<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 1997
1933 ACT FILE NO. 333-33651
1940 ACT FILE NO. 811-5570
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
(Check appropriate box or boxes)
[ ] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] PRE-EFFECTIVE AMENDMENT NO. 1
[ ] POST-EFFECTIVE AMENDMENT NO.
AND/OR
[ ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] AMENDMENT NO. 16
NUVEEN PREMIUM
INCOME MUNICIPAL FUND, INC.
EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER
333 WEST WACKER DRIVE, CHICAGO, ILLINOIS 60606
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES (NUMBER, STREET, CITY, STATE AND ZIP
CODE)
(312) 917-7700
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
GIFFORD R. ZIMMERMAN, ESQ.--VICE PRESIDENT AND ASSISTANT SECRETARY
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
NAME AND ADDRESS (NUMBER, STREET, CITY, STATE AND ZIP CODE) OF AGENT FOR SERVICE
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
DAVID A. STURMS JOSEPH H. NESLER
VEDDER, PRICE, KAUFMAN & KAMMHOLZ SIDLEY & AUSTIN
222 NORTH LASALLE STREET ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60601 CHICAGO, ILLINOIS 60603
</TABLE>
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement
If any of the securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATES AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
================================================================================
<PAGE> 2
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
CROSS REFERENCE SHEET
PART A--PROSPECTUS
<TABLE>
<CAPTION>
ITEMS IN PART A OF FORM N-2 LOCATION IN PROSPECTUS
--------------------------- ----------------------
<S> <C> <C>
Item 1. Outside Front Cover Cover Page
Item 2. Inside Front and Outside Back Cover Page Inapplicable
Item 3. Fee Table and Synopsis Inapplicable
Item 4. Financial Highlights Financial Highlights
Item 5. Plan of Distribution Cover Page; Prospectus Summary; The
Auction; Underwriting
Item 6. Selling Shareholders Inapplicable
Item 7. Use of Proceeds Use of Proceeds; Investment Objective
and Policies
Item 8. General Description of the Registrant Cover Page; Prospectus Summary; The
Fund; Investment Objective and Policies;
Description of MuniPreferred;
Description of Common Stock
Item 9. Management Prospectus Summary; Management of the
Fund; Custodian, Transfer Agent,
Dividend Disbursing Agent and Redemption
Agent
Item 10. Capital Stock, Long-Term Debt, and Other Securities Capitalization; Investment Objective and
Policies; Description of MuniPreferred;
The Auction; Description of Common
Stock; Certain Provisions in the
Articles of Incorporation; Tax Matters
Item 11. Defaults and Arrears on Senior Securities Inapplicable
Item 12. Legal Proceedings Inapplicable
Item 13. Table of Contents of the
Statement of Additional Information Table of Contents for the Statement of
Additional Information
</TABLE>
PART B--STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
LOCATION IN STATEMENT OF
ITEMS IN PART B OF FORM N-2 ADDITIONAL INFORMATION
--------------------------- ------------------------
<S> <C> <C>
Item 14. Cover Page Cover Page
Item 15. Table of Contents Cover Page
Item 16. General Information and History Inapplicable
Item 17. Investment Objective and Policies Investment Objective and Policies;
Certain Trading Strategies of the Fund;
Portfolio Transactions
Item 18. Management Management of the Fund; Portfolio
Transactions
Item 19. Control Persons and Principal Holders of Securities Management of the Fund; Certain Owners
of Record
Item 20. Investment Advisory and Other Services Management of the Fund; Experts
Item 21. Brokerage Allocation and Other Practices Portfolio Transactions
Item 22. Tax Status Tax Matters
Item 23. Financial Statements
</TABLE>
PART C -- OTHER INFORMATION
Items 24-33 have been answered in Part C of this Registration Statement.
<PAGE> 3
SUBJECT TO COMPLETION
NUVEEN LOGO PRELIMINARY PROSPECTUS DATED SEPTEMBER 22, 1997
PROSPECTUS
$125,000,000
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK ("MUNIPREFERRED(R)")
1,000 SHARES SERIES M
1,000 SHARES SERIES T
1,000 SHARES SERIES W
1,000 SHARES SERIES TH
1,000 SHARES SERIES F
LIQUIDATION PREFERENCE $25,000 PER SHARE
-------------------------
Nuveen Premium Income Municipal Fund, Inc. (the "Fund") is a closed-end,
diversified management investment company. The Fund's investment objective is a
high level of current income exempt from regular Federal income tax, consistent
with preservation of capital. The Fund seeks to achieve this objective by
investing in a diversified portfolio of investment grade tax-exempt Municipal
Obligations. See "Investment Objective and Policies." No assurance can be given
that the Fund's investment objective will be achieved. The Fund's principal
office is located at 333 West Wacker Drive, Chicago, Illinois 60606, and its
telephone number is (312) 917-7700. Investors are advised to read this
Prospectus, which sets forth concisely the information about the Fund that a
prospective investor ought to know before investing, and retain it for future
reference. A Statement of Additional Information dated , 1997
containing additional information regarding the Fund has been filed with the
Securities and Exchange Commission and is hereby incorporated by reference in
its entirety into this Prospectus. A copy of the Statement of Additional
Information, the table of contents of which appears on page of this
Prospectus, may be obtained without charge by calling the Fund at (800)
257-8787. In addition, the Securities and Exchange Commission maintains a web
site (http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information filed electronically
with the Commission.
The Fund is offering 1,000 shares of Series M MuniPreferred, 1,000 shares of
Series T MuniPreferred, 1,000 shares of Series W MuniPreferred, 1,000 shares of
Series TH MuniPreferred and 1,000 shares of Series F MuniPreferred. The shares
of MuniPreferred offered hereby are referred to herein collectively as "New
MuniPreferred." However, the offering of each series is independent of the
offering of each other series, and no offering is contingent upon the closing of
any other offering. Certain information presented in this Prospectus assumes
that each offering is made and effected as contemplated, but there can be no
assurance that this will be the case. The Fund currently has outstanding 2,800
shares of Series M MuniPreferred, 2,800 shares of Series T MuniPreferred, 2,800
shares of Series W MuniPreferred, 2,800 shares of Series TH MuniPreferred and
2,800 shares of Series F MuniPreferred. The shares of MuniPreferred currently
outstanding are referred to herein collectively as "Existing MuniPreferred" and
together with the New MuniPreferred, or each separately, are referred to as
"MuniPreferred."
(continued on reverse side)
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
(R) Registered trademark of John Nuveen & Co. Incorporated
<TABLE>
<CAPTION>
======================================================================================================================
PRICE TO PROCEEDS TO
PUBLIC(1) SALES LOAD(2) FUND(3)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Per Share................................................ $25,000 $ $
- ----------------------------------------------------------------------------------------------------------------------
Total.................................................... $125,000,000 $ $
======================================================================================================================
</TABLE>
(1) Plus accumulated dividends, if any, from the Date of Original Issue.
(2) The Fund and Nuveen Advisory Corp. have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended.
(3) Before deducting costs payable by the Fund, estimated at $310,879.
-------------------------
The shares of New MuniPreferred are offered by the several Underwriters
named herein, subject to prior sale, when, as and if issued to and accepted by
them and subject to approval of certain legal matters by counsel for the
Underwriters. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that the
shares of New MuniPreferred will be delivered to the Underwriters through the
facilities of The Depository Trust Company as follows: Series M MuniPreferred on
or about Tuesday, ; Series T MuniPreferred on or about
Wednesday, ; on Series W MuniPreferred on or about Thursday,
; on Series TH MuniPreferred on or about Friday,
; and on Series F MuniPreferred on or about Monday,
.
-------------------------
MERRILL LYNCH & CO.
BT ALEX.BROWN INCORPORATED
GOLDMAN, SACHS & CO.
JOHN NUVEEN & CO. INCORPORATED
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES
INCORPORATED
SMITH BARNEY INC.
-------------------------
The date of this Prospectus is , 1997.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
<PAGE> 4
(Continued from Cover)
Dividends on shares of MuniPreferred, to the extent payable from tax-exempt
income earned on the Fund's investments, will be exempt from regular Federal
income tax in the hands of owners of such shares. All or a portion of the Fund's
dividends may be subject to the Federal alternative minimum tax. In the past,
the Fund made nonproportionate designations of dividends between its preferred
stockholders and common stockholders such that dividends paid to holders of
preferred stock were designated as exempt interest dividends to the extent such
dividends did not exceed the Fund's exempt interest income under a special
"grandfather" provision contained in Revenue Ruling 89-81. The Fund now intends
to allocate proportionately the Fund's exempt interest income, investment
company taxable income and net capital gain, if any, to both common and
preferred stockholders. 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, give notice of the amount of any income taxable
for Federal income tax purposes to be included in a dividend on shares of
MuniPreferred in advance of the related Auction. See "The Auction--Auction
Procedures." The amount of any such investment company taxable income and net
capital gain allocable to shares of MuniPreferred will depend upon the amount of
such income and gain realized by the Fund, but is not generally expected to be
significant. See "Tax Matters."
The dividend rate for shares of New MuniPreferred of a particular series
for the initial Rate Period for such shares shall be equal to the dividend rate
for shares of Existing MuniPreferred of the same series established in the first
Auction for shares of such series preceding the date of issuance of such shares
of New MuniPreferred. For each Subsequent Rate Period of such shares, the
dividend rate for such shares will be the Applicable Rate for such shares in
effect from time to time determined, except as described herein, on the basis of
Orders placed in an Auction conducted on the Business Day preceding the
commencement of such Subsequent Rate Period. The Applicable Rate for such shares
that results from an Auction for any Rate Period for such shares will not exceed
the Maximum Rate for such shares. The Broker-Dealers maintain a secondary
trading market in shares of MuniPreferred outside of Auctions, but are not
obligated to do so, and may discontinue such activity at any time. There can be
no assurance that such secondary trading market in shares of MuniPreferred will
provide owners with liquidity of investment. Shares may be transferred outside
of Auctions only to a Broker-Dealer or such other persons as may be permitted by
the Fund. See "The Auction -- Secondary Market Trading and Transfer of
MuniPreferred." The shares of MuniPreferred of each series are redeemable by the
Fund as described herein. See "Description of MuniPreferred -- Redemption."
Dividends on shares of New MuniPreferred of a particular series shall
accumulate at the Applicable Rate for shares of such series commencing as
follows: Series M MuniPreferred on Tuesday, ; Series T
MuniPreferred on Wednesday, ; Series W MuniPreferred on
Thursday, ; Series TH MuniPreferred on Friday,
; and Series F MuniPreferred on Monday, .
Except as described herein, dividends shall be payable on shares of Series M
MuniPreferred on Tuesday, , and thereafter on each Tuesday;
Series T MuniPreferred on Wednesday, , and thereafter on each
Wednesday; Series W MuniPreferred on Thursday, , and
thereafter on each Thursday; Series TH MuniPreferred on Friday,
, and thereafter on each Friday; and Series F MuniPreferred on
Tuesday, , and thereafter on each Monday. Any Subsequent Rate
Period of shares of a series of MuniPreferred will be a Minimum Rate Period (7
Rate Period Days) unless the Fund, subject to certain conditions, designates
such Subsequent Rate Period as a Special Rate Period. See "Description of
MuniPreferred--Dividends and Dividend Periods--Designation of Special Rate
Periods."
