemption on the date fixed by the Fund therefor,
which date shall not be earlier than 20 days nor later than 40 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 MuniPreferred and shares
of other Preferred Stock which are subject to redemption or retirement or the
Fund otherwise is unable to effect such redemption on or prior to 40 days after
such Cure Date, the Fund shall redeem those shares of MuniPreferred and shares
of other Preferred Stock which it was unable to redeem on the earliest
practicable date on which it is able to effect such redemption. If fewer than
all of the outstanding shares of a series of MuniPreferred are to be redeemed
pursuant to this paragraph (b), the number of shares of such series to be
redeemed shall be redeemed pro rata from the Holders of shares of such series in
proportion to the number of shares of such series held by such Holders.
(c) NOTICE OF REDEMPTION. If the Fund shall determine or be required to redeem
shares of a series of MuniPreferred pursuant to paragraph (a) or (b) of this
Section 11, it shall mail a Notice of Redemption with respect to such redemption
by first class mail, postage prepaid, to each Holder of the shares of such
series to be redeemed, at such Holder's address as the same appears on the stock
books of the Fund on the record date established by the Board of Directors. Such
Notice of Redemption shall be so mailed not less than 20 nor more than 45 days
prior to the date fixed for redemption. Each such Notice of Redemption shall
state: (i) the redemption date; (ii) the number of shares of MuniPreferred to be
redeemed and the series thereof; (iii) the CUSIP number for shares of such
series; (iv) the Redemption Price; (v) the place or places where the
certificate(s) for such shares (properly endorsed or assigned for transfer, if
the Board of Directors shall so require and the Notice of Redemption shall so
state) are to be surrendered for payment of the Redemption Price; (vi) that
dividends on the shares to be redeemed will cease to accumulate on such
redemption date; and (vii) the provisions of this Section 11 under which such
redemption is made. If fewer than all shares of a series of MuniPreferred held
by any Holder are to be redeemed, the Notice of Redemption mailed to such Holder
shall also specify the number of shares of such series to be redeemed from such
Holder. The Fund may provide in any Notice of Redemption relating to a
redemption contemplated to be effected pursuant to paragraph (a) of this Section
11 that such redemption is subject to one or more conditions precedent and that
the Fund shall not be required to effect such redemption unless each such
condition shall have been satisfied at the time or times and in the manner
specified in such Notice of Redemption.
(d) NO REDEMPTION UNDER CERTAIN CIRCUMSTANCES. Notwithstanding the provisions of
paragraphs (a) or (b) of this Section 11, if any dividends on shares of a series
of MuniPreferred (whether or not earned or declared) are in arrears, no
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<PAGE> 45
shares of such series shall be redeemed unless all outstanding shares of such
series are simultaneously redeemed, and the Fund shall not purchase or otherwise
acquire any shares of such series; provided, however, that the foregoing shall
not prevent the purchase or acquisition of all outstanding shares of such series
pursuant to the successful completion of an otherwise lawful purchase or
exchange offer made on the same terms to, and accepted by, Holders of all
outstanding shares of such series.
(e) ABSENCE OF FUNDS AVAILABLE FOR REDEMPTION. To the extent that any redemption
for which Notice of Redemption has been mailed is not made by reason of the
absence of legally available funds therefor, such redemption shall be made as
soon as practicable to the extent such funds become available. Failure to redeem
shares of MuniPreferred shall be deemed to exist at any time after the date
specified for redemption in a Notice of Redemption when the Fund shall have
failed, for any reason whatsoever, to deposit in trust with the Auction Agent
the Redemption Price with respect to any shares for which such Notice of
Redemption has been mailed; provided, however, that the foregoing shall not
apply in the case of the Fund's failure to deposit in trust with the Auction
Agent the Redemption Price with respect to any shares where (1) the Notice of
Redemption relating to such redemption provided that such redemption was subject
to one or more conditions precedent and (2) any such condition precedent shall
not have been satisfied at the time or times and in the manner specified in such
Notice of Redemption. Notwithstanding the fact that the Fund may not have
redeemed shares of MuniPreferred for which a Notice of Redemption has been
mailed, dividends may be declared and paid on shares of MuniPreferred and shall
include those shares of MuniPreferred for which a Notice of Redemption has been
mailed.
(f) AUCTION AGENT AS TRUSTEE OF REDEMPTION PAYMENTS BY FUND. All moneys paid to
the Auction Agent for payment of the Redemption Price of shares of MuniPreferred
called for redemption shall be held in trust by the Auction Agent for the
benefit of Holders of shares so to be redeemed.
(g) SHARES FOR WHICH NOTICE OF REDEMPTION HAS BEEN GIVEN ARE NO LONGER
OUTSTANDING. Provided a Notice of Redemption has been mailed pursuant to
paragraph (c) of this Section 11, upon the deposit with the Auction Agent (on
the Business Day next preceding the date fixed for redemption thereby, in funds
available on the next Business Day in The City of New York, New York) of funds
sufficient to redeem the shares of MuniPreferred that are the subject of such
notice, dividends on such shares shall cease to accumulate and such shares shall
no longer be deemed to be outstanding for any purpose, and all rights of the
Holders of the shares so called for redemption shall cease and terminate, except
the right of such Holders to receive the Redemption Price, but without any
interest or other additional amount, except as provided in subparagraph (e)(i)
of Section 2 of this Part I and in Section 3 of this Part I. Upon surrender in
accordance with the Notice of Redemption of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Board of Directors
shall so require and the Notice of Redemption shall so state), the Redemption
Price shall be paid by the Auction Agent to the Holders of shares of
MuniPreferred subject to redemption. In the case that fewer than all of the
shares represented by any such certificate are redeemed, a new certificate shall
be issued, representing the unredeemed shares, without cost to the Holder
thereof. The Fund shall be entitled to receive from the Auction Agent, promptly
after the date fixed for redemption, any cash deposited with the Auction Agent
in excess of (i) the aggregate Redemption Price of the shares of MuniPreferred
called for redemption on such date and (ii) all other amounts to which Holders
of shares of MuniPreferred called for redemption may be entitled. Any funds so
deposited that are unclaimed at the end of 90 days from such redemption date
shall, to the extent permitted by law, be repaid to the Fund, after which time
the Holders of shares of MuniPreferred so called for redemption may look only to
the Fund for payment of the Redemption Price and all other amounts to which they
may be entitled. The Fund shall be entitled to receive, from time to time after
the date fixed for redemption, any interest on the funds so deposited.
(h) COMPLIANCE WITH APPLICABLE LAW. In effecting any redemption pursuant to this
Section 11, the Fund shall use its best efforts to comply with all applicable
conditions precedent to effecting such redemption under the 1940 Act and
Minnesota law, but shall effect no redemption except in accordance with the 1940
Act and Minnesota law.
(i) ONLY WHOLE SHARES OF MUNIPREFERRED MAY BE REDEEMED. In the case of any
redemption pursuant to this Section 11, only whole shares of MuniPreferred shall
be redeemed, and in the event that any provision of the Articles would require
redemption of a fractional share, the Auction Agent shall be authorized to round
up so that only whole shares are redeemed.
12. LIQUIDATION RIGHTS.
(a) RANKING. The shares of a series of MuniPreferred shall rank on a parity with
each other, with shares of any other series of MuniPreferred and with shares of
any other series of Preferred Stock as to the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund.
(b) DISTRIBUTIONS UPON LIQUIDATION. Upon the dissolution, liquidation or winding
up of the affairs of the Fund, whether voluntary or involuntary, the Holders of
shares of MuniPreferred then outstanding shall be entitled to receive and to be
paid out of the assets of the Fund available for distribution to its
shareholders, before any payment or distribution shall be made on the Common
Stock or on any other class of stock of the Fund ranking junior to the
MuniPreferred upon dissolution, liquidation or winding up, an amount equal to
the Liquidation Preference with respect to such shares plus an amount equal to
all dividends thereon (whether or not earned or declared) accumulated but unpaid
to (but not including) the date of final
21
<PAGE> 46
distribution in same-day funds, together with any payments required to be made
pursuant to Section 3 of this Part I in connection with the liquidation of the
Fund. After the payment to the Holders of the shares of MuniPreferred of the
full preferential amounts provided for in this paragraph (b), the Holders of
MuniPreferred as such shall have no right or claim to any of the remaining
assets of the Fund.
(c) PRO RATA DISTRIBUTIONS. In the event the assets of the Fund available for
distribution to the Holders of shares of MuniPreferred upon any dissolution,
liquidation, or winding up of the affairs of the Fund, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which such
Holders are entitled pursuant to paragraph (b) of this Section 12, no such
distribution shall be made on account of any shares of any other class or series
of Preferred Stock ranking on a parity with the shares of MuniPreferred with
respect to the distribution of assets upon such dissolution, liquidation or
winding up unless proportionate distributive amounts shall be paid on account of
the shares of MuniPreferred, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up.