<PAGE> 5
PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to the
more detailed information included elsewhere in this Prospectus and the Fund's
Amended and Restated Statement Establishing and Fixing the Rights and
Preferences of Municipal Auction Rate Cumulative Preferred Stock attached as
Appendix A to this Prospectus (the "Statement"). Capitalized terms used but not
defined herein shall have the meanings given to such terms in the Statement.
THE FUND
Nuveen Premium Income Municipal Fund, Inc. (the "Fund") is a closed-end,
diversified management investment company. See "The Fund." The Fund's shares of
common stock, $.01 par value ("Common Stock"), are traded on the New York Stock
Exchange under the symbol "NPI." See "Description of Common Stock." As of August
31, 1997, the Fund had 63,785,431 shares of Common Stock outstanding, 14,000
shares of Preferred Stock outstanding and net assets of $1,316,489,948.
INVESTMENT OBJECTIVE
The Fund's investment objective is a high level of current income exempt
from regular Federal income tax, consistent with preservation of capital. The
Fund seeks to achieve this objective by investing in a diversified portfolio of
investment grade tax-exempt Municipal Obligations. See "Investment Objective and
Policies." No assurance can be given that the Fund's investment objective will
be achieved. In seeking to achieve its investment objective, the Fund may employ
certain trading strategies, such as financial futures and options transactions,
subject to certain restrictions. See "Portfolio Transactions" in the Statement
of Additional Information.
INVESTMENT ADVISER
Nuveen Advisory Corp. (the "Adviser") acts as the Fund's investment
adviser. The Adviser is a wholly-owned subsidiary of John Nuveen & Co.
Incorporated, an investment banking firm that has specialized in the
underwriting and distribution of tax-exempt securities throughout its history.
See "Management of the Fund" and "Underwriting."
THE OFFERING
The Fund is offering 1,000 shares of Series M MuniPreferred, 1,000 shares
of Series T MuniPreferred, 1,000 shares of Series W MuniPreferred, 1,000 shares
of Series TH MuniPreferred and 1,000 shares of Series F MuniPreferred, each at a
purchase price of $25,000 per share. However, the offering of each series is
independent of the offering of each other series, and no offering is contingent
upon the closing of any other offering. Certain information presented in this
Prospectus assumes that each offering is made and effected as contemplated, but
there can be no assurance that this will be the case. Shares of MuniPreferred
are being offered by the Underwriters listed under "Underwriting." Except as
otherwise described herein, the rights and preferences of each series of
MuniPreferred are identical.
DIVIDENDS AND DIVIDEND PERIODS
The dividend rate for shares of New MuniPreferred of a particular series
for the initial Rate Period for such shares shall be equal to the dividend rate
for shares of Existing MuniPreferred of the same series established in the first
Auction for shares of such series preceding the date of issuance of such shares
of New MuniPreferred. For each Subsequent Rate Period of such shares, the
dividend rate for such shares will be the Applicable Rate for such shares in
effect from time to time determined, except as described herein, on the basis of
Orders placed in an Auction conducted on the Business Day preceding the
commencement of such Subsequent Rate Period. The Applicable Rate for such shares
that results from an Auction for any Rate Period for such shares will not exceed
the Maximum Rate for such shares.
3
<PAGE> 6
Dividends on shares of New MuniPreferred of a particular series shall
accumulate at the Applicable Rate for shares of such series commencing as
follows: Series M MuniPreferred on Tuesday, ; Series T
MuniPreferred on Wednesday, ; Series W MuniPreferred on
Thursday, ; Series TH MuniPreferred on Friday,
; and Series F MuniPreferred on Monday, .
Except as described herein, dividends shall be payable on shares of Series M
MuniPreferred on Tuesday, , and thereafter on each Tuesday;
Series T MuniPreferred on Wednesday, , and thereafter on each
Wednesday; Series W MuniPreferred on Thursday, , and
thereafter on each Thursday; Series TH MuniPreferred on Friday,
, and thereafter on each Friday; and Series F MuniPreferred on
Tuesday, , and thereafter on each Monday. Any Subsequent Rate
Period of shares of a series of MuniPreferred will be a Minimum Rate Period (7
Rate Period Days) unless the Fund, subject to certain conditions, designates
such Subsequent Rate Period as a Special Rate Period. See "Description of
MuniPreferred -- Dividends and Dividend Periods -- Designation of Special Rate
Periods."
TAXATION
Dividends on shares of MuniPreferred, to the extent payable from tax-exempt
income earned on the Fund's investments, will be exempt from regular Federal
income tax in the hands of owners of such shares. All or a portion of the Fund's
dividends may be subject to the Federal alternative minimum tax. In the past,
the Fund made nonproportionate designations of dividends between its preferred
stockholders and common stockholders such that dividends paid to holders of
preferred stock were designated as exempt interest dividends to the extent such
dividends did not exceed the Fund's exempt interest income under a special
"grandfather" provision contained in Revenue Ruling 89-81. The Fund now intends
to allocate proportionately the Fund's exempt interest income, investment
company taxable income and net capital gain, if any, to both common and
preferred stockholders. 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, give notice of the amount of any income taxable
for Federal income tax purposes to be included in a dividend on shares of
MuniPreferred in advance of the related Auction. See "The Auction -- Auction
Procedures." The amount of any such investment company taxable income and net
capital gain allocable to shares of MuniPreferred will depend upon the amount of
such income and gain realized by the Fund, but is not generally expected to be
significant. See "Tax Matters."
RATINGS
It is a condition to the issuance of shares of New MuniPreferred of each
series that such shares be issued with a rating of "aaa" from Moody's or AAA
from S&P. See "Description of MuniPreferred -- Rating Agency Guidelines."
REDEMPTION
Unless the Fund waives its right of redemption with respect to shares of a
series of MuniPreferred in a notice establishing a Special Rate Period of such
shares, shares of MuniPreferred of such series are redeemable by the Fund in
whole or in part on the second Business Day preceding any Dividend Payment Date
for such shares. Shares of MuniPreferred are redeemable by the Fund in whole
under certain other circumstances. In the event the Fund does not timely cure a
failure to meet certain rating agency guidelines, the Fund will be required to
redeem certain shares of MuniPreferred. See "Description of MuniPreferred --
Redemption" and "-- Rating Agency Guidelines."
LIQUIDATION PREFERENCE
The liquidation preference of the shares of each series of New
MuniPreferred will be $25,000 per share plus accumulated but unpaid dividends,
if any, thereon. See "Description of MuniPreferred -- Liquidation."
4
<PAGE> 7
VOTING RIGHTS
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 in the event 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. See "Description of MuniPreferred -- Voting Rights"
and "Certain Provisions in the Articles of Incorporation."
SECONDARY MARKET TRADING
The Broker-Dealers maintain a secondary trading market in shares of
MuniPreferred outside of Auctions, but are not obligated to do so, and may
discontinue such activity at any time. There can be no assurance that such
secondary trading market in shares of MuniPreferred will provide owners with
liquidity of investment. Shares may be transferred outside of Auctions only to a
Broker-Dealer or such other persons as may be permitted by the Fund. See "The
Auction -- Secondary Market Trading and Transfer of MuniPreferred."
5
<PAGE> 8
FINANCIAL HIGHLIGHTS
The table below shows financial information for the Fund, expressed in
terms of one share outstanding throughout the period. The information in the
table is covered by the report of Ernst & Young LLP except where noted. The
report is contained in the Statement of Additional Information and is available
from the Fund.
<TABLE>
<CAPTION>
SIX
MONTHS YEAR ENDED 10/31
ENDED -------------------------------------------------
4/30/97+++ 1996 1995 1994 1993
---------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value
beginning of period.... $ 14.960 $ 15.110 $ 14.140 $ 16.300 $ 15.790
OPERATING PERFORMANCE:
Net investment income.. .573 1.158 1.235 1.256 1.431
Net realized &
unrealized gain
(loss) from
investments.......... (.173) (.097) 1.006 (2.016)*** .612
Total from investment
operations............. .400 1.061 2.241 (.760) 2.043
DIVIDENDS FROM
TAX-EXEMPT NET
INVESTMENT INCOME:
To Common
shareholders......... (.477) (.965) (1.056) (1.172) (1.364)
To Preferred
shareholders+........ (.094) (.196) (.215) (.156) (.169)
DISTRIBUTIONS FROM
CAPITAL GAINS:
To Common
shareholders......... (.029) (.050) -- (.072) --
Total distributions..... (.600) (1.211) (1.271) (1.400) (1.533)
Organization and
offering costs and
Preferred share
underwriting
discounts.............. -- -- -- -- --
Net asset value end of
period................. 14.760 14.960 15.110 14.140 16.300
Per Common share market
value end of period.... 14.125 14.500 14.375 13.250 17.750
Total investment return
on market value**...... .93% 8.24% 16.88% (19.13)% 20.96%
Total return on net
asset value**.......... 2.06% 5.92% 14.84% (5.88)% 12.33%
RATIOS/SUPPLEMENTAL
DATA:
Net assets end of
period (in
thousands)........... $1,291,656 $1,304,192 $1,313,673 $1,252,208 $1,213,064
Ratio of expenses to
average net
assets++............. .76%* .75% .76% .77% .79%
Ratio of net investment
income to average net
assets++............. 5.66%* 5.67% 6.13% 6.08% 6.28%
Portfolio turnover
rate................. 3% 16% 12% 15% 11%
<CAPTION>
FIVE
MONTHS YEAR ENDED 5/31
ENDED ------------------------------------ 7/18/88 TO
10/31/92 1992 1991 1990 5/31/89
-------- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Net asset value
beginning of period.... $ 15.760 $ 15.180 $ 14.600 $ 14.720 $ 14.050
OPERATING PERFORMANCE:
Net investment income.. .602 1.492 1.504 1.508 1.101
Net realized &
unrealized gain
(loss) from
investments.......... .023 .492 .532 (.115) .741
Total from investment
operations............. .625 1.984 2.036 1.393 1.842
DIVIDENDS FROM
TAX-EXEMPT NET
INVESTMENT INCOME:
To Common
shareholders......... (.516) (1.135) (1.080) (1.080) (.747)
To Preferred
shareholders+........ (.079) (.269) (.376) (.433) (.268)
DISTRIBUTIONS FROM
CAPITAL GAINS:
To Common
shareholders......... -- -- -- -- --
Total distributions..... (.595) (1.404) (1.456) (1.513) (1.015)
Organization and
offering costs and
Preferred share
underwriting
discounts.............. -- -- -- -- (.157)
Net asset value end of
period................. 15.790 15.760 15.180 14.600 14.720
Per Common share market
value end of period.... 15.875 16.250 15.375 15.000 14.875
Total investment return
on market value**...... .73% 13.32% 10.14% 8.39% 4.38%
Total return on net
asset value**.......... 3.46% 11.72% 11.88% 6.74% 10.44%
RATIOS/SUPPLEMENTAL
DATA:
Net assets end of
period (in
thousands)........... $1,173,329 $1,167,042 $1,127,103 $1,090,365 $1,089,152
Ratio of expenses to
average net
assets++............. .78%* .66% .65% .65% .62%*
Ratio of net investment
income to average net
assets++............. 6.33%* 6.71% 6.97% 6.98% 6.92%*
Portfolio turnover
rate................. 2% 2% 1% 4% 7%
</TABLE>
- -------------------------
* Annualized.
** Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and changes
in stock price per share. Total Return on Net Asset Value is the combination
of reinvested dividend income, reinvested capital gains distributions, if
any, and changes in net asset value per share.
*** Includes ($.187) effect of the Fund's Rights Offering of shares as a price
below NAV and costs of the offering.
+ The amounts shown are based on Common share equivalents.
++ Ratios do not reflect the effect of dividend payments to Preferred
shareholders.
+++ Unaudited.
6
<PAGE> 9
The following information with respect to the Fund's Preferred Shares is
presented for fiscal years ended 1989 through 1996:
<TABLE>
<CAPTION>
TOTAL NUMBER OF LIQUIDATION
SHARES ASSET COVERAGE PREFERENCE AVERAGE MARKET
FISCAL PERIODS OUTSTANDING PER SHARE(A) PER SHARE VALUE PER SHARE(B)
-------------- ----------------- ---------------- ------------ --------------------
<S> <C> <C> <C> <C>
7/18/88 to 5/31/89 3,500 $311,186 $100,000 $100,000
Year Ended 5/31/90 3,500 311,533 100,000 100,000
Year Ended 5/31/91 3,500 322,029 100,000 100,000
Year Ended 5/31/92 3,500 333,440 100,000 100,000
5 Mos. Ended 10/31/92 3,500 335,237 100,000 100,000
Year Ended 10/31/93 3,500 346,590 100,000 100,000
Year Ended 10/31/94 3,500 357,774 100,000 100,000
Year Ended 10/31/95 14,000 93,834 25,000(c) 25,000
Year Ended 10/31/96 14,000 93,157 25,000 25,000
</TABLE>
- -------------------------
(a) Calculated by dividing net assets by the number of Preferred Shares
outstanding.
(b) By their terms, the dividend rates on Preferred Shares, before the
conversion to MuniPreferred as described below under "The Fund", were reset
every twenty eight days (every seven days in the case of Series E) by a
remarketing agent at a rate designed to result in a remarketing at
liquidation preference per share of $100,000 or $25,000, as the case may be.
(c) Represents the 4 for 1 stock split described below under "The Fund."
7
<PAGE> 10
THE FUND
Nuveen Premium Income Municipal Fund, Inc. (the "Fund") is a closed-end,
diversified management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Fund was incorporated
under the laws of the State of Minnesota on April 15, 1988. In 1988, the Fund
issued an aggregate of 50,000,000 shares of common stock, par value $.01 per
share ("Common Stock"), pursuant to the initial public offering thereof and
commenced its operations. The Fund's Common Stock is traded on the New York
Stock Exchange (the "Exchange") under the symbol "NPI." In November 1988, the
Fund issued an aggregate of 3,500 shares of Remarketed Preferred Stock with a
liquidation preference of $100,000 per share (the "Preferred Shares"). In
January, 1994, the Fund issued rights to subscribe for an aggregate of
17,695,926 additional shares of Common Stock. 30,187,275 rights were subscribed
for, which were converted into 10,062,425 shares of Common Stock. On August 10,
1995, the Fund conducted a 4-for-1 preferred stock split which was effected by
means of the division of each outstanding share of Remarketed Preferred Stock
into four shares, with a liquidation preference of $25,000 per share, for an
aggregate of 14,000 Preferred Shares. On August 12, 1997 the terms of the Fund's
preferred stock were amended, converting the Preferred Shares into
MuniPreferred. The Fund's principal office is located at 333 West Wacker Drive,
Chicago, Illinois 60606, and its telephone number is (312) 917-7700.
USE OF PROCEEDS
The net proceeds of this offering will be approximately $123,282,871 after
payment of the sales load and estimated offering costs.
The net proceeds of the offering will be invested in accordance with the
Fund's investment objective and policies as stated below. It is presently
anticipated that the Fund will be able to invest substantially all of the net
proceeds in Municipal Obligations that meet that objective and these policies at
or shortly (within six to eight weeks) after the completion of the offering. To
the extent that all of the proceeds cannot be so invested, pending such
investment, they will be invested in high quality, short-term tax-exempt money
market securities or in high quality Municipal Obligations with relatively low
volatility (such as pre-refunded and intermediate-term securities), to the
extent such securities are available. If necessary to invest fully the net
proceeds of the offerings immediately, the Fund may also purchase, as temporary
investments, short-term taxable investments of the type described in the
Statement of Additional Information under "Investment Objective and Policies --
Portfolio Investments," the income on which is subject to regular Federal income
tax.
8
<PAGE> 11
CAPITALIZATION
(UNAUDITED)
The following table sets forth the capitalization of the Fund as of August
31, 1997 and as adjusted to give effect to the issuance of the shares of New
MuniPreferred offered hereby.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Shareholders' Equity:
Preferred Stock, $25,000 stated value per share, at
liquidation value; 1,000,000 shares authorized (14,000
shares issued and 19,000 shares issued, as adjusted,
respectively).......................................... $ 350,000,000 $ 475,000,000
Common Stock, $.01 par value per share; 200,000,000 shares
authorized, 63,785,431 shares outstanding*............. 637,854 637,854
Paid-in surplus........................................... 903,352,774 901,635,645
Balance of undistributed net investment income............ 826,572 826,572
Accumulated net realized gain (loss) from investment
transactions........................................... 4,468,034 4,468,034
Net unrealized appreciation of investments................ 57,204,714 57,204,714
-------------- --------------
Net Assets........................................ $1,316,489,948 $1,439,772,819
============== ==============
</TABLE>
- ---------------
* None of these outstanding shares are held by or for the account of the Fund.
9
<PAGE> 12
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide, through investment in a
professionally managed portfolio of investment grade tax-exempt Municipal
Obligations, a high level of current income exempt from regular Federal income
tax, consistent with preservation of capital.
PORTFOLIO INVESTMENTS
Except to the extent the Fund invests in temporary investments as described
above under "Use of Proceeds" and in the Statement of Additional Information
under "Investment Objective and Policies -- Portfolio Investments," the Fund
will, as a fundamental policy, invest substantially all of its net assets in
tax-exempt Municipal Obligations rated at the time of purchase within the four
highest grades (Baa or BBB or better) by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc.
("S&P") , or in unrated Municipal Obligations which, in the opinion of Nuveen
Advisory Corp., the Fund's investment adviser (the "Adviser"), have credit
characteristics equivalent to, and will be of comparable quality to, Municipal
Obligations rated within the four highest grades by Moody's or S&P, provided
that the Fund may not invest more than 20% of its net assets in such unrated
Municipal Obligations. A general description of Moody's and S&P's ratings of
Municipal Obligations is set forth in Appendix A to the Statement of Additional
Information.
The foregoing investment objective and policies are fundamental policies of
the Fund and may not be changed without the approval of the holders of a
majority of the outstanding shares of Common Stock and shares of Preferred
Stock, including MuniPreferred, voting together as a single class, and of the
holders of a majority of the outstanding shares of Preferred Stock, including
MuniPreferred, voting as a separate class. For the purposes of the foregoing,
"Investment Restrictions," below, and subparagraph (B) and the last sentence of
the next to last paragraph under "Description of MuniPreferred -- Voting
Rights," below, "majority of the outstanding," when used with respect to
particular shares of the Fund, means (i) 67% or more of the shares present at a
meeting, if the holders of more than 50% of the shares are present or
represented by proxy, or (ii) more than 50% of the shares, whichever is less.
See "Description of MuniPreferred -- Voting Rights" for additional information
with respect to the voting rights of holders of Preferred Stock.
If current market conditions persist, the Fund expects to invest
substantially all the net proceeds of this offering in Municipal Obligations
which are rated within the three highest grades of the investment grade category
and which may not be redeemed at the option of the issuer of any such Municipal
Obligations for approximately seven to eight years from the date of purchase by
the Fund. Subject to market availability, the Fund would likely seek to invest
approximately 10% of the net proceeds of this offering in unrated Municipal
Obligations.
The Fund has not established any limit on the percentage of its portfolio
that may be invested in Municipal Obligations subject to the alternative minimum
tax provisions of Federal tax law, and a substantial portion of the income
produced by the Fund may be includable in alternative minimum taxable income.
Shares of MuniPreferred therefore would not ordinarily be a suitable investment
for investors who are subject to the Federal alternative minimum tax. The
suitability of an investment in shares of MuniPreferred will depend upon a
comparison of the after-tax yield likely to be provided from the Fund with that
from comparable tax-exempt investments not subject to the alternative minimum
tax, and from comparable fully taxable investments, in light of each such
investor's tax position. Special considerations apply to corporate investors. In
addition, the dividends paid on shares of MuniPreferred during specified Rate
Periods will include an allocated portion of any net capital gains or other
income taxable for Federal income tax purposes realized by the Fund. See "Tax
Matters."
MUNICIPAL OBLIGATIONS
"Municipal Obligations" are debt obligations issued by states, cities and
local authorities, and certain possessions and territories of the United States,
to obtain funds for various public purposes, including the
10
<PAGE> 13
construction and maintenance of such public facilities as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which Municipal Obligations may be
issued include the refinancing of outstanding obligations and the obtaining of
funds for general operating expenses and for loans to other public institutions
and facilities. In addition, certain industrial development, private activity
and pollution control bonds may be included within the term Municipal
Obligations if the interest paid thereon qualifies as exempt from regular
Federal income tax. Municipal Obligations in which the Fund will invest bear
interest that, in the opinion of bond counsel to the issuer, is exempt from
regular Federal income tax, although such interest may be subject to the Federal
alternative minimum tax.
The two principal classifications of Municipal Obligations are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds (e.g., industrial development bonds) are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Also included within the general category of Municipal
Obligations are participations in lease obligations or installment purchase
contract obligations of municipal authorities or entities.
The yields on Municipal Obligations are dependent on a variety of factors,
including the condition of the general money market and the Municipal Obligation
market, the size of a particular offering, the maturity of the obligation and
the rating of the issue. The market value of Municipal Obligations will vary
with changes in prevailing interest rate levels and as a result of changing
evaluations of the ability of their issuers to meet interest and principal
payments.
The Fund may purchase and sell Municipal Obligations on a when-issued or
delayed delivery basis. When-issued and delayed delivery transactions arise when
securities are purchased or sold with payment and delivery beyond the regular
settlement date. On such transactions the payment obligations are fixed at the
time the buyer enters into the commitment. Beginning on the date the Fund enters
into a commitment to purchase securities on a when-issued or delayed delivery
basis, the Fund is required under the rules of the Securities and Exchange
Commission (the "Commission") to maintain in a segregated account cash and
liquid assets equal in value to the purchase price due on the settlement date.