(d) RIGHTS OF JUNIOR STOCK. Subject to the rights of the holders of shares of
any series or class or classes of stock ranking on a parity with the shares of
MuniPreferred with respect to the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Fund, after payment shall have
been made in full to the Holders of the shares of MuniPreferred as provided in
paragraph (b) of this Section 12, but not prior thereto, any other series or
class or classes of stock ranking junior to the shares of MuniPreferred with
respect to the distribution of assets upon dissolution, liquidation or winding
up of the affairs of the Fund shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the Holders of the shares of
MuniPreferred shall not be entitled to share therein.
(e) CERTAIN EVENTS NOT CONSTITUTING LIQUIDATION. Neither the sale of all or
substantially all the property or business of the Fund, nor the merger or
consolidation of the Fund into or with any other corporation nor the merger or
consolidation of any other corporation into or with the Fund shall be a
dissolution, liquidation or winding up, whether voluntary or involuntary, for
the purposes of this Section 12.
13. MISCELLANEOUS.
(a) AMENDMENT OF APPENDIX A TO ADD ADDITIONAL SERIES. Subject to the provisions
of paragraph (c) of Section 10 of this Part I, the Board of Directors may, by
resolution duly adopted, without shareholder approval (except as otherwise
provided by this Statement or required by applicable law), amend Appendix A
hereto to (1) reflect any amendments hereto which the Board of Directors is
entitled to adopt pursuant to the terms of this Statement without shareholder
approval and (2) add additional series of MuniPreferred or additional shares of
a series of MuniPreferred (and terms relating thereto) to the series and shares
of MuniPreferred theretofore described thereon. Each such additional series and
all such additional shares shall be governed by the terms of this Statement.
(b) APPENDIX A INCORPORATED BY REFERENCE. Appendix A hereto is incorporated in
and made a part of this Statement by reference thereto.
(c) NO FRACTIONAL SHARES. No fractional shares of MuniPreferred shall be issued.
(d) STATUS OF SHARES OF MUNIPREFERRED REDEEMED, EXCHANGED OR OTHERWISE ACQUIRED
BY THE FUND. Shares of MuniPreferred which are redeemed, exchanged or otherwise
acquired by the Fund shall return to the status of authorized and unissued
shares of Preferred Stock without designation as to series. Upon the redemption,
exchange or other acquisition by the Fund of all outstanding shares of a series
of MuniPreferred, all provisions of the Articles relating to such series
(including, without limitation, all provisions of this Statement relating to
such series) shall cease to be of further effect and shall cease to be part of
the Articles. Upon the occurrence of any such event, the Board of Directors
shall have the power, pursuant to Minnesota Statutes Section 302A.135,
Subdivision 5 or any successor provision and without shareholder action, to
cause restated articles of incorporation of the Fund or other appropriate
documents to be prepared and filed with the Secretary of State of the State of
Minnesota which reflect such removal from the Articles of all such provisions
relating to such series or, if appropriate, the cancellation of this Statement,
or both.
(e) BOARD MAY RESOLVE AMBIGUITIES. To the extent permitted by applicable law,
the Board of Directors may interpret or adjust the provisions of this Statement
to resolve any inconsistency or ambiguity or to remedy any formal defect, and
may amend this Statement with respect to any series of MuniPreferred prior to
the issuance of shares of such series.
(f) HEADINGS NOT DETERMINATIVE. The headings contained in this Statement are for
convenience of reference only and shall not affect the meaning or interpretation
of this Statement.
(g) NOTICES. All notices or communications, unless otherwise specified in the
By-Laws of the Fund or this Statement, shall be sufficiently given if in writing
and delivered in person or mailed by first-class mail, postage prepaid.
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<PAGE> 47
PART II
1. ORDERS. (a) Prior to the Submission Deadline on each Auction Date for shares
of a series of MuniPreferred:
(i) each Beneficial Owner of shares of such series may submit to its
Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such series held by
such Beneficial Owner which such Beneficial Owner desires to continue to
hold without regard to the Applicable Rate for shares of such series for
the next succeeding Rate Period of such shares;
(B) the number of Outstanding shares, if any, of such series held by
such Beneficial Owner which such Beneficial Owner offers to sell if the
Applicable Rate for shares of such series for the next succeeding Rate
Period of shares of such series shall be less than the rate per annum
specified by such Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such series held by
such Beneficial Owner which such Beneficial Owner offers to sell without
regard to the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series;
and
(ii) one or more Broker-Dealers, using lists of Potential Beneficial
Owners, shall in good faith for the purpose of conducting a competitive
Auction in a commercially reasonable manner, contact Potential Beneficial
Owners (by telephone or otherwise), including Persons that are not
Beneficial Owners, on such lists to determine the number of shares, if any,
of such series which each such Potential Beneficial Owner offers to
purchase if the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series shall not be less than the
rate per annum specified by such Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or Potential
Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction Agent,
of information referred to in clause (i)(A), (i)(B), (i)(C) or (ii) of this
paragraph (a) is hereinafter referred to as an "Order" and collectively as
"Orders" and each Beneficial Owner and each Potential Beneficial Owner placing
an Order with a Broker-Dealer, and such Broker-Dealer placing an Order with the
Auction Agent, is hereinafter referred to as a "Bidder" and collectively as
"Bidders"; an Order containing the information referred to in clause (i)(A) of
this paragraph (a) is hereinafter referred to as a "Hold Order" and collectively
as "Hold Orders"; an Order containing the information referred to in clause
(i)(B) or (ii) of this paragraph (a) is hereinafter referred to as a "Bid" and
collectively as "Bids"; and an Order containing the information referred to in
clause (i)(C) of this paragraph (a) is hereinafter referred to as a "Sell Order"
and collectively as "Sell Orders."
(b)(i) A Bid by a Beneficial Owner or an Existing Holder of shares of a series
of MuniPreferred subject to an Auction on any Auction Date shall constitute an
irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in such Bid
if the Applicable Rate for shares of such series determined on such Auction
Date shall be less than the rate specified therein;
(B) such number or a lesser number of Outstanding shares of such series to
be determined as set forth in clause (iv) of paragraph (a) of Section 4 of
this Part II if the Applicable Rate for shares of such series determined on
such Auction Date shall be equal to the rate specified therein; or
(C) the number of Outstanding shares of such series specified in such Bid
if the rate specified therein shall be higher than the Maximum Rate for
shares of such series, or such number or a lesser number of Outstanding
shares of such series to be determined as set forth in clause (iii) of
paragraph (b) of Section 4 of this Part II if the rate specified therein
shall be higher than the Maximum Rate for shares of such series and
Sufficient Clearing Bids for shares of such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of shares of a
series of MuniPreferred subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in such Sell
Order; or
(B) such number or a lesser number of Outstanding shares of such series as
set forth in clause (iii) of paragraph (b) of Section 4 of this Part II if
Sufficient Clearing Bids for shares of such series do not exist;
provided, however, that a Broker-Dealer that is an Existing Holder with respect
to shares of a series of MuniPreferred shall not be liable to any Person for
failing to sell such shares pursuant to a Sell Order described in the proviso to
paragraph (c) of Section 2 of this Part II if (1) such shares were transferred
by the Beneficial Owner thereof without compliance by such Beneficial Owner or
its transferee Broker-Dealer (or other transferee person, if permitted by the
Fund) with the provisions of Section 7 of this Part II or (2) such Broker-Dealer
has informed the Auction Agent pursuant to the terms of its Broker-Dealer
Agreement that, according to such Broker-Dealer's records, such Broker-Dealer
believes it is not the Existing Holder of such shares.
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<PAGE> 48
(iii) A Bid by a Potential Beneficial Holder or a Potential Holder of shares of
a series of MuniPreferred subject to an Auction on any Auction Date shall
constitute an irrevocable offer to purchase:
(A) the number of Outstanding shares of such series specified in such Bid
if the Applicable Rate for shares of such series determined on such Auction
Date shall be higher than the rate specified therein; or
(B) such number or a lesser number of Outstanding shares of such series as
set forth in clause (v) of paragraph (a) of Section 4 of this Part II if
the Applicable Rate for shares of such series determined on such Auction
Date shall be equal to the rate specified therein.
(c) No Order for any number of shares of MuniPreferred other than whole shares
shall be valid.
2. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT. (a) Each
Broker-Dealer shall submit in writing to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders for shares of MuniPreferred
of a series subject to an Auction on such Auction Date obtained by such
Broker-Dealer, designating itself (unless otherwise permitted by the Fund) as an
Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
shares subject to Orders submitted to it by Potential Beneficial Owners, and
shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Fund);
(ii) the aggregate number of shares of such series that are the subject of
such Order;
(iii) to the extent that such Bidder is an Existing Holder of shares of
such series:
(A) the number of shares, if any, of such series subject to any Hold
Order of such Existing Holder;
(B) the number of shares, if any, of such series subject to any Bid of
such Existing Holder and the rate specified in such Bid; and
(C) the number of shares, if any, of such series subject to any Sell
Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of shares of such
series, the rate and number of shares of such series specified in such
Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures to the
right of the decimal point, the Auction Agent shall round such rate up to the
next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding shares of
MuniPreferred of a series held by any Existing Holder is not submitted to the
Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a
Hold Order to have been submitted by or on behalf of such Existing Holder
covering the number of Outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent; provided,
however, that if an Order or Orders covering all of the Outstanding shares of
such series held by any Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline for an Auction relating to a Special Rate
Period consisting of more than 28 Rate Period Days, the Auction Agent shall deem
a Sell Order to have been submitted by or on behalf of such Existing Holder
covering the number of outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the Auction
Agent covering in the aggregate more than the number of Outstanding shares of
MuniPreferred of a series subject to an Auction held by such Existing Holder,
such Orders shall be considered valid in the following order of priority:
(i) all Hold Orders for shares of such series shall be considered valid,
but only up to and including in the aggregate the number of Outstanding
shares of such series held by such Existing Holder, and if the number of
shares of such series subject to such Hold Orders exceeds the number of
Outstanding shares of such series held by such Existing Holder, the number
of shares subject to each such Hold Order shall be reduced pro rata to
cover the number of Outstanding shares of such series held by such Existing
Holder;
(ii) (A) any Bid for shares of such series shall be considered valid up to
and including the excess of the number of Outstanding shares of such series
held by such Existing Holder over the number of shares of such series
subject to any Hold Orders referred to in clause (i) above;
(B) subject to subclause (A), if more than one Bid of an Existing Holder
for shares of such series is submitted to the Auction Agent with the
same rate and the number of Outstanding shares of such series subject to
such Bids is greater than such excess, such Bids shall be considered
valid up to and including the amount of such excess, and the number of
shares of such series subject to each Bid with the same rate shall be
reduced pro rata to cover the number of shares of such series equal to
such excess;
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<PAGE> 49
(C) subject to subclauses (A) and (B), if more than one Bid of an
Existing Holder for shares of such series is submitted to the Auction
Agent with different rates, such Bids shall be considered valid in the
ascending order of their respective rates up to and including the amount
of such excess; and
(D) in any such event, the number, if any, of such Outstanding shares of
such series subject to any portion of Bids considered not valid in whole
or in part under this clause (ii) shall be treated as the subject of a
Bid for shares of such series by or on behalf of a Potential Holder at
the rate therein specified; and
(iii) all Sell Orders for shares of such series shall be considered valid
up to and including the excess of the number of Outstanding shares of such
series held by such Existing Holder over the sum of shares of such series
subject to valid Hold Orders referred to in clause (i) above and valid Bids
referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of a series of MuniPreferred is
submitted to the Auction Agent by or on behalf of any Potential Holder, each
such Bid submitted shall be a separate Bid with the rate and number of shares
therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential Beneficial Owner to
its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the
Submission Deadline on any Auction Date, shall be irrevocable.
3. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND APPLICABLE
RATE. (a) Not earlier than the Submission Deadline on each Auction Date for
shares of a series of MuniPreferred, the Auction Agent shall assemble all valid
Orders submitted or deemed submitted to it by the Broker-Dealers in respect of
shares of such series (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as
a "Submitted Order" and collectively as "Submitted Hold Orders," "Submitted
Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders")
and shall determine for such series:
(i) the excess of the number of Outstanding shares of such series over the
number of Outstanding shares of such series subject to Submitted Hold
Orders (such excess being hereinafter referred to as the "Available
MuniPreferred" of such series);
(ii) from the Submitted Orders for shares of such series whether:
(A) the number of Outstanding shares of such series subject to Submitted
Bids of Potential Holders specifying one or more rates equal to or lower
than the Maximum Rate for shares of such series;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series subject to Submitted
Bids of Existing Holders specifying one or more rates higher than the
Maximum Rate for shares of such series; and
(C) the number of Outstanding shares of such series subject to Submitted
Sell Orders
(in the event such excess or such equality exists (other than because the
number of shares of such series in subclauses (B) and (C) above is zero
because all of the Outstanding shares of such series are subject to
Submitted Hold Orders), such Submitted Bids in subclause (A) above being
hereinafter referred to collectively as "Sufficient Clearing Bids" for
shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series exist, the
lowest rate specified in such Submitted Bids (the "Winning Bid Rate" for
shares of such series) which if:
(A)(I) each such Submitted Bid of Existing Holders specifying such
lowest rate and (II) all other such Submitted Bids of Existing Holders
specifying lower rates were rejected, thus entitling such Existing
Holders to continue to hold the shares of such series that are subject
to such Submitted Bids; and
(B)(I) each such Submitted Bid of Potential Holders specifying such
lowest rate and (II) all other such Submitted Bids of Potential Holders
specifying lower rates were accepted;
would result in such Existing Holders described in subclause (A) above
continuing to hold an aggregate number of Outstanding shares of such series
which, when added to the number of Outstanding shares of such series to be
purchased by such Potential Holders described in subclause (B) above, would
equal not less than the Available MuniPreferred of such series.
(b) Promptly after the Auction Agent has made the determinations pursuant to
paragraph (a) of this Section 3, the Auction Agent shall advise the Fund of the
Maximum Rate for shares of the series of MuniPreferred for which an Auction is
being
25
<PAGE> 50
held on the Auction Date and, based on such determination, the Applicable Rate
for shares of such series for the next succeeding Rate Period thereof as
follows:
(i) if Sufficient Clearing Bids for shares of such series exist, that the
Applicable Rate for all shares of such series for the next succeeding Rate
Period thereof shall be equal to the Winning Bid Rate for shares of such
series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do not exist
(other than because all of the Outstanding shares of such series are
subject to Submitted Hold Orders), that the Applicable Rate for all shares
of such series for the next succeeding Rate Period thereof shall be equal
to the Maximum Rate for shares of such series; or
(iii) if all of the Outstanding shares of such series are subject to
Submitted Hold Orders, that the Applicable Rate for all shares of such
series for the next succeeding Rate Period thereof shall be as set forth in
Section 12 of Appendix A hereto.
4. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND
ALLOCATION OF SHARES. Existing Holders shall continue to hold the shares of
MuniPreferred that are subject to Submitted Hold Orders, and, based on the
determinations made pursuant to paragraph (a) of Section 3 of this Part II, the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected by the
Auction Agent and the Auction Agent shall take such other action as set forth
below:
(a) If Sufficient Clearing Bids for shares of a series of MuniPreferred
have been made, all Submitted Sell Orders with respect to shares of such
series shall be accepted and, subject to the provisions of paragraphs (d)
and (e) of this Section 4, Submitted Bids with respect to shares of such
series shall be accepted or rejected as follows in the following order of
priority and all other Submitted Bids with respect to shares of such series
shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is higher than the Winning Bid Rate for shares
of such series shall be accepted, thus requiring each such Existing
Holder to sell the shares of MuniPreferred subject to such Submitted
Bids;
(ii) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares
of such series shall be rejected, thus entitling each such Existing
Holder to continue to hold the shares of MuniPreferred subject to such
Submitted Bids;
(iii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares
of such series shall be accepted;
(iv) each Existing Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of
such series shall be rejected, thus entitling such Existing Holder to
continue to hold the shares of MuniPreferred subject to such Submitted
Bid, unless the number of Outstanding shares of MuniPreferred subject to
all such Submitted Bids shall be greater than the number of shares of
MuniPreferred ("remaining shares") in the excess of the Available
MuniPreferred of such series over the number of shares of MuniPreferred
subject to Submitted Bids described in clauses (ii) and (iii) of this
paragraph (a), in which event such Submitted Bid of such Existing Holder
shall be rejected in part, and such Existing Holder shall be entitled to
continue to hold shares of MuniPreferred subject to such Submitted Bid,
but only in an amount equal to the number of shares of MuniPreferred of
such series obtained by multiplying the number of remaining shares by a
fraction, the numerator of which shall be the number of Outstanding
shares of MuniPreferred held by such Existing Holder subject to such
Submitted Bid and the denominator of which shall be the aggregate number
of Outstanding shares of MuniPreferred subject to such Submitted Bids
made by all such Existing Holders that specified a rate equal to the
Winning Bid Rate for shares of such series; and
(v) each Potential Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of
such series shall be accepted but only in an amount equal to the number
of shares of such series obtained by multiplying the number of shares in
the excess of the Available MuniPreferred of such series over the number
of shares of MuniPreferred subject to Submitted Bids described in
clauses (ii) through (iv) of this paragraph (a) by a fraction, the
numerator of which shall be the number of Outstanding shares of
MuniPreferred subject to such Submitted Bid and the denominator of which
shall be the aggregate number of Outstanding shares of MuniPreferred
subject to such Submitted Bids made by all such Potential Holders that
specified a rate equal to the Winning Bid Rate for shares of such
series.
(b) If Sufficient Clearing Bids for shares of a series of MuniPreferred
have not been made (other than because all of the Outstanding shares of
such series are subject to Submitted Hold Orders), subject to the
provisions of paragraph (d) of this Section 4, Submitted Orders for shares
of such series shall be accepted or rejected as follows in the following
order of priority and all other Submitted Bids for shares of such series
shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be rejected, thus entitling such Existing
Holders to continue to hold the shares of MuniPreferred subject to such
Submitted Bids;
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<PAGE> 51
(ii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for shares of such series
specifying any rate that is higher than the Maximum Rate for shares of
such series and the Submitted Sell Orders for shares of such series of
each Existing Holder shall be accepted, thus entitling each Existing
Holder that submitted or on whose behalf was submitted any such
Submitted Bid or Submitted Sell Order to sell the shares of such series
subject to such Submitted Bid or Submitted Sell Order, but in both cases
only in an amount equal to the number of shares of such series obtained
by multiplying the number of shares of such series subject to Submitted
Bids described in clause (ii) of this paragraph (b) by a fraction, the
numerator of which shall be the number of Outstanding shares of such
series held by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and the denominator of which shall be the aggregate
number of Outstanding shares of such series subject to all such
Submitted Bids and Submitted Sell Orders.