Income generated by assets in such a segregated account may be taxable. The
commitment to purchase securities on a when-issued or delayed delivery basis may
involve an element of risk because the value of the securities is subject to
market fluctuation. No interest accrues to the purchaser prior to settlement of
the transaction, and at the time of delivery the market value may be less than
cost.
INVESTMENT RESTRICTIONS
Except as described below, the Fund, as a fundamental policy, may not,
without the approval of the holders of a majority of the outstanding shares of
Common Stock and Preferred Stock, including shares of MuniPreferred, voting
together as a single class, and of the holders of a majority of the outstanding
shares of Preferred Stock, including shares of MuniPreferred, voting as a
separate class:
(1) Issue senior securities, as defined in the 1940 Act, other than
Preferred Stock, except to the extent such issuance might be involved with
respect to borrowings described under subparagraph (3) under "Investment
Objective and Policies -- Investment Restrictions" in the Statement of
Additional Information or with respect to transactions involving futures
contracts or the writing of options within the limits described in the
Statement of Additional Information under "Certain Trading Strategies of
the Fund -- Financial Futures and Options Transactions";
(2) Invest more than 25% of its total assets in securities of issuers
in any one industry; provided, however, that such limitation shall not be
applicable to Municipal Obligations other than those Municipal Obligations
backed only by the assets and revenues of non-governmental users, nor shall
it apply to Municipal Obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
11
<PAGE> 14
(3) Invest in securities other than Municipal Obligations and
temporary investments as described above under "Use of Proceeds" and in the
Statement of Additional Information under "Investment Objective and
Policies -- Portfolio Investments"; and
(4) Invest more than 5% of its total assets in securities of any one
issuer, except that this limitation shall not apply to securities of the
U.S. Government, its agencies and instrumentalities or to the investment of
25% of its total assets.
Notwithstanding subparagraphs (1) and (3) above, restrictions imposed by
Moody's or S&P, or both, on engaging in futures and options transactions as
described in the Statement of Additional Information under "Certain Trading
Strategies of the Fund -- Financial Futures and Options Transactions," are not
fundamental policies and may be changed by the Fund from time to time without
shareholder approval; provided, however, that if Moody's or S&P, or both, are
rating the shares of MuniPreferred, the Fund must receive written confirmation
from Moody's or S&P, or both, as appropriate, that such change would not impair
the ratings then assigned by Moody's and S&P to shares of MuniPreferred.
See "Investment Objective and Policies -- Investment Restrictions" in the
Statement of Additional Information for a description of additional fundamental
and non-fundamental policies of the Fund.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The management of the Fund, including general supervision of the duties
performed by the Adviser under its investment management agreement with the
Fund, is the responsibility of its Board of Directors (the "Board"). There are
eight directors of the Fund, two of whom are "interested persons" (as defined in
the 1940 Act) and six of whom are "disinterested persons." The names and
business addresses of the directors and officers of the Fund and their principal
occupations and other affiliations during the past five years are set forth
under "Management of the Fund" in the Statement of Additional Information.
INVESTMENT ADVISER
Nuveen Advisory Corp. (the "Adviser"), 333 West Wacker Drive, Chicago,
Illinois 60606, acts as the investment adviser for, and manages the investment
and reinvestment of the assets of, the Fund. The Adviser also administers the
Fund's business affairs, provides office facilities and equipment and certain
clerical, bookkeeping and administrative services, and permits any of its
officers or employees to serve without compensation as directors or officers of
the Fund if elected to such positions.
The Adviser was organized in 1976 and is a wholly-owned subsidiary of John
Nuveen & Co. Incorporated ("Nuveen"), 333 West Wacker Drive, Chicago, Illinois
60606. Founded in 1898, Nuveen currently sponsors 102 investment company
portfolios (including the Fund), having approximately $37 billion of assets
under management. Nuveen is a subsidiary of The John Nuveen Company which, in
turn, is a majority-owned subsidiary of The St. Paul Companies, Inc., a
management company of St. Paul, Minnesota, principally engaged in providing
property-liability insurance through subsidiaries.
Pursuant to an investment management agreement between the Adviser and the
Fund, the Fund has agreed to pay for the services and facilities provided by the
Adviser an annual management fee, payable on a monthly basis, in an amount equal
to .6500 of 1% of the first $125,000,000 of the Fund's average daily net assets
(i.e., the average daily value of the Fund's total assets, including assets
attributable to the Preferred Stock, less the accrued liabilities of the Fund),
..6375 of 1% of the next $125,000,000 in net assets, .6250 of 1% of the next
$250,000,000 in net assets, .6125 of 1% of the next $500,000,000 in net assets,
..6000 of 1% of the next $1,000,000,000 in net assets and .5875 of 1% in excess
of $2,000,000,000 in net assets. The Fund paid aggregate management fees of
$8,045,628 for the fiscal year ended October 31, 1996, for an effective
management fee rate of .62% per annum.
In addition to the fee of the Adviser, the Fund pays all other costs and
expenses of its operations, including compensation of its directors (other than
those affiliated with the Adviser), custodian, transfer and
12
<PAGE> 15
dividend disbursing expenses, legal fees, expenses of independent auditors,
expenses of repurchasing shares, expenses of preparing, printing and
distributing shareholder reports, notices, proxy statements and reports to
governmental agencies, and taxes, if any.
PORTFOLIO MANAGEMENT
The Adviser places orders for the purchase and sale of portfolio securities
for the Fund. Consistent with Rule 10f-3 under the 1940 Act, portfolio
securities may be purchased from Nuveen or its affiliates. Since the date of its
inception, overall portfolio management strategy for the Fund has been
determined by the Adviser under the general supervision and direction of Thomas
C. Spalding, Jr., a Vice President of the Adviser and of the Fund. Mr. Spalding
has been employed by Nuveen since 1976 and by the Adviser since 1978, and has
managerial responsibility with respect to all Nuveen open-end and
exchange-traded funds managed by the Adviser. Since July 1989, the day-to-day
management of the Fund, including credit analysis and the execution of portfolio
transactions, has been the responsibility of J. Thomas Futrell, a Vice President
of the Adviser since February 1991. Prior thereto he served as Assistant Vice
President from August 1988 to February 1991 and Assistant Portfolio Manager from
April 1986 to August 1988. Mr. Futrell is a Chartered Financial Analyst. He
currently manages eleven Nuveen-sponsored investment companies. See "Management
of the Fund -- Directors and Officers" in the Statement of Additional
Information for additional information about Mr. Futrell.
DESCRIPTION OF MUNIPREFERRED
The following is a brief description of the terms of the shares of New
MuniPreferred. This description does not purport to be complete and is subject
to and qualified in its entirety by reference to the more detailed description
of the shares of MuniPreferred in the Fund's Amended and Restated Statement
Establishing and Fixing the Rights and Preferences of Municipal Auction Rate
Cumulative Preferred Stock attached as Appendix A to this Prospectus (the
"Statement").
GENERAL
The Fund's Articles of Incorporation (the "Articles") authorize the
issuance of 1,000,000 shares of preferred stock which may be issued from time to
time in such series and with such designations, preferences and other rights,
qualifications, limitations and restrictions as are determined in a resolution
of the Board. The Statement authorizes the issuance of shares of MuniPreferred
as follows: Series M -- 10,000; Series T -- 10,000; Series W -- 10,000; Series
TH -- 10,000; and Series F -- 10,000. The Fund currently has outstanding shares
of Existing MuniPreferred as follows: Series M -- 2,800; Series T -- 2,800;
Series W -- 2,800; Series TH -- 2,800; and Series F -- 2,800. All shares of New
MuniPreferred will have a liquidation preference of $25,000 per share plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared).
The shares of New MuniPreferred of each series will rank on parity with
shares of any other series of MuniPreferred, and with shares of any other series
of preferred stock of the Fund, as to the payment of dividends and the
distribution of assets upon liquidation. All shares of MuniPreferred carry one
vote per share on all matters on which such shares are entitled to be voted.
Shares of MuniPreferred are, when issued, fully paid and non-assessable and have
no preemptive, conversion or exchange rights or rights to cumulative voting.
DIVIDENDS AND DIVIDEND PERIODS
GENERAL. The initial Rate Period of shares of a series of New
MuniPreferred of a particular series will be a period consisting of seven days
(except for Series F which will be a period consisting of eight days). Any
Subsequent Rate Period of shares of a series of MuniPreferred will be a Minimum
Rate Period (7 Rate Period Days), unless the Fund, subject to certain
conditions, designates such Subsequent Rate Period as a Special Rate Period. See
"Designation of Special Rate Periods" below.
13
<PAGE> 16
Dividends on shares of each series of New MuniPreferred shall be payable,
when, as and if declared by the Board out of funds legally available therefor in
accordance with the Articles, including the Statement, and applicable law, on
shares of (a) MuniPreferred, Series M, on Tuesday, , and
thereafter on each Tuesday; (b) MuniPreferred, Series T, on Wednesday,
, and thereafter on each Wednesday; (c) MuniPreferred, Series
W, on Thursday, , and thereafter on each Thursday; (d)
MuniPreferred, Series TH, on Friday, , and thereafter on each
Friday; and (e) MuniPreferred, Series F, on Tuesday , and
thereafter on each Monday; provided, however, that (i) if the Monday or the
Tuesday on which dividends would otherwise be payable as set forth above 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; (ii)
if the Wednesday, Thursday or Friday on which dividends would otherwise be
payable as set forth above 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 (iii) the Fund may
specify different Dividend Payment Dates in respect of any Special Rate Period
of more than 28 Rate Period Days.
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.
Dividends will be paid through the Securities Depository on each Dividend
Payment Date in accordance with its normal procedures, which currently provide
for it to distribute dividends in next-day funds to Agent Members, who in turn
are expected to distribute such dividend payments to the persons for whom they
are acting as agents. Each of the current Broker-Dealers, however, has indicated
to the Fund that such Broker-Dealer or the Agent Member designated by such
Broker-Dealer will make such dividend payments available in same-day funds on
each Dividend Payment Date to customers that use such Broker-Dealer or its
designee as Agent Member.
Dividends on shares of New MuniPreferred of a particular series shall
accumulate at the Applicable Rate for shares of such series commencing as
follows: Series M MuniPreferred on Tuesday, ; Series T
MuniPreferred on Wednesday, ; Series W MuniPreferred on
Thursday, ; Series TH MuniPreferred on Friday,
; and Series F MuniPreferred on Monday, . The
dividend rate for shares of New MuniPreferred of a particular series for the
initial Rate Period for such shares shall be equal to the dividend rate for
shares of Existing MuniPreferred of the same series established in the first
Auction for shares of such series preceding the date of issuance of such shares
of New MuniPreferred. For each Subsequent Rate Period of shares of New
MuniPreferred of a particular series, the dividend rate for such shares will be
the Applicable Rate for such shares that the Auction Agent advises the Fund
results from an Auction, except as provided below. The Applicable Rate that
results from an Auction for shares of any series of MuniPreferred will not be
greater than the Maximum Rate for shares of such series, which is:
(a) 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, the
product of (i) the Reference Rate on such Auction Date for the next Rate
Period of shares of such series and (ii) 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 (x) the higher of (I) 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
14
<PAGE> 17
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 (II) 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 (y) the
Rate Multiple on such Auction Date; or
(b) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Rate Period, the
product of (i) the highest 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, (y) 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 (z) the Reference Rate
on such Auction Date for Minimum Rate Periods and (ii) the Rate Multiple on
such Auction Date.