(c) If all of the Outstanding shares of a series of MuniPreferred are
subject to Submitted Hold Orders, all Submitted Bids for shares of such
series shall be rejected.
(d) If, as a result of the procedures described in clause (iv) or (v) of
paragraph (a) or clause (iii) of paragraph (b) of this Section 4, any
Existing Holder would be entitled or required to sell, or any Potential
Holder would be entitled or required to purchase, a fraction of a share of
a series of MuniPreferred on any Auction Date, the Auction Agent shall, in
such manner as it shall determine in its sole discretion, round up or down
the number of shares of MuniPreferred of such series to be purchased or
sold by any Existing Holder or Potential Holder on such Auction Date as a
result of such procedures so that the number of shares so purchased or sold
by each Existing Holder or Potential Holder on such Auction Date shall be
whole shares of MuniPreferred.
(e) If, as a result of the procedures described in clause (v) of paragraph
(a) of this Section 4, any Potential Holder would be entitled or required
to purchase less than a whole share of a series of MuniPreferred on any
Auction Date, the Auction Agent shall, in such manner as it shall determine
in its sole discretion, allocate shares of MuniPreferred of such series for
purchase among Potential Holders so that only whole shares of MuniPreferred
of such series are purchased on such Auction Date as a result of such
procedures by any Potential Holder, even if such allocation results in one
or more Potential Holders not purchasing shares of MuniPreferred of such
series on such Auction Date.
(f) Based on the results of each Auction for shares of a series of
MuniPreferred, the Auction Agent shall determine the aggregate number of
shares of such series to be purchased and the aggregate number of shares of
such series to be sold by Potential Holders and Existing Holders and, with
respect to each Potential Holder and Existing Holder, to the extent that
such aggregate number of shares to be purchased and such aggregate number
of shares to be sold differ, determine to which other Potential Holder(s)
or Existing Holder(s) they shall deliver, or from which other Potential
Holder(s) or Existing Holder(s) they shall receive, as the case may be,
shares of MuniPreferred of such series. Notwithstanding any provision of
the Auction Procedures or the Settlement Procedures to the contrary, in the
event an Existing Holder or Beneficial Owner of shares of a series of
MuniPreferred with respect to whom a Broker-Dealer submitted a Bid to the
Auction Agent for such shares that was accepted in whole or in part, or
submitted or is deemed to have submitted a Sell Order for such shares that
was accepted in whole or in part, fails to instruct its Agent Member to
deliver such shares against payment therefor, partial deliveries of shares
of MuniPreferred that have been made in respect of Potential Holders' or
Potential Beneficial Owners' Submitted Bids for shares of such series that
have been accepted in whole or in part shall constitute good delivery to
such Potential Holders and Potential Beneficial Owners.
(g) Neither the Fund nor the Auction Agent nor any affiliate of either
shall have any responsibility or liability with respect to the failure of
an Existing Holder, a Potential Holder, a Beneficial Owner, a Potential
Beneficial Owner or its respective Agent Member to deliver shares of
MuniPreferred of any series or to pay for shares of MuniPreferred of any
series sold or purchased pursuant to the Auction Procedures or otherwise.
5. NOTIFICATION OF ALLOCATIONS. Whenever the Fund intends to include any net
capital gains or other income taxable for Federal income tax purposes in any
dividend on shares of MuniPreferred, the Fund shall, in the case of a Minimum
Rate Period or a Special Rate Period of 28 Rate Period Days or fewer, and may,
in the case of any other Special Rate Period, notify the Auction Agent of the
amount to be so included not later than the Dividend Payment Date next preceding
the Auction Date on which the Applicable Rate for such dividend is to be
established. Whenever the Auction Agent receives such notice from the Fund, it
will be required in turn to notify each Broker-Dealer, who, on or prior to such
Auction Date, in accordance with its Broker-Dealer Agreement, will be required
to notify its Beneficial Owners and Potential Beneficial Owners of shares of
MuniPreferred believed by it to be interested in submitting an Order in the
Auction to be held on such Auction Date.
6. AUCTION AGENT. For so long as any shares of MuniPreferred are outstanding,
the Auction Agent, duly appointed by the Fund to so act, shall be in each case a
commercial bank, trust company or other financial institution independent of the
Fund and its affiliates (which however, may engage or have engaged in business
transactions with the Fund or its affiliates) and
27
<PAGE> 52
at no time shall the Fund or any of its affiliates act as the Auction Agent in
connection with the Auction Procedures. If the Auction Agent resigns or for any
reason its appointment is terminated during any period that any shares of
MuniPreferred are outstanding, the Board of Directors shall use its best efforts
promptly thereafter to appoint another qualified commercial bank, trust company
or financial institution to act as the Auction Agent. The Auction Agent's
registry of Existing Holders of shares of a series of MuniPreferred shall be
conclusive and binding on the Broker-Dealers. A Broker-Dealer may inquire of the
Auction Agent between 3:00 p.m. on the Business Day preceding an Auction for
shares of a series of MuniPreferred and 9:30 a.m. on the Auction Date for such
Auction to ascertain the number of shares of such series in respect of which the
Auction Agent has determined such Broker-Dealer to be an Existing Holder. If
such Broker-Dealer believes it is the Existing Holder of fewer shares of such
series than specified by the Auction Agent in response to such Broker-Dealer's
inquiry, such Broker-Dealer may so inform the Auction Agent of that belief. Such
Broker-Dealer shall not, in its capacity as Existing Holder of shares of such
series, submit Orders in such Auction in respect of shares of such series
covering in the aggregate more than the number of shares of such series
specified by the Auction Agent in response to such Broker-Dealer's inquiry.
7. TRANSFER OF SHARES OF MUNIPREFERRED. Unless otherwise permitted by the Fund,
a Beneficial Owner or an Existing Holder may sell, transfer or otherwise dispose
of shares of MuniPreferred only in whole shares and only pursuant to a Bid or
Sell Order placed with the Auction Agent in accordance with the procedures
described in this Part II or to a Broker-Dealer; provided, however, that (a) a
sale, transfer or other disposition of shares of MuniPreferred from a customer
of a Broker-Dealer who is listed on the records of that Broker-Dealer as the
holder of such shares to that Broker-Dealer or another customer of that
Broker-Dealer shall not be deemed to be a sale, transfer or other disposition
for purposes of this Section 7 if such Broker-Dealer remains the Existing Holder
of the shares so sold, transferred or disposed of immediately after such sale,
transfer or disposition and (b) in the case of all transfers other than pursuant
to Auctions, the Broker-Dealer (or other Person, if permitted by the Fund) to
whom such transfer is made shall advise the Auction Agent of such transfer.
8. GLOBAL CERTIFICATE. Prior to the commencement of a Voting Period, (i) all of
the shares of a series of MuniPreferred outstanding from time to time shall be
represented by one global certificate registered in the name of the Securities
Depository or its nominee and (ii) no registration of transfer of shares of a
series of MuniPreferred shall be made on the books of the Fund to any Person
other than the Securities Depository or its nominee. The foregoing restriction
on registration of transfer shall be conspicuously noted on the face or back of
the certificates of MuniPreferred in such a manner as to comply with the
requirements of Minnesota Statute Section 302A.429, Subd. 2, and Section 8-204
of the Uniform Commercial Code as in effect in the State of Minnesota, or any
successor provisions.
IN WITNESS WHEREOF, NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC., has caused these
presents to be signed in its name and on its behalf by its Vice President and
attested by its Assistant Secretary, and the said officers of the Fund further
acknowledged said instrument to be the corporate act of the Fund, and stated
under penalty of perjury that to the best of their knowledge, information and
belief the matters and facts therein set forth with respect to approval are true
in all material respects, all on August [4], 1997.
NUVEEN PREMIUM INCOME MUNICIPAL FUND,
INC.
BY:
------------------------------------
Gifford R. Zimmerman
Vice President
ATTEST:
- ------------------------------------------------
28
<PAGE> 53
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
APPENDIX A
SECTION 1. DESIGNATION AS TO SERIES.
SERIES M: A series of 10,000 shares of Preferred Stock, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Stock, Series M." Upon the effectiveness of
this Statement, each share of Remarketed Preferred Stock, Series A, of the Fund
outstanding immediately prior to the effectiveness of this Statement shall cease
to be a share of Remarketed Preferred Stock and shall become instead a share of
Series M MuniPreferred. Each share of Series M MuniPreferred shall, for purposes
hereof, be deemed to have a Date of Original Issue of August [5], 1997; have an
Applicable Rate for its Initial Rate Period equal to % per annum; have an
initial Dividend Payment Date of August [28], 1997; and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Articles applicable to Preferred
Stock of the Fund, as set forth in Part I and Part II of this Statement. Any
shares of Series M MuniPreferred issued after the effective date of this
Statement shall be issued on the first day of a Rate Period of the then
outstanding shares of Series M MuniPreferred; shall have, for such Rate Period,
an Applicable Rate equal to the Applicable Rate for shares of such series
established in the first Auction for shares of such series preceding the date of
such issuance; and shall have such other preferences, limitations and relative
voting rights, in addition to those required by applicable law or set forth in
the Articles applicable to Preferred Stock of the Fund, as set forth in Part I
and Part II of this Statement. The Series M MuniPreferred shall constitute a
separate series of Preferred Stock of the Fund, and each share of Series M
MuniPreferred shall be identical except as provided in Section 11 of Part I of
this Statement.
SERIES T: A series of 10,000 shares of Preferred Stock, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Stock, Series T." Upon the effectiveness of
this Statement, each share of Remarketed Preferred Stock, Series B, of the Fund
outstanding immediately prior to the effectiveness of this Statement shall cease
to be a share of Remarketed Preferred Stock and shall become instead a share of
Series T MuniPreferred. Each share of Series T MuniPreferred shall, for purposes
hereof, be deemed to have a Date of Original Issue of August [5], 1997; have an
Applicable Rate for its Initial Rate Period equal to % per annum; have an
initial Dividend Payment Date of August [7], 1997; and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Articles applicable to Preferred
Stock of the Fund, as set forth in Part I and Part II of this Statement. Any
shares of Series T MuniPreferred issued after the effective date of this
Statement shall be issued on the first day of a Rate Period of the then
outstanding shares of Series T MuniPreferred; shall have, for such Rate Period,
an Applicable Rate equal to the Applicable Rate for shares of such series
established in the first Auction for shares of such series preceding the date of
such issuance; and shall have such other preferences, limitations and relative
voting rights, in addition to those required by applicable law or set forth in
the Articles applicable to Preferred Stock of the Fund, as set forth in Part I
and Part II of this Statement. The Series T MuniPreferred shall constitute a
separate series of Preferred Stock of the Fund, and each share of Series T
MuniPreferred shall be identical except as provided in Section 11 of Part I of
this Statement.
SERIES W: A series of 10,000 shares of Preferred Stock, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Stock, Series W." Upon the effectiveness of
this Statement, each share of Remarketed Preferred Stock, Series E, of the Fund
outstanding immediately prior to the effectiveness of this Statement shall cease
to be a share of Remarketed Preferred Stock and shall become instead a share of
Series W MuniPreferred. Each share of Series W MuniPreferred shall, for purposes
hereof, be deemed to have a Date of Original Issue of August [5], 1997; have an
Applicable Rate for its Initial Rate Period equal to % per annum; have an
initial Dividend Payment Date of August [7], 1997; and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Articles applicable to Preferred
Stock of the Fund, as set forth in Part I and Part II of this Statement. Any
shares of Series W MuniPreferred issued after the effective date of this
Statement shall be issued on the first day of a Rate Period of the then
outstanding shares of Series W MuniPreferred; shall have, for such Rate Period,
an Applicable Rate equal to the Applicable Rate for shares of such series
established in the first Auction for shares of such series preceding the date of
such issuance; and shall have such other preferences, limitations and relative
voting rights, in addition to those required by applicable law or set forth in
the Articles applicable to Preferred Stock of the Fund, as set forth in Part I
and Part II of this Statement. The Series W MuniPreferred shall constitute a
separate series of Preferred Stock of the Fund, and each share of Series W
MuniPreferred shall be identical except as provided in Section 11 of Part I of
this Statement.
SERIES TH: A series of 10,000 shares of Preferred Stock, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Stock, Series TH." Upon the effectiveness of
this Statement, each share of Remarketed Preferred Stock, Series C, of the Fund
outstanding immediately prior to the effectiveness of this Statement shall cease
to be a share of Remarketed Preferred Stock and shall become instead a share of
Series TH MuniPreferred. Each share of Series TH MuniPreferred shall, for
purposes hereof, be deemed to have a Date of Original Issue of August [5], 1997;
have an Applicable Rate for its Initial Rate Period equal to % per annum;
have an initial Dividend Payment Date of August [14], 1997; and have such other
preferences, limitations and relative voting rights, in
A-1
<PAGE> 54
addition to those required by applicable law or set forth in the Articles
applicable to Preferred Stock of the Fund, as set forth in Part I and Part II of
this Statement. Any shares of Series TH MuniPreferred issued after the effective
date of this Statement shall be issued on the first day of a Rate Period of the
then outstanding shares of Series TH MuniPreferred; shall have, for such Rate
Period, an Applicable Rate equal to the Applicable Rate for shares of such
series established in the first Auction for shares of such series preceding the
date of such issuance; and shall have such other preferences, limitations and
relative voting rights, in addition to those required by applicable law or set
forth in the Articles applicable to Preferred Stock of the Fund, as set forth in
Part I and Part II of this Statement. The Series TH MuniPreferred shall
constitute a separate series of Preferred Stock of the Fund, and each share of
Series TH MuniPreferred shall be identical except as provided in Section 11 of
Part I of this Statement.
SERIES F: A series of 10,000 shares of Preferred Stock, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Stock, Series F." Upon the effectiveness of
this Statement, each share of Remarketed Preferred Stock, Series D, of the Fund
outstanding immediately prior to the effectiveness of this Statement shall cease
to be a share of Remarketed Preferred Stock and shall become instead a share of
Series F MuniPreferred. Each share of Series F MuniPreferred shall, for purposes
hereof, be deemed to have a Date of Original Issue of August [5], 1997; have an
Applicable Rate for its Initial Rate Period equal to % per annum; have an
initial Dividend Payment Date of August [21], 1997; and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Articles applicable to Preferred
Stock of the Fund, as set forth in Part I and Part II of this Statement. Any
shares of Series F MuniPreferred issued after the effective date of this
Statement shall be issued on the first day of a Rate Period of the then
outstanding shares of Series F MuniPreferred; shall have, for such Rate Period,
an Applicable Rate equal to the Applicable Rate for shares of such series
established in the first Auction for shares of such series preceding the date of
such issuance; and shall have such other preferences, limitations and relative
voting rights, in addition to those required by applicable law or set forth in
the Articles applicable to Preferred Stock of the Fund, as set forth in Part I
and Part II of this Statement. The Series F MuniPreferred shall constitute a
separate series of Preferred Stock of the Fund, and each share of Series F
MuniPreferred shall be identical except as provided in Section 11 of Part I of
this Statement.
SECTION 2. NUMBER OF AUTHORIZED SHARES PER SERIES.
The number of authorized shares constituting Series M MuniPreferred is 10,000;
Series T MuniPreferred is 10,000; Series W MuniPreferred is 10,000; Series TH
MuniPreferred is 10,000; and Series F MuniPreferred is 10,000.
SECTION 3. EXCEPTIONS TO CERTAIN DEFINITIONS.
Notwithstanding the definitions contained under the heading "Definitions" in
this Statement, the following terms shall have the following meanings for
purposes of this Statement:
Not applicable.
SECTION 4. CERTAIN DEFINITIONS.
For purposes of this Statement, the following terms shall have the following
meanings (with terms defined in the singular having comparable meanings when
used in the plural and vice versa), unless the context otherwise requires:
"ESCROWED BONDS" shall mean Municipal Obligations that (i) have been determined
to be legally defeased in accordance with S&P's legal defeasance criteria, (ii)
have been determined to be economically defeased in accordance with S&P's
economic defeasance criteria and assigned a rating of AAA by S&P, (iii) are not
rated by S&P but have been determined to be legally defeased by Moody's or (iv)
have been determined to be economically defeased by Moody's and assigned a
rating no lower than the rating that is Moody's equivalent of S&P's AAA rating.
"GROSS-UP PAYMENT" means payment to a Holder of shares of MuniPreferred of an
amount which, when taken together with the aggregate amount of Taxable
Allocations made to such Holder to which such Gross-up Payment relates, would
cause such Holder's dividends in dollars (after Federal income tax consequences)
from the aggregate of such Taxable Allocations and the related Gross-up Payment
to be equal to the dollar amount of the dividends which would have been received
by such Holder if the amount of such aggregate Taxable Allocations would have
been excludable from the gross income of such Holder. Such Gross-up Payment
shall be calculated (i) without consideration being given to the time value of
money; (ii) assuming that no Holder of shares of MuniPreferred is subject to the
Federal alternative minimum tax with respect to dividends received from the
Fund; and (iii) assuming that each Taxable Allocation and each Gross-up Payment
(except to the extent such Gross-up Payment is designated as an exempt-interest
dividend under Section 852(b)(5) of the Code or successor provisions) would be
taxable in the hands of each Holder of shares of MuniPreferred at the maximum
marginal regular Federal individual income tax rate applicable to ordinary
income or net capital gains, as applicable, or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income or net capital
gains, as applicable, whichever is greater, in effect at the time such Gross-up
Payment is made.