If an Auction for any Subsequent Rate Period of shares of any series of
MuniPreferred is not held for any reason other than as described below, the
dividend rate on shares of such series for such Subsequent Rate Period will be
the Maximum Rate for shares of such series on the Auction Date for such
Subsequent Rate Period.
If the Fund fails to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the redemption price of, any shares of any series
of MuniPreferred during any Rate Period thereof (other than any Special Rate
Period of more than 364 Rate Period Days or any Rate Period succeeding any
Special Rate Period of more than 364 Rate Period Days during which such a
failure occurred that has not been cured), but, prior to 12:00 Noon on the third
Business Day next succeeding the date such failure occurred, such failure shall
have been cured and the Fund shall have paid a late charge, as described more
fully in the Statement, no Auction will be held in respect of shares of such
series for the first Subsequent Rate Period thereof thereafter and the dividend
rate for shares of such series for such Subsequent Rate Period will be the
Maximum Rate for shares of such series on the Auction Date for such Subsequent
Rate Period.
If the Fund fails to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the redemption price of, any shares of any series
of MuniPreferred during any Rate Period thereof (other than any Special Rate
Period of more than 364 Rate Period Days or any Rate Period succeeding any
Special Rate Period of more than 364 Rate Period Days during which such a
failure occurred that has not been cured), and, prior to 12:00 Noon on the third
Business Day next succeeding the date on which such failure occurred, such
failure shall not have been cured or the Fund shall not have paid a late charge,
as described more fully in the Statement, no Auction will be held in respect of
shares of such series for the first Subsequent Rate Period thereof thereafter
(or for any Rate Period thereof thereafter to and including the Rate Period
during which such failure is so cured and such late charge so paid) (such late
charge to be paid only in the event Moody's is rating such shares at the time
the Fund cures such failure), 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-").
If the Fund fails to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the redemption price of, any shares of any series
of MuniPreferred during a Special Rate Period thereof of more than 364 Rate
Period Days, or during any Rate Period thereof succeeding any Special Rate
Period of more than 364 Rate Period Days during which such a failure occurred
that has not been cured, and such failure shall not have been cured or the Fund
shall not have paid a late charge, as described more fully in the Statement, no
Auction will be held in respect of shares of such series for such Subsequent
Rate Period thereof
15
<PAGE> 18
(or for any Rate Period thereof thereafter to and including the Rate Period
during which such failure is so cured and such late charge so paid) (such late
charge to be paid only in the event Moody's is rating such shares at the time
the Fund cures such failure), 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 each 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-").
A failure to pay dividends on or the redemption price of shares of any
series of MuniPreferred shall have been cured with respect to any Rate Period
thereof if, within the respective time periods described in the Statement, the
Fund shall have paid to the Auction Agent (a) all accumulated and unpaid
dividends on the 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; 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.
GROSS-UP PAYMENTS. Holders of shares of MuniPreferred are entitled to
receive, when, as and if declared by the Board, out of funds legally available
therefor in accordance with the Articles, including the Statement, and
applicable law, dividends in an amount equal to the aggregate Gross-up Payments
in accordance with the following:
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 described below under "The Auction -- Auction Procedures" (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
will, 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 (initially Cede & Co., as nominee of the Securities Depository) 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.
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.
The Fund has received an opinion of counsel to the effect that the manner
in which the Fund intends to allocate items of tax-exempt income, net capital
gains and other taxable income, if any, between its shares of Common Stock and
shares of MuniPreferred will be respected for Federal income tax purposes. This
opinion of counsel represents only counsel's best legal judgment, and is not
binding on the Internal Revenue Service ("IRS") or the courts. 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 IRS to be allocable in a manner
different from that allocated by the Fund. See "Tax Matters" in the Statement of
Additional Information for more information.
A "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 the aggregate Taxable Allocations would have
been excludable from the gross income of such holder. Such Gross-up Payment
shall be calculated: (a) without consideration being given to the time value of
money;
16
<PAGE> 19
(b) 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
(c) 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 Internal Revenue 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.
RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. Except as otherwise
described herein, for so long as any shares of MuniPreferred are outstanding,
the Fund may not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in, or in options,
warrants or rights to subscribe for or purchase, its shares of Common Stock) in
respect of its shares of Common Stock or call for redemption, redeem, purchase
or otherwise acquire for consideration any of its shares of Common Stock (except
by conversion into or exchange for shares of the Fund ranking junior to the
shares of MuniPreferred as to the payment of dividends and the distribution of
assets upon liquidation), unless (a) 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; (b) the Fund shall have redeemed the
full number of shares of MuniPreferred required to be redeemed by any provision
for mandatory redemption pertaining thereto; and (c) immediately after such
transaction the Discounted Value of the Fund's portfolio would at least equal
the MuniPreferred Basic Maintenance Amount in accordance with guidelines of the
rating agency or agencies then rating the shares of 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 Fund
shares 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 shares 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 such other class or
series of shares 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
shares 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 shares bear to each other.
DESIGNATION OF SPECIAL RATE PERIODS 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 (approximately 5 years),
subject to certain adjustments. A designation of a Special Rate Period shall be
effective only if, among other things, (a) the Fund shall have given certain
notices to the Auction Agent, (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 the Fund shall have mailed
a notice of redemption with respect to any shares of such series, the redemption
price with respect to such shares shall have been deposited with the Auction
Agent.
REDEMPTION
MANDATORY REDEMPTION. In the event the Fund does not timely cure a failure
to maintain (a) a Discounted Value of its portfolio equal to the MuniPreferred
Basic Maintenance Amount or (b) the 1940 Act MuniPreferred Asset Coverage, in
each case in accordance with the requirements of the rating agency or agencies
then rating the shares of MuniPreferred, shares of MuniPreferred will be subject
to mandatory redemption on a date specified by the Board out of funds legally
available therefor in accordance with the Articles, including the Statement, and
applicable law, at the redemption price of $25,000 per share plus an
17
<PAGE> 20
amount equal to 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 required Discounted Value or the 1940 Act MuniPreferred Asset
Coverage, as the case may be.
OPTIONAL REDEMPTION. Shares of MuniPreferred of each series are redeemable,
at the option of the Fund:
(a) 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 in accordance with the Articles, including
the Statement, and applicable law, at the redemption price 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 (i) shares of such series may not
be redeemed in part if after such partial redemption fewer than 500 shares
of such series would remain outstanding and (ii) the notice establishing a
Special Rate Period of shares of such series, 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 clause (b) 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
(b) as a whole but not in part, out of funds legally available
therefor in accordance with the Articles, including the Statement, and
applicable law, 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 the Treasury Note Rate for such Rate Period, at a redemption
price 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.
Notwithstanding the foregoing, if any dividends on shares of a series of
MuniPreferred (whether or not earned or declared) are in arrears, no shares of
such series shall be redeemed unless all outstanding shares of such series are
simultaneously redeemed, and the 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.
LIQUIDATION
Subject to the rights of holders of any series or class or classes of
shares ranking on a parity with shares of MuniPreferred with respect to the
distribution of assets upon liquidation of the Fund, upon a liquidation of the
Fund, whether voluntary or involuntary, the holders of shares of MuniPreferred
then outstanding will 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 shares of Common Stock, an amount equal to the
liquidation preference with respect to such shares ($25,000 per share), 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 distribution in
same-day funds, together with any applicable Gross-up Payments in connection
with the liquidation of the Fund. After the payment to the holders of shares of
MuniPreferred of the full preferential amounts provided for as described herein,
the holders of shares of MuniPreferred as such shall have no right or claim to
any of the remaining assets of the Fund.
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 liquidation, whether voluntary or involuntary, for the
purposes of the foregoing paragraph.
18
<PAGE> 21
RATING AGENCY GUIDELINES
The Fund is required under Moody's and S&P guidelines to maintain assets
having in the aggregate a Discounted Value at least equal to the MuniPreferred
Basic Maintenance Amount. Moody's and S&P have each established separate
guidelines for determining Discounted Value. To the extent any particular
portfolio holding does not satisfy the applicable rating agency's guidelines,
all or a portion of such holding's value will not be included in the calculation
of Discounted Value (as defined by such rating agency). The Moody's and S&P
guidelines do not impose any limitations on the percentage of the Fund's assets
that may be invested in holdings not eligible for inclusion in the calculation
of the Discounted Value of the Fund's portfolio. The amount of such assets
included in the portfolio at any time may vary depending upon the rating,
diversification and other characteristics of the eligible assets included in the
portfolio, although it is not anticipated that in the normal course of business
the value of such assets would exceed 20% of the Fund's total assets. The
MuniPreferred Basic Maintenance Amount includes the sum of (a) the aggregate
liquidation preference of shares of MuniPreferred then outstanding and (b)
certain accrued and projected payment obligations of the Fund.
The Fund is also required under rating agency guidelines to maintain, with
respect to shares of MuniPreferred, as of the last Business Day of each month in
which any such shares are outstanding, asset coverage of at least 200% with
respect to senior securities which are shares, including 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 shares of a
closed-end investment company as a condition of declaring dividends on its
shares of common stock) ("1940 Act MuniPreferred Asset Coverage"). Based on the
composition of the portfolio of the Fund and market conditions as of August 31,
1997, 1940 Act MuniPreferred Asset Coverage with respect to shares of
MuniPreferred, assuming the issuance on the date thereof of all shares of New
MuniPreferred offered hereby and giving effect to the deduction of sales load
and offering costs related thereto estimated at $1,717,129, would have been
computed as follows:
<TABLE>
<S> <C> <C> <C>
Value of Fund assets less liabilities
not constituting senior securities = $1,439,772,819 = 303%
- ------------------------------------------------------------ --------------
Senior securities representing indebtedness plus liquidation
value of
the shares of MuniPreferred $475,000,000
</TABLE>
In the event the Fund does not timely cure a failure to maintain (a) a
Discounted Value of its portfolio equal to the MuniPreferred Basic Maintenance
Amount or (b) the 1940 Act MuniPreferred Asset Coverage, in each case in
accordance with the requirements of the rating agency or agencies then rating
the shares of MuniPreferred, the Fund will be required to redeem shares of
MuniPreferred as described under "Redemption -- Mandatory Redemption" above.
The Fund may, but is not required to, adopt any modifications to the
guidelines that may hereafter be established by Moody's or S&P. Failure to adopt
any such modifications, however, may result in a change in the ratings described
above or a withdrawal of ratings altogether. In addition, any rating agency
providing a rating for the shares of MuniPreferred may, at any time, change or
withdraw any such rating. The Board may, without shareholder approval, amend,
alter or repeal any or all of the definitions and related provisions which have
been adopted by the Fund pursuant to the rating agency guidelines in the event
the Fund receives written confirmation from Moody's or S&P, or both, as
appropriate, that any such amendment, alteration or repeal would not impair the
ratings then assigned by Moody's and S&P to shares of MuniPreferred.