A-2
<PAGE> 55
"MOODY'S DISCOUNT FACTOR" shall mean, for purposes of determining the Discounted
Value of any Moody's Eligible Asset, the percentage determined by reference to
the rating on such asset and the shortest Exposure Period set forth opposite
such rating that is the same length as or is longer than the Moody's Exposure
Period, in accordance with the table set forth below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
RATING CATEGORY
------------------------------------------------------------
EXPOSURE PERIOD AAA* AA* A* BAA* OTHER** (V)MIG-1*** SP-1+***
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but greater than seven weeks 154 164 173 205 235 137 149
9 weeks or less but greater than eight weeks 158 169 179 209 242 138 150
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Moody's rating.
** Municipal Obligations not rated by Moody's but rated BBB by S&P.
*** Municipal Obligations rated MIG-1 or VMIG-1 or, if not rated by Moody's,
rated SP-1+ by S&P, which do not mature or have a demand feature at par
exercisable in 30 days and which do not have a long-term rating.
Notwithstanding the foregoing, (i) the Moody's Discount Factor for short-term
Municipal Obligations will be 115%, so long as such Municipal Obligations are
rated at least MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand
feature at par exercisable in 30 days or less or 125% as long as such Municipal
Obligations are rated at least A-1+/AA or SP-1+/AA by S&P and mature or have a
demand feature at par exercisable in 30 days or less and (ii) no Moody's
Discount Factor will be applied to cash or to Receivables for Municipal
Obligations Sold.
"MOODY'S ELIGIBLE ASSET" shall mean cash, Receivables for Municipal Obligations
Sold or a Municipal Obligation that (i) pays interest in cash, (ii) is publicly
rated Baa or higher by Moody's or, if not rated by Moody's but rated by S&P, is
rated at least BBB by S&P (provided, however, that for purposes of determining
the Moody's Discount Factor applicable to any such S&P-rated Municipal
Obligation, such Municipal Obligation (excluding any short-term Municipal
Obligation) shall be deemed to have a Moody's rating which is one full rating
category lower than its S&P rating), (iii) does not have its Moody's rating
suspended by Moody's, and (iv) is part of an issue of Municipal Obligations of
at least $10,000,000. Municipal Obligations issued by any one issuer and rated
BBB by S&P may comprise no more than 4% of total Moody's Eligible Assets; such
BBB-rated Municipal Obligations, if any, together with any Municipal Obligations
issued by the same issuer and rated Baa by Moody's or A by S&P, may comprise no
more than 6% of total Moody's Eligible Assets; such BBB, Baa and A-rated
Municipal Obligations, if any, together with any Municipal Obligations issued by
the same issuer and rated A by Moody's or AA by S&P, may comprise no more than
10% of total Moody's Eligible Assets; and such BBB, Baa, A and AA-rated
Municipal Obligations, if any, together with any Municipal Obligations issued by
the same issuer and rated Aa by Moody's or AAA by S&P, may comprise no more than
20% of total Moody's Eligible Assets. For purposes of the foregoing sentence,
any Municipal Obligation backed by the guaranty, letter of credit or insurance
issued by a third party shall be deemed to be issued by such third party if the
issuance of such third party credit is the sole determinant of the rating on
such Municipal Obligation. Municipal Obligations issued by issuers located
within a single state or territory and rated BBB by S&P may comprise no more
than 12% of total Moody's Eligible Assets; such BBB-rated Municipal Obligations,
if any, together with any Municipal Obligations issued by issuers located within
the same state or territory and rated Baa by Moody's or A by S&P, may comprise
no more than 20% of total Moody's Eligible Assets; such BBB, Baa and A-rated
Municipal Obligations, if any, together with any Municipal Obligations issued by
issuers located within the same state or territory and rated A by Moody's or AA
by S&P, may comprise no more than 40% of total Moody's Eligible Assets; and such
BBB, Baa, A and AA-rated Municipal Obligations, if any, together with any
Municipal Obligations issued by issuers located within the same state or
territory and rated Aa by Moody's or AAA by S&P, may comprise no more than 60%
of total Moody's Eligible Assets. For purposes of applying the foregoing
requirements, a Municipal Obligation shall be deemed to be rated BBB by S&P if
rated BBB-, BBB or BBB+ by S&P, Moody's Eligible Assets shall be calculated
without including cash, and Municipal Obligations rated MIG-1, VMIG-1 or P-1 or,
if not rated by Moody's, rated A-1+/AA or SP-1+/AA by S&P, shall be considered
to have a long-term rating of A. When the Fund sells a Municipal Obligation and
agrees to repurchase such Municipal Obligation at a future date, such Municipal
Obligation shall be valued at its Discounted Value for purposes of determining
Moody's Eligible Assets, and the amount of the repurchase price of such
Municipal Obligation shall be included as a liability for purposes of
calculating the MuniPreferred Basic Maintenance Amount. When the Fund purchases
a Moody's Eligible Asset and agrees to sell it at a future date, such Eligible
Asset shall be valued at the amount of cash to be received by the Fund upon such
future date, provided that the counterparty to the transaction has a long-term
debt rating of at least A2 from Moody's and the transaction has a term of no
more than 30 days, otherwise such Eligible Asset shall be valued at the
Discounted Value of such Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset to the extent it is (i) subject to any material lien, mortgage,
pledge, security interest or security agreement of any kind (collectively,
"Liens"), except for (a) Liens which are being contested in good faith by
appropriate proceedings and which Moody's has indicated to the Fund will not
affect the status of such asset as a Moody's Eligible Asset, (b) Liens for taxes
that are not then due and payable or that can be paid thereafter without
penalty, (c) Liens to secure payment for services rendered or cash advanced to
the Fund by
A-3
<PAGE> 56
Nuveen Advisory Corp., United States Trust Company of New York or the Auction
Agent and (d) Liens by virtue of any repurchase agreement; or (ii) deposited
irrevocably for the payment of any liabilities for purposes of determining the
MuniPreferred Basic Maintenance Amount.
"RATE MULTIPLE," for shares of a series of MuniPreferred on any Auction Date for
shares of such series, shall mean the percentage, determined as set forth below,
based on the prevailing rating of shares of such series in effect at the close
of business on the Business Day next preceding such Auction Date:
<TABLE>
<CAPTION>
- ----------------------------------------------------
PREVAILING RATING PERCENTAGE
- ----------------------------------------------------
<S> <C>
"aa3"/AA- or higher 110%
"a3"/A- 125%
"baa3"/BBB- 150%
"ba3"/BB- 200%
Below "ba3"/BB- 250%
- ----------------------------------------------------
</TABLE>
provided, however, that in the event the Fund has notified the Auction Agent of
its intent to allocate income taxable for Federal income tax purposes to shares
of such series prior to the Auction establishing the Applicable Rate for shares
of such series, the applicable percentage in the foregoing table shall be
divided by the quantity 1 minus the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income, whichever is
greater.
For purposes of this definition, the "prevailing rating" of shares of a series
of MuniPreferred shall be (i) "aa3"/AA- or higher if such shares have a rating
of "aa3" or better by Moody's and AA- or better by S&P or the equivalent of such
ratings by such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, (ii) if not "aa3"/AA- or higher, then
"a3"/A- if such shares have a rating of "a3" or better by Moody's and A- or
better by S&P or the equivalent of such ratings by such agencies or a substitute
rating agency or substitute rating agencies selected as provided below, (iii) if
not "aa3"/AA- or higher or "a3"/A-, then "baa3"/BBB- if such shares have a
rating of "baa3" or better by Moody's and BBB- or better by S&P or the
equivalent of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected as provided below, (iv) if not "aa3"/AA- or
higher, "a3"/A- or "baa3"/BBB-, then "ba3"/BB- if such shares have a rating of
"ba3" or better by Moody's and BB- or better by S&P or the equivalent of such
ratings by such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, and (v) if not "aa3"/AA- or higher,
"a3"/A-, "baa3"/BBB-, or "ba3"/BB-, then Below "ba3"/BB-; provided, however,
that if such shares are rated by only one rating agency, the prevailing rating
will be determined without reference to the rating of any other rating agency.
The Fund shall take all reasonable action necessary to enable either S&P or
Moody's to provide a rating for shares of MuniPreferred. If neither S&P nor
Moody's shall make such a rating available, the party set forth in Section 7 of
Appendix A or its successor shall select at least one nationally recognized
statistical rating organization (as that term is used in the rules and
regulations of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended from time to time) to act as a substitute
rating agency in respect of shares of the series of MuniPreferred set forth
opposite such party's name in Section 7 of Appendix A and the Fund shall take
all reasonable action to enable such rating agency to provide a rating for such
shares.
"S&P DISCOUNT FACTOR" shall mean, for purposes of determining the Discounted
Value of any S&P Eligible Asset, the percentage determined by reference to the
rating on such asset and the shortest Exposure Period set forth opposite such
rating that is the same length as or is longer than the S&P Exposure Period, in
accordance with the table set forth below:
<TABLE>
<CAPTION>
- ----------------------------------------------
RATING CATEGORY
-----------------------
EXPOSURE PERIOD AAA* AA* A* BBB*
- ----------------------------------------------
<S> <C> <C> <C> <C>
40 Business Days 190% 195% 210% 250%
22 Business Days 170 175 190 230
10 Business Days 155 160 175 215
7 Business Days 150 155 170 210
3 Business Days 130 135 150 190
- ----------------------------------------------
</TABLE>
* S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
Municipal Obligations will be 115%, so long as such Municipal Obligations are
rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable
within 30 days or less, or 125% if such Municipal Obligations are not rated by
S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's; provided, however, that any
such Moody's-rated short-term Municipal Obligations which have demand features
exercisable within 30 days or less must be backed by a letter of credit,
liquidity facility or guarantee from a bank or other financial institution with
a short-term rating of at least A-1+ from S&P; and further provided that such
Moody's-rated short-term Municipal Obligations may comprise no more than 50% of
short-term Municipal Obligations that qualify as S&P Eligible Assets; (ii) no
S&P Discount Factor will be applied to cash or to Receivables for Municipal
Obligations Sold; and (iii) except
A-4
<PAGE> 57
as set forth in clause (i) above, in the case of any Municipal Obligation that
is not rated by S&P but qualifies as an S&P Eligible Asset pursuant to clause
(iii) of that definition, such Municipal Obligation will be deemed to have an
S&P rating one full rating category lower than the S&P rating category that is
the equivalent of the rating category in which such Municipal Obligation is
placed by Moody's. For purposes of the foregoing, Anticipation Notes rated SP-1+
or, if not rated by S&P, rated MIG-1 or VMIG-1 by Moody's, which do not mature
or have a demand feature at par exercisable in 30 days and which do not have a
long-term rating, shall be considered to be short-term Municipal Obligations.
"S&P ELIGIBLE ASSET" shall mean cash (excluding any cash irrevocably deposited
by the Fund for the payment of any liabilities within the meaning of
MuniPreferred Basic Maintenance Amount), Receivables for Municipal Obligations
Sold or a Municipal Obligation owned by the Fund that (i) is interest bearing
and pays interest at least semi-annually; (ii) is payable with respect to
principal and interest in U.S. Dollars; (iii) is publicly rated BBB or higher by
S&P or, if not rated by S&P but rated by Moody's, is rated at least A by
Moody's; (iv) is not part of a private placement of Municipal Obligations; and
(v) is part of an issue of Municipal Obligations with an original issue size of
at least $20 million or, if of an issue with an original issue size below $20
million (but in no event below $10 million), is issued by an issuer with a total
of at least $50 million of securities outstanding. Solely for purposes of this
definition, the term "Municipal Obligation" means any obligation the interest on
which is exempt from regular Federal income taxation and which is issued by any
of the fifty United States, the District of Columbia or any of the territories
of the United States, their subdivisions, counties, cities, towns, villages,
school districts and agencies (including authorities and special districts
created by the states), and federally sponsored agencies such as local housing
authorities. Notwithstanding the foregoing limitations:
(1) Municipal Obligations (excluding Escrowed Bonds) of any one issuer or
guarantor (excluding bond insurers) shall be considered S&P Eligible Assets
only to the extent the Market Value of such Municipal Obligations does not
exceed 10% of the aggregate Market Value of S&P Eligible Assets, provided
that 2% is added to the applicable S&P Discount Factor for every 1% by
which the Market Value of such Municipal Obligations exceeds 5% of the
aggregate Market Value of S&P Eligible Assets;
(2) Municipal Obligations rated by Moody's but not rated by S&P shall be
considered S&P Eligible Assets only to the extent the Market Value of such
Municipal Obligations does not exceed 50% of the aggregate Market Value of
S&P Eligible Assets; and
(3) Long-Term Municipal Obligations (excluding Escrowed Bonds) issued by
issuers in any one state or territory shall be considered S&P Eligible
Assets only to the extent the Market Value of such Municipal Obligations
does not exceed 20% of the aggregate Market Value of S&P Eligible Assets.
SECTION 5. INITIAL AND TRANSITIONAL RATE PERIODS.
The Initial Rate Period for shares of Series M MuniPreferred shall be the period
from and including the Date of Original Issue thereof to but excluding August
[28], 1997. The Transitional Rate Period for shares of Series M MuniPreferred
shall be the period from and including August [28], 1997 to but excluding
September [9], 1997.
The Initial Rate Period for shares of Series T MuniPreferred shall be the period
from and including the Date of Original Issue thereof to but excluding August
[7], 1997. The Transitional Rate Period for shares of Series T MuniPreferred
shall be the period from and including August [7], 1997 to but excluding August
[13], 1997.
The Initial Rate Period for shares of Series W MuniPreferred shall be the period
from and including the Date of Original Issue thereof to but excluding August
[7], 1997.
The Initial Rate Period for shares of Series TH MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
August [14], 1997. The Transitional Rate Period for shares of Series TH
MuniPreferred shall be the period from and including August [14], 1997 to but
excluding August [22], 1997.
The Initial Rate Period for shares of Series F MuniPreferred shall be the period
from and including the Date of Original Issue thereof to but excluding August
[21], 1997. The Transitional Rate Period for shares of Series F MuniPreferred
shall be the period from and including August [21], 1997 to but excluding
September [2], 1997.
SECTION 6. DATE FOR PURPOSES OF PARAGRAPH (YYY) CONTAINED UNDER THE HEADING
"DEFINITIONS" IN THIS STATEMENT.
August 31, 1997.
A-5
<PAGE> 58
SECTION 7. PARTY NAMED FOR PURPOSES OF THE DEFINITION OF "RATE MULTIPLE" IN THIS
STATEMENT.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
PARTY: SERIES OF MUNIPREFERRED:
- ----------------------------------------------------------------------------------
<S> <C>
Merrill, Lynch, Pierce, Fenner & Smith Incorporated Series M
Merrill, Lynch, Pierce, Fenner & Smith Incorporated Series T
Merrill, Lynch, Pierce, Fenner & Smith Incorporated Series W
Merrill, Lynch, Pierce, Fenner & Smith Incorporated Series TH
Merrill, Lynch, Pierce, Fenner & Smith Incorporated Series F
- ----------------------------------------------------------------------------------
</TABLE>
SECTION 8. ADDITIONAL DEFINITIONS.
Not applicable.
SECTION 9. DIVIDEND PAYMENT DATES.
Except as otherwise provided in paragraph (d) of Section 2 of Part I of this
Statement, dividends shall be payable on shares of:
Series M MuniPreferred, for the Initial Rate Period on Thursday, August [28],
1997, for the Transitional Rate Period on Tuesday, September [9], 1997, and on
each Tuesday thereafter;
Series T MuniPreferred, for the Initial Rate Period on Thursday, August [7],
1997, for the Transitional Rate Period on Wednesday, August [13], 1997, and on
each Wednesday thereafter;
Series W MuniPreferred, for the Initial Rate Period on Thursday, August [7],
1997, and on each Thursday thereafter;
Series TH MuniPreferred, for the Initial Rate Period on Thursday, August [14],
1997, for the Transitional Rate Period on Friday, August [22], 1997, and on each
Friday thereafter; and
Series F MuniPreferred, for the Initial Rate Period on Thursday, August [21],
1997, for the Transitional Rate Period on Tuesday, September [2], 1997, and on
each Monday thereafter.
SECTION 10. AMOUNT FOR PURPOSES OF SUBPARAGRAPH (C)(I) OF SECTION 5 OF PART I OF
THIS STATEMENT.
$350,000,000.
SECTION 11. REDEMPTION PROVISIONS APPLICABLE TO INITIAL RATE PERIODS.
Not applicable.
SECTION 12. APPLICABLE RATE FOR PURPOSES OF SUBPARAGRAPH(B)(III) OF SECTION 3 OF
PART II OF THIS STATEMENT.
For purposes of subparagraph (b)(iii) of Section 3 of Part II of this Statement,
the Applicable Rate for shares of such series for the next succeeding Rate
Period of shares of such series shall be equal to the lesser of the Kenny Index
(if such Rate Period consists of fewer than 183 Rate Period Days) or the product
of (A)(I) the "AA" Composite Commercial Paper Rate on such Auction Date for such
Rate Period, if such Rate Period consists of fewer than 183 Rate Period Days;
(II) the Treasury Bill Rate on such Auction Date for such Rate Period, if such
Rate Period consists of more than 182 but fewer than 365 Rate Period Days; or
(III) the Treasury Note Rate on such Auction Date for such Rate Period, if such
Rate Period is more than 364 Rate Period Days (the rate described in the
foregoing clause (A)(I), (II) or (III), as applicable, being referred to herein
as the "Benchmark Rate") and (B) 1 minus the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income,
whichever is greater; provided, however, that if the Fund has notified the
Auction Agent of its intent to allocate to shares of such series in such Rate
Period any net capital gains or other income taxable for Federal income tax
purposes ("Taxable Income"), the Applicable Rate for shares of such series for
such Rate Period will be (i) if the Taxable Yield Rate (as defined below) is
greater than the Benchmark Rate, then the Benchmark Rate, or (ii) if the Taxable
Yield Rate is less than or equal to the Benchmark Rate, then the rate equal to
the sum of (x) the lesser of the Kenny Index (if such Rate Period consists of
fewer than 183 Rate Period Days) or the product of the Benchmark Rate multiplied
by the factor set forth in the preceding clause (B) and (y) the product of the
maximum marginal regular Federal individual income tax rate applicable to
ordinary income or the maximum marginal regular Federal corporate income tax
applicable to ordinary income, whichever is greater, multiplied by the Taxable
Yield Rate. For purposes of the foregoing, Taxable Yield Rate means the rate
determined by (a) dividing the amount of Taxable Income available for
distribution per such share of MuniPreferred by the number of days in the
Dividend Period in respect of which such Taxable Income is contemplated to be
distributed, (b) multiplying the amount determined in (a) above by 365 (in the
case of a Dividend Period of 7 Rate Period Days) or 360 (in the case of any
other Dividend Period), and (c) dividing the amount determined in (b) above by
$25,000.