As recently described by Moody's and S&P, a preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
obligations. The ratings on the shares of MuniPreferred are not recommendations
to purchase, hold or sell those shares, inasmuch as the ratings do not comment
as to market price or suitability for a particular investor. The rating agency
guidelines described above also do not address the likelihood that an owner of
shares of MuniPreferred will be able to sell such shares in an Auction or
otherwise. The ratings are based on current information furnished to Moody's and
S&P by the Fund and the Adviser and information obtained from other sources. The
ratings may be changed, suspended or withdrawn as a result of changes in, or the
unavailability of, such information.
19
<PAGE> 22
A rating agency's guidelines will apply to shares of MuniPreferred only so
long as such rating agency is rating such shares. The Fund will pay certain fees
to Moody's or S&P, or both, for rating shares of MuniPreferred.
VOTING RIGHTS
Except as otherwise provided in this Prospectus and in the Statement of
Additional Information or as otherwise required by law, holders of shares of
MuniPreferred will have equal voting rights with holders of shares of Common
Stock and any Preferred Stock (one vote per share) and will vote together with
holders of shares of Common Stock and any Preferred Stock as a single class.
In connection with the election of the Fund's directors, holders of
outstanding shares of Preferred Stock, including MuniPreferred, voting as a
separate class, are entitled to elect two of the Fund's directors, and the
remaining directors are elected by holders of shares of Common Stock and shares
of Preferred Stock, including MuniPreferred, voting together as a single class.
In addition, if at any time dividends (whether or not earned or declared) on
outstanding shares of Preferred Stock, including MuniPreferred, shall be due and
unpaid in an amount equal to two full years' dividends thereon, and sufficient
cash or specified securities shall not have been deposited with the Auction
Agent for the payment of such dividends, then, as the sole remedy of holders of
outstanding shares of Preferred Stock, including MuniPreferred, the number of
directors constituting the Board 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, as
described above, would constitute a majority of the Board as so increased by
such smallest number; and at a special meeting of shareholders which will be
called and held as soon as practicable, and at all subsequent meetings at which
directors are to be elected, the holders of shares of Preferred Stock, including
shares of MuniPreferred, voting as a separate class, will be entitled to elect
the smallest number of additional directors that, together with the two
directors which such holders will be in any event entitled to elect, constitutes
a majority of the total number of directors of the Fund as so increased. The
terms of office of the persons who are directors at the time of that election
will continue. If the Fund thereafter shall pay, or declare and set apart for
payment, in full, all dividends payable on all outstanding shares of Preferred
Stock, including MuniPreferred, the voting rights stated in the second preceding
sentence shall cease, and the terms of office of all of the additional directors
elected by the holders of shares of Preferred Stock, including MuniPreferred
(but not of the directors with respect to whose election the holders of Common
Stock were entitled to vote or the two directors the holders of shares of
Preferred Stock have the right to elect in any event), will terminate
automatically.
So long as any shares of MuniPreferred are outstanding, the Fund will not,
without the affirmative vote or consent of the holders of at least a majority of
the shares of MuniPreferred outstanding at the time (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 liquidation, or
authorize, create or issue additional shares of any series of MuniPreferred
(except that, notwithstanding the foregoing, but subject to certain rating
agency approvals, the Board, 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 liquidation; 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
$350,000,000 or (b) amend, alter or repeal the provisions of the Articles,
including the 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
20
<PAGE> 23
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 liquidation 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, 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 Minnesota law to vote as a class on the actions set forth in the preceding
paragraph, the Fund will 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 (voting as a separate
class). The Board may, without shareholder approval, amend, alter or repeal any
or all of the definitions and related provisions which have been adopted by the
Fund pursuant to the rating agency guidelines in the event the Fund receives
written confirmation from Moody's or S&P, or both, as appropriate, that any such
amendment, alteration or repeal would not impair the ratings then assigned by
Moody's and S&P to shares of MuniPreferred. Unless a higher percentage is
provided for in the Articles (see "Certain Provisions In The Articles of
Incorporation"), (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 preceding sentence requiring a vote of security holders of the
Fund under Section 13(a) of the 1940 Act.
The foregoing voting provisions will not apply with respect to shares of
MuniPreferred if, at or prior to the time when a vote is required, such shares
shall have been (i) redeemed or (ii) called for redemption and sufficient funds
shall have been deposited in trust to effect such redemption.
21
<PAGE> 24
THE AUCTION
GENERAL
The Statement provides that, except as otherwise described herein, the
Applicable Rate for the shares of each series of MuniPreferred, including the
shares of New MuniPreferred to be issued in this offering, for each Rate Period
of shares of such series after the Initial Rate Period thereof shall be equal to
the rate per annum that the Auction Agent advises has resulted on the Business
Day preceding the first day of such Subsequent Rate Period (an "Auction Date")
from implementation of the auction procedures (the "Auction Procedures") set
forth in the Statement and summarized below, in which persons determine to hold
or offer to sell or, based on dividend rates bid by them, offer to purchase or
sell shares of such series. Each periodic implementation of the Auction
Procedures is referred to herein as an "Auction." See the Statement for a more
complete description of the Auction process.
AUCTION PROCEDURES
Prior to the Submission Deadline 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 ("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 at $25,000
per share if the Applicable Rate for shares of such series for the next
Rate Period thereof is less than the rate specified in such Bid (also
known as a hold-at-a-rate order).
- Sell Order -- indicating its desire to sell shares of such series at
$25,000 per share 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 will be 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 such shares to its Broker-Dealer will
be deemed to have submitted a Hold Order with respect to such shares of such
series 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 will be deemed to have submitted
a Sell Order with respect to such shares to its Broker-Dealer. A Sell Order
shall constitute 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 Bids to its Broker-Dealer in which it offers to purchase shares of
such series at $25,000 per share 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 on the
Auction Date therefor will not be accepted.
The Broker-Dealers in turn will 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
22
<PAGE> 25
submitted to them by Potential Beneficial Owners. However, neither the Fund nor
the Auction Agent will be 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 will be treated in
the same manner as an Order placed with a Broker-Dealer by a Beneficial Owner or
Potential Beneficial Owner. Similarly, any failure by a Broker-Dealer to submit
to the Auction Agent an Order in respect of any shares of MuniPreferred held by
it or customers who are Beneficial Owners will be treated in the same manner as
a Beneficial Owner's failure to submit to its Broker-Dealer an Order in respect
of shares of 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.
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 for the next succeeding Rate Period thereof will be 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, would result 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 for the next succeeding Rate
Period thereof will be the Maximum Rate for shares of such series on the Auction
Date therefor. In such event, Beneficial Owners of shares of such series 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 thereof will be the All Hold Order 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 a series of
MuniPreferred that is fewer than the number of shares of such series 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 will be required to make appropriate pro
rata allocations among their respective customers.
Settlement of purchases and sales will be made on the next Business Day
(also a Dividend Payment Date) after the Auction Date through the Securities
Depository. Purchasers will make payment through their Agent Members in same-day
funds to the Securities Depository against delivery to their respective Agent
Members. The Securities Depository will make payment to the sellers' Agent
Members in accordance with the Securities Depository's normal procedures, which
now provide for payment against delivery by their Agent Members in same-day
funds.
The Auctions for shares of MuniPreferred, Series M, Series T, Series W,
Series TH and Series F will normally be held every Monday, Tuesday, Wednesday,
Thursday and Friday, respectively, and each Subsequent Rate Period of shares of
such series will normally begin on the following Tuesday, Wednesday, Thursday,
Friday and Monday, respectively.
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.
23
<PAGE> 26
SECONDARY MARKET TRADING AND TRANSFER OF MUNIPREFERRED
The Broker-Dealers maintain a secondary trading market in shares of
MuniPreferred outside of Auctions, but are not obligated to do so, and may
discontinue such activity at any time. There can be no assurance that such
secondary trading market in shares of MuniPreferred will provide owners with
liquidity of investment. The shares of MuniPreferred are not registered on any
stock exchange or on the Nasdaq Stock Market. Investors who purchase shares in
an Auction for a Special Rate Period should note that because the dividend rate
on such shares will be fixed for the length of such Rate Period, the value of
the shares may fluctuate in response to changes in interest rates, and may be
more or less than their original cost if sold on the open market in advance of
the next Auction therefor, depending upon market conditions.
A Beneficial Owner or an Existing Holder may sell, transfer or otherwise
dispose of shares of MuniPreferred only in whole shares and only (1) pursuant to
a Bid or Sell Order placed with the Auction Agent in accordance with the Auction
Procedures, (2) to a Broker-Dealer or (3) to such other persons as may be
permitted by the Fund; 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 the foregoing 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.
DESCRIPTION OF COMMON STOCK
In addition to the shares of MuniPreferred, the Articles authorize the
issuance of up to 200,000,000 shares of Common Stock, par value $.01 per share.
All shares of Common Stock have equal non-cumulative voting rights and equal
rights with respect to dividends, assets and liquidation. Shares of Common Stock
are fully paid and non-assessable when issued and have no preemptive, conversion
or exchange rights. So long as any shares of MuniPreferred are outstanding, the
Fund is not permitted to declare dividends on, make any distributions with
respect to, or purchase its Common Stock unless, at the time of such
declaration, distribution or purchase, as applicable (and after giving effect
thereto), all accumulated dividends on Preferred Stock have been paid.
CERTAIN PROVISIONS IN THE ARTICLES OF INCORPORATION
The Articles include provisions that could have the effect of limiting the
ability of other entities or persons to acquire control of the Fund.
Specifically, the Articles require the affirmative vote of the holders of at
least 66 2/3% of the outstanding shares of Common Stock and shares of Preferred
Stock (including shares of MuniPreferred) then entitled to be voted, voting as a
single class, except as described below, to authorize any of the following
transactions:
(1) conversion of the Fund from a closed-end to an open-end investment
company,
(2) a merger or consolidation of the Fund with another corporation or
a reorganization or recapitalization,
(3) a sale, lease or transfer of all or substantially all of the
Fund's assets (other than in the regular course of the Fund's investment
activities), or
(4) a liquidation or dissolution of the Fund,
unless such transaction has been authorized by the affirmative vote of 66 2/3%
of the total number of directors fixed in accordance with the By-Laws, in which
case the affirmative vote of the holders of a majority of the outstanding shares
of Common Stock and shares of Preferred Stock (including shares of
MuniPreferred), voting as a single class, is required. In the case of the
conversion of the Fund to an open-end investment company, or in the case of any
of the foregoing transactions constituting a plan of reorganization (as such
term
24
<PAGE> 27
is used in the 1940 Act) which adversely affects the holders of shares of
Preferred Stock (including shares of MuniPreferred), the action in question will
also require the approval of the holders of 66 2/3% of the shares of Preferred
Stock (including shares of MuniPreferred) voting as a separate class; provided,
however, that such separate class vote shall be a majority vote if the action in
question has previously been authorized by the affirmative vote of 66 2/3% of
the total number of directors fixed in accordance with the By-Laws. The 66 2/3%
votes required under certain circumstances to approve the conversion of the Fund
from a closed-end to an open-end investment company or to approve the other
transactions described above are higher than those required by the 1940 Act. The
Board believes that the provisions of the Articles relating to such higher votes
are in the best interest of the Fund and its shareholders.
Reference should be made to the Articles on file with the Commission for
the full text of these provisions, which could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging a third party from seeking to obtain control of
the Fund.
REPURCHASE OF SHARES OF COMMON STOCK;
CONVERSION TO OPEN-END FUND
The Fund is a closed-end investment company and as such its shareholders
will not have the right to cause the Fund to redeem their shares. Shares of
Common Stock trade in the open market at a price that is a function of several
factors, including net asset value and yield. Although the Common Stock of the
Fund may trade at a premium to net asset value, such shares have often traded at
a discount to net asset value. The Board has currently determined that, at least
annually, it will consider action that might be taken to reduce or eliminate any
material discount from net asset value in respect of shares of Common Stock,
which may include the repurchase of such shares in the open market or in private
transactions, the making of a tender offer for such shares at net asset value or
the conversion of the Fund to an open-end investment company. There can be no
assurance, however, that the Board will decide to take any of these actions, or
that share repurchases or tender offers, if undertaken, will reduce market
discount. In addition, see "Description of MuniPreferred -- Dividends and
Dividend Periods -- Restrictions on Dividends and Other Distributions" for a
discussion of the limitations on the Fund's ability to engage in certain
transactions.
Subject to its investment limitations, the Fund may borrow to finance the
repurchase of shares or to make a tender offer. Interest on any borrowings to
finance share repurchase transactions or the accumulation of cash by the Fund in
anticipation of share repurchases or tenders will reduce the Fund's net income.
Any share repurchase or tender offer that might be approved by the Board would
have to comply with the Securities Exchange Act of 1934, as amended, and the
1940 Act and the rules and regulations thereunder.
Although the decision to take action in response to a discount from net
asset value will be made by the Board at the time it considers such issue, it is
the Board's present policy, which may be changed by the Board, not to authorize
repurchases of shares of the Fund's Common Stock or a tender offer for such
shares if (1) such transactions, if consummated, would (a) result in the
delisting of the Common Stock from the Exchange, or (b) impair the Fund's status
as a regulated investment company under the Code (which would make the Fund a
taxable entity, causing the Fund's income to be taxed at the corporate level in
addition to the taxation of shareholders who receive dividends from the Fund) or
as a regulated closed-end investment company under the 1940 Act; (2) the Fund
would not be able to liquidate portfolio securities in an orderly manner and
consistent with the Fund's investment objective and policies in order to
repurchase shares; or (3) there is, in the Board's judgment, any (a) material
legal action or proceeding instituted or threatened challenging such
transactions or otherwise materially adversely affecting the Fund, (b) general
suspension of or limitation on prices for trading securities on the Exchange,
(c) declaration of a banking moratorium by Federal or state authorities or any
suspension of payment by United States or New York State banks in which the Fund
invests, (d) material limitation affecting the Fund or the issuers of its
portfolio securities by Federal or state authorities on the extension of credit
by lending institutions or on the exchange of foreign currency, (e) commencement
of war, armed hostilities or other international or national calamity directly
or indirectly involving the United States, or (f) other event or condition which
would have a material adverse effect
25
<PAGE> 28
(including any adverse tax effect) on the Fund or its shareholders if shares
were repurchased. The Board may in the future modify these conditions in light
of experience.
Conversion to an open-end company would require the approval of the holders
of the Fund's outstanding shares of Common Stock and shares of MuniPreferred,
voting together as a single class, and of the holders of shares of MuniPreferred
voting as a separate class. See "Certain Provisions in the Articles of
Incorporation" for a discussion of voting requirements applicable to conversion
of the Fund to an open-end company. Shareholders of an open-end investment
company may require the company to redeem their shares at any time (except in
certain circumstances as authorized by or under the 1940 Act) at their net asset
value, less such redemption charge, if any, as might be in effect at the time of
redemption. If the Fund converted to an open-end company, it would be required
to redeem all shares of MuniPreferred then outstanding. In addition, the Fund
could be required to liquidate portfolio securities to meet required and
requested redemptions, and its shares of Common Stock would no longer be listed
on the Exchange. The Board may at any time propose conversion of the Fund to an
open-end company depending upon their judgment as to the advisability of such
action in light of circumstances then prevailing.
Before deciding whether to take any action in response to a discount from
net asset value, the Board would consider all relevant factors, including the
extent and duration of the discount, the liquidity of the Fund's portfolio, the
impact of any action that might be taken on the Fund or its shareholders, and
market considerations. Based on these considerations, even if the Fund's shares
of Common Stock are trading at a discount, the Board may determine that, in the
interest of the Fund and its shareholders, no action should be taken.
TAX MATTERS
FEDERAL INCOME TAX MATTERS
The Fund qualifies under Subchapter M of the Code as a regulated investment
company and satisfies conditions which enable dividends on shares of Common
Stock or shares of MuniPreferred which are attributable to interest on Municipal
Obligations to be exempt from Federal income tax in the hands of owners of such
shares, subject to the possible application of the 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. In the past, the Fund
designated exempt-interest dividends disproportionately to holders of Preferred
Stock and designated net capital gain and investment company taxable income to
holders of its Common Stock pursuant to a special "grandfather" provision
contained in IRS Revenue Ruling 89-81. The Fund, which intends to distribute
substantially all of its net income and gains to its shareholders, now intends
to allocate exempt interest income, net capital gains (i.e., the excess of net
long-term capital gain over net short-term capital loss) and investment company
taxable income, if any, proportionately between its shares of Common Stock and
shares of MuniPreferred.
The amount of taxable income allocable to shares of MuniPreferred will
depend upon the amount of such income realized by the Fund, including any net
income received from taxable temporary investments, but is not generally
expected to be significant. Annually, the Fund will inform each owner of shares
of MuniPreferred of the amount and nature of the income and gains allocated to
the owner by the Fund. If the Fund allocates net capital gain or investment
company taxable income without first notifying owners of shares of
MuniPreferred, in certain circumstances payments will be made to such owners to
offset the tax effect thereof. See "Description of MuniPreferred -- Dividends
and Dividend Periods -- Gross-up Payments."
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals based on certain items of tax preference. Interest
on certain Municipal Obligations is included as an item of tax preference in
determining the amount of a taxpayer's alternative minimum taxable income. To
the extent that the Fund receives income from Municipal Obligations treated as
tax preference items for purposes of the alternative minimum tax, a portion of
the dividends paid by it, although otherwise exempt from Federal income tax,
will be taxable to owners of shares to the extent that their tax liability is
determined under the
26
<PAGE> 29
alternative minimum tax. In addition, for certain corporations, alternative
minimum taxable income is increased by 75% of the difference between an
alternative measure of income ("adjusted current earnings") and the amount
otherwise determined to be the alternative minimum taxable income. Interest on
all Municipal Obligations, and therefore all exempt-interest dividends received
from the Fund, is included in calculating adjusted current earnings. For taxable
years beginning after December 31, 1997, certain small corporations are not
subject to the alternative minimum tax. A corporation qualifies for such
exemption provided that (i) for the corporation's first taxable year beginning
after December 31, 1996, its average annual gross receipts for the three prior
taxable year period does not exceed $5,000,000 and (ii) the corporation's
average annual gross receipts for each three prior taxable year period
thereafter does not exceed $7,500,000.
A more detailed summary of the provisions of the Code and regulations
thereunder presently in effect as they directly govern the taxation of the Fund
and their respective shareholders appears in the Statement of Additional
Information. These provisions and interpretations are subject to change by
legislative or administrative action, and any such change may be retroactive
with respect to Fund transactions. Shareholders are advised to consult with
their own tax advisers for more detailed information concerning Federal income
tax matters.
STATE AND LOCAL TAX MATTERS
The exemption from Federal income tax for exempt-interest dividends does
not necessarily result in exemption for such dividends under the income or other
tax laws of any state or local taxing authority. Some states exempt from state
income tax that portion of any exempt-interest dividend that is derived from
interest received by a regulated investment company on its holdings of
securities of that state and its political subdivisions and instrumentalities.
Therefore, the Fund will report annually to its shareholders the percentage of
interest income earned by the Fund during the preceding year on tax-exempt
obligations indicating, on a state-by-state basis, the source of such income.
Owners of shares of MuniPreferred are advised to consult with their own tax
advisers about state and local tax matters.
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT
AND REDEMPTION AGENT
The Custodian of the assets of the Fund and the transfer agent and dividend
disbursing agent with respect to the Fund's Common Stock is The Chase Manhattan
Bank, a banking corporation organized under the laws of New York and a member
bank of the Federal Reserve System, with its principal place of business at One
Chase Plaza, New York, New York 10081, and its corporate transfer office at 4
New York Plaza, New York, New York 10004. Bankers Trust Company, 4 Albany
Street, New York, New York 10006, a banking corporation organized under the laws
of New York, is the Auction Agent with respect to shares of MuniPreferred and
acts as transfer agent, registrar, dividend disbursing agent, and redemption
agent with respect to such shares.
UNDERWRITING
Subject to the terms and conditions set forth in the several Purchase
Agreements (each a "Purchase Agreement") among the Fund, the Underwriters named
below (the "Underwriters") and the Adviser with respect to the five series of
New MuniPreferred offered hereby, the Fund expects to sell to the Underwriters,
and the Underwriters severally expect to purchase, the respective numbers of
shares of such series as set forth after their names below. Each Purchase
Agreement with respect to a particular series provides that the obligations of
the Underwriters with respect to such series are subject to certain conditions
precedent and that the Underwriters will be obligated to purchase all of the
shares of such series if any are purchased. However, the offering of each series
is independent of the offering of each other series, and no offering is
contingent upon
27
<PAGE> 30
the closing of any other offering. Certain information presented in this
Prospectus, assumes that each offering is made and effected as contemplated, but
there can be no assurance that this will be the case.
<TABLE>
<CAPTION>
UNDERWRITER SERIES M SERIES T SERIES W SERIES TH SERIES F
----------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................
BT Alex.Brown Incorporated...........................
Goldman, Sachs & Co. ................................
John Nuveen & Co. Incorporated.......................
Lehman Brothers Inc..................................
PaineWebber Incorporated.............................
Prudential Securities Incorporated...................
Smith Barney Inc. ...................................
----- ----- ----- ----- -----
Total................................... 1,000 1,000 1,000 1,000 1,000
===== ===== ===== ===== =====
</TABLE>
The Underwriters have advised the Fund that they propose initially to offer
the shares of MuniPreferred to the public at the offering price set forth on the
cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $ per share. The sales load of $ per share
is equal to % of the initial public offering price. The Underwriters may
allow and such dealers may reallow a discount not in excess of $ per share
to certain other dealers. After the initial public offering, the public offering
price, concession and discount may be changed. Investors must pay for any shares
of New MuniPreferred purchased in this offering on or before the following
dates: (Series M MuniPreferred); (Series T
MuniPreferred); (Series W MuniPreferred);
(Series TH MuniPreferred); and (Series F MuniPreferred).