A-6
<PAGE> 59
NPI797
<PAGE> 60
At the upcoming Annual Meeting, all shareholders will be asked to consider and
approve a very important proposal. The Fund's management seeks to update the
terms of the Fund's preferred stock (Remarketed Preferred Stock or "Nuveen
RP") to conform with the state-of-the-art terms of preferred stock of the more
recently issued Nuveen exchange-traded funds (Municipal Auction Rate Cumulative
Preferred Stock or "MuniPreferred(R)"). We believe the proposal will increase
the income available to the Fund's common stockholders. We also believe that
the proposal may simplify the process of investing in and owning shares of the
Fund's preferred stock. If approved, the terms of the Nuveen RP would be
amended to make the following changes and to offer the following advantages,
among others:
- Change from a remarketing to an auction process.
- Permit more flexibility regarding dividend rate periods.
- Permit more flexibility to issue additional shares of
preferred stock.
- Eliminate Master Purchaser's Letters.
Whether or not you plan to join us, please complete, date and sign your proxy
card and return it in the enclosed envelope so that your vote will be counted.
_____________ Please fold at perforation before detaching _____________
- --------------------------------------------------------------------------------
PROXY BALLOT
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
COMMON STOCK
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 30, 1997
The undersigned hereby appoints Timothy R. Schwertfeger, Anthony T. Dean and
Gifford R. Zimmerman and each of them, with full power of substitution, Proxies
for the undersigned to represent and vote the common stock of the undersigned at
the Annual Meeting of Shareholders of Nuveen Premium Income Municipal Fund, Inc.
to be held on July 30, 1997, or any adjournment or adjournments thereof:
1. Election of Directors:
NOMINEES: Robert P. Brenner, Lawrence H. Brown, Anthony T. Dean, Anne E.
Impellizzeri, Peter R. Sawers, and Judith M. Stockdale.
2. Ratification of the selection of Ernst & Young LLP as independent auditors
for the fiscal year ending October 31, 1997.
3. Approval of amendments to the terms of the Fund's Remarketed Preferred
Stock.
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
You are encouraged to specify your choices by marking the appropriate boxes ON
THE REVERSE SIDE. If you do not mark any boxes, your Proxy will be voted in
accordance with the Board of Directors' recommendations. Please sign, date and
return this Proxy card promptly using the enclosed envelope.
SEE REVERSE SIDE
NPI797
<PAGE> 61
<TABLE>
<S><C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES AND EACH PROPOSAL: Please mark your votes as in this example. [X]
1. ELECTION OF DIRECTORS:
(See reverse for nominees) \ \ FOR \ \ WITHHOLD authority to vote \ \ WITHHOLD authority to vote
all nominees for all nominees for nominees indicated below:
INSTRUCTIONS: -------------------------------
To grant authority to vote FOR ALL nominees, mark the box on the left above OR do not mark any box above.
To WITHHOLD authority to vote FOR ALL nominees, mark the box in the middle above.
To WITHHOLD authority to vote FOR ANY ONE OR MORE of the nominees, mark the box on the right above AND write each
nominees's name in the space provided.
FOR AGAINST ABSTAIN
2. Ratification of the selection of Ernst & Young LLP as independent auditors for the \ \ \ \ \ \
fiscal year ending October 31, 1997.
FOR AGAINST ABSTAIN
3. Approval of amendments to the terms of the Fund's Remarketed Preferred Stock.
\ \ \ \ \ \
4. In their discretion, the Proxies are authorized to vote upon such other business as may
properly come before the Annual Meeting.
The shares to which this Proxy relates will be voted as specified. If no specification is made, such shares will be voted for the
election of Directors and for the proposals set forth on this Proxy.
</TABLE>
Please be sure to sign and date this Proxy.
Shareholder sign here________________________ Date ________________________
Co-owner sign here __________________________ Date ________________________
NOTE: Please sign exactly as your name appears on this Proxy. If signing
for estates, trusts or corporations, title or capacity should be stated. If
shares are held jointly, each holder should sign.
[ ] BK NPI797 NPI797
<PAGE> 62
At the upcoming Annual Meeting, all shareholders will be asked to consider and
approve a very important proposal. The Fund's management seeks to update the
terms of the Fund's preferred stock (Remarketed Preferred Stock or "Nuveen
RP") to conform with the state-of-the-art terms of preferred stock of the more
recently issued Nuveen exchange-traded funds (Municipal Auction Rate Cumulative
Preferred Stock or "MuniPreferred(R)"). We believe the proposal will increase
the income available to the Fund's common stockholders. We also believe that
the proposal may simplify the process of investing in and owning shares of the
Fund's preferred stock. If approved, the terms of the Nuveen RP would be
amended to make the following changes and to offer the following advantages,
among others:
- Change from a remarketing to an auction process.
- Permit more flexibility regarding dividend rate periods.
- Permit more flexibility to issue additional shares of
preferred stock.
- Eliminate Master Purchaser's Letters.
Whether or not you plan to join us, please complete, date and sign your proxy
card and return it in the enclosed envelope so that your vote will be counted.
_____________ Please fold at perforation before detaching _____________
- --------------------------------------------------------------------------------
PROXY BALLOT
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
REMARKETED PREFERRED STOCK, SERIES A, B, C, D AND E
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 30, 1997
The undersigned hereby appoints Timothy R. Schwertfeger, Anthony T. Dean and
Gifford R. Zimmerman and each of them, with full power of substitution, Proxies
for the undersigned to represent and vote the shares of Remarketed Preferred
Stock, Series A, B, C, D AND E, of the undersigned at the Annual Meeting of
Shareholders of Nuveen Premium Income Municipal Fund, Inc. to be held on July
30, 1997, or any adjournment or adjournments thereof:
1. Election of Directors:
NOMINEES:--BY ALL SHAREHOLDERS: Robert P. Brenner, Lawrence H. Brown,
Anthony T. Dean, Anne E. Impellizzeri, Peter R. Sawers, and Judith M.
Stockdale.
NOMINEES:--BY HOLDERS OF REMARKETED PREFERRED STOCK ONLY: William J.
Schneider, and Timothy R. Schwertfeger.
2. Ratification of the selection of Ernst & Young LLP as independent auditors
for the fiscal year ending October 31, 1997.
3. Approval of amendments to the terms of the Fund's Remarketed Preferred
Stock.
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
You are encouraged to specify your choices by marking the appropriate boxes ON
THE REVERSE SIDE. If you do not mark any boxes, your Proxy will be voted in
accordance with the Board of Directors' recommendations. Please sign, date and
return this Proxy card promptly using the enclosed envelope.
SEE REVERSE SIDE
NPI797-P
<PAGE> 63
<TABLE>
<S><C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES AND EACH PROPOSAL: Please mark your votes as in this example. [X]
1. ELECTION OF DIRECTORS:
(See reverse for nominees) \ \ FOR \ \ WITHHOLD authority to vote \ \ WITHHOLD authority to vote
all nominees for all nominees for nominees indicated below:
INSTRUCTIONS: -------------------------------
To grant authority to vote FOR ALL nominees, mark the box on the left above OR do not mark any box above.
To WITHHOLD authority to vote FOR ALL nominees, mark the box in the middle above.
To WITHHOLD authority to vote FOR ANY ONE OR MORE of the nominees, mark the box on the right above AND write each
nominees's name in the space provided.
FOR AGAINST ABSTAIN
2. Ratification of the selection of Ernst & Young LLP as independent auditors for the \ \ \ \ \ \
fiscal year ending October 31, 1997.
FOR AGAINST ABSTAIN
3. Approval of the amendments to the Fund's Remarketed Preferred Stock.
\ \ \ \ \ \
4. In their discretion, the Proxies are authorized to vote upon such other business as may
properly come before the Annual Meeting.
</TABLE>
The shares to which this Proxy relates will be voted as specified. If
no specification is made, such shares will be voted for the election of
Directors and for the proposals set forth on this Proxy.
If the undersigned is a broker-dealer, it hereby instructs the proxies, pursuant
to Rule 452 of the New York Stock Exchange, to vote any uninstructed shares of
Remarketed Preferred Stock, Series A, B, C, D and E, in the same proportion as
votes cast by holders of those shares, who have responded to this proxy
solicitation.
Please be sure to sign and date this Proxy.
Shareholder sign here________________________ Date ________________________
Co-owner sign here __________________________ Date ________________________
NOTE: Please sign exactly as your name appears on this Proxy. If signing
for estates, trusts or corporations, title or capacity should be stated. If
shares are held jointly, each holder should sign.
[ ] BK NPI797 NPI797-P