The Fund and the Adviser have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities arising under the Securities
Act of 1933, as amended, and the 1940 Act, or to contribute to payments the
Underwriters may be required to make in respect thereof.
The Fund anticipates that the Underwriters may from time to time act as
brokers or dealers in connection with the execution of its portfolio
transactions after they have ceased to be Underwriters. The Underwriters are
active underwriters of, and dealers in, securities and act as market makers in a
number of such securities, and therefore can be expected to engage in portfolio
transactions with the Fund.
Each of the Underwriters or one of their respective affiliates will act in
Auctions as Broker- Dealers as set forth under "The Auction."
John Nuveen & Co. Incorporated, one of the Underwriters, is the parent
company of the Fund's Adviser.
The principal business addresses of the Underwriters are as follows:
Merrill Lynch, Pierce, Fenner & Smith Incorporated, World Financial Center,
North Tower, 250 Vesey Street, New York, New York 10281; BT Alex.Brown
Incorporated, 130 Liberty Street, New York, New York 10006; Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004; John Nuveen & Co. Incorporated,
333 West Wacker Drive, Chicago, Illinois 60606; Lehman Brothers Inc., 3 World
Financial Center, New York, New York 10285; PaineWebber Incorporated, 1285
Avenue of Americas, New York, New York 10019; Prudential Securities
Incorporated, One New York Plaza, New York, New York 10292; and Smith Barney
Inc., 388 Greenwich Street, New York, New York 10013.
LEGAL OPINIONS
Certain legal matters in connection with the shares of MuniPreferred
offered hereby will be passed upon for the Fund by Vedder, Price, Kaufman &
Kammholz, Chicago, Illinois, and for the Underwriters by Sidley & Austin,
Chicago, Illinois. Vedder, Price, Kaufman & Kammholz and Sidley & Austin will
rely as to certain matters of Minnesota law on the opinion of Dorsey & Whitney,
Minneapolis, Minnesota.
28
<PAGE> 31
AVAILABLE INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act, and in accordance therewith
is required to file reports, proxy statements and other information with the
Commission. Any such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's New York Regional Office, Seven World Trade Center, New York,
New York 10048 and Chicago Regional Office, Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Copies of such
materials can be obtained from the public reference section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Reports,
proxy statements and other information concerning the Fund can also be inspected
at the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
Additional information regarding the Fund and the shares of MuniPreferred
offered hereby is contained in the Registration Statement on Form N-2, including
amendments, exhibits and schedules thereto, relating to such shares filed by the
Fund with the Commission, Washington, D.C. This Prospectus does not contain all
of the information set forth in the Registration Statement, including any
amendments, exhibits and schedules thereto. For further information with respect
to the Fund and the shares offered hereby, reference is made to the Registration
Statement. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. Copies of the Registration Statement may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from the Commission
upon the payment of certain fees prescribed by the Commission. In addition,
copies can be found on the internet at www.Nuveen.com.
29
<PAGE> 32
TABLE OF CONTENTS FOR THE
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies........................... S-1
Certain Trading Strategies of the Fund...................... S-4
Management of the Fund...................................... S-7
Portfolio Transactions...................................... S-11
Net Asset Value............................................. S-11
Additional Information Concerning the Auctions for
MuniPreferred............................................. S-12
Tax Matters................................................. S-13
Certain Owners of Record.................................... S-18
Experts..................................................... S-18
Financial Statements........................................ S-19
Report of Independent Auditors.............................. S-53
Ratings of Investments (Appendix A)......................... A-1
</TABLE>
30
<PAGE> 33
APPENDIX A
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
AMENDMENT AND RESTATEMENT OF
STATEMENT ESTABLISHING AND FIXING THE RIGHTS
AND PREFERENCES OF
MUNICIPAL AUCTION RATE
CUMULATIVE PREFERRED STOCK ("MUNIPREFERRED")
A-1
<PAGE> 34
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.............................. 2
Affiliate.............................................. 2
Agent Member........................................... 2
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.......................................... 3
Broker-Dealer Agreement................................ 3
Business Day........................................... 3
Code................................................... 3
Commercial Paper Dealers............................... 3
Common Stock........................................... 3
Cure Date.............................................. 3
Date of Original Issue................................. 3
Deposit Securities..................................... 3
Discounted Value....................................... 3
[Reserved]............................................. 3
[Reserved]............................................. 3
Dividend Payment Date.................................. 3
Dividend Period........................................ 3
Existing Holder........................................ 3
Failure to Deposit..................................... 3
Federal Tax Rate Increase.............................. 4
Fund................................................... 4
Gross-up Payment....................................... 4
Holder................................................. 4
Hold Order and Hold Orders............................. 4
Independent Accountant................................. 4
Initial Rate Period.................................... 4
Interest Equivalent.................................... 4
Issue Type Category.................................... 4
Kenny Index............................................ 4
Late Charge............................................ 4
Liquidation Preference................................. 4
Market Value........................................... 4
i
</TABLE>
A-2
<PAGE> 35
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Maximum Potential Gross-up Payment Liability........... 4
Maximum Rate........................................... 5
[Reserved]............................................. 5
Minimum Rate Period.................................... 5
Moody's................................................ 5
Moody's Discount Factor................................ 5
Moody's Eligible Asset................................. 5
Moody's Exposure Period................................ 5
Moody's Volatility Factor.............................. 5
MuniPreferred.......................................... 6
MuniPreferred Basic Maintenance Amount................. 6
MuniPreferred Basic Maintenance Cure Date.............. 7
MuniPreferred Basic Maintenance Report................. 7
Municipal Obligations.................................. 7
1940 Act............................................... 7
1940 Act Cure Date..................................... 7
1940 Act MuniPreferred Asset Coverage.................. 7
Notice of Redemption................................... 7
Notice of Special Rate Period.......................... 7
Order and Orders....................................... 7
Original Issue Insurance............................... 7
Other Issues........................................... 7
Outstanding............................................ 7
Permanent Insurance.................................... 8
Person................................................. 8
Portfolio Insurance.................................... 8
Potential Beneficial Owner............................. 8
Potential Holder....................................... 8
Preferred Stock........................................ 8
Quarterly Valuation Date............................... 8
Rate Multiple.......................................... 8
Rate Period............................................ 8
Rate Period Days....................................... 8
Receivables for Municipal Obligations Sold............. 8
Redemption Price....................................... 8
Reference Rate......................................... 8
Registration Statement................................. 8
S&P.................................................... 8
S&P Discount Factor.................................... 9
S&P Eligible Asset..................................... 9
S&P Exposure Period.................................... 9
S&P Volatility Factor.................................. 9
Secondary Market Insurance............................. 9
Securities Depository.................................. 9
Sell Order and Sell Orders............................. 9
Special Rate Period.................................... 9
Special Redemption Provisions.......................... 9
Submission Deadline.................................... 9
Submitted Bid and Submitted Bids....................... 9
Submitted Hold Order and Submitted Hold Orders......... 9
Submitted Order and Submitted Orders................... 9
ii
</TABLE>
A-3
<PAGE> 36
<TABLE>
<S><C>
Submitted Sell Order and Submitted Sell Orders.......................... 9
Subsequent Rate Period.................................................. 9
Substitute Commercial Paper Dealer...................................... 9
Substitute U.S. Government Securities Dealer............................ 9
Sufficient Clearing Bids................................................ 10
Taxable Allocation...................................................... 10
Taxable Income.......................................................... 10
Taxable Equivalent of the Short-Term Municipal Bond
Rate................................................................... 10
Transitional Rate Period................................................ 10
Treasury Bill........................................................... 10
Treasury Bill Rate...................................................... 10
Treasury Note........................................................... 10
Treasury Note Rate...................................................... 10
U.S. Government Securities Dealer....................................... 11
Valuation Date.......................................................... 11
Volatility Factor....................................................... 11
Voting Period........................................................... 11
Winning Bid Rate........................................................ 11
PART I....................................................................... 12
1. Number of Authorized Shares...................................... 12
2. Dividends........................................................ 12
(a) Ranking..................................................... 12
(b) Cumulative Cash Dividends................................... 12
(c) Dividends Cumulative From Date of Original Issue............ 12
(d) Dividend Payment Dates and Adjustment Thereof............... 12
(e) Dividend Rates and Calculation of Dividends................. 12
(i) Dividend Rates.......................................... 12
(ii) Calculation of Dividends............................... 14
(f) Curing a Failure to Deposit................................. 14
(g) Dividend Payments by Fund to Auction Agent.................. 14
(h) Auction Agent as Trustee of Dividend Payments by Fund....... 15
(i) Dividends Paid to Holders................................... 15
(j) Dividends Credited Against Earliest Accumulated But Unpaid
Dividends................................................... 15
(k) Dividends Designated as Exempt-Interest Dividends........... 15
3. Gross-up Payments................................................ 15
(a) Minimum Rate Periods and Special Rate Periods of 28 Rate
Period Days or Fewer........................................ 15
(b) Special Rate Periods of More Than 28 Rate Period Days....... 15
(c) No Gross-up Payments In the Event of a Reallocation......... 15
4. Designation of Special Rate Periods.............................. 16
(a) Length of and Preconditions for Special Rate Period......... 16
(b) Adjustment of Length of Special Rate Period................. 16
(c) Notice of Proposed Special Rate Period...................... 16
(d) Notice of Special Rate Period............................... 17
(e) Failure to Deliver Notice of Special Rate Period............ 17
5. Voting Rights.................................................... 17
(a) One Vote Per Share of MuniPreferred......................... 17
(b) Voting For Additional Directors............................. 18
(i) Voting Period........................................... 18
(ii) Notice of Special Meeting.............................. 18
(iii) Terms of Office of Existing Directors................. 18
</TABLE>
iii
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
(iv) Terms of Office of Certain Directors to Terminate Upon
Termination of Voting Period................................ 18
(c) Holders of MuniPreferred To Vote On Certain Other Matters... 19
(i) Increases in Capitalization............................. 19
(ii) 1940 Act Matters....................................... 19
(d) Board May Take Certain Actions Without Shareholder
Approval.................................................... 20
(e) Voting Rights Set Forth Herein Are Sole Voting Rights....... 20
(f) No Preemptive Rights or Cumulative Voting................... 20
(g) Voting for Directors Sole Remedy for Fund's Failure to Pay
Dividends................................................... 20
(h) Holders Entitled to Vote.................................... 20
6. 1940 Act MuniPreferred Asset Coverage............................ 21
7. MuniPreferred Basic Maintenance Amount........................... 21
8. [Reserved]....................................................... 22
9. Restrictions on Dividends and Other Distributions................ 22
(a) Dividends on Preferred Stock Other Than MuniPreferred....... 22
(b) Dividends and Other Distributions With Respect to Common
Stock Under the 1940 Act.................................... 23
(c) Other Restrictions On Dividends and Other Distributions..... 23
10. Rating Agency Restrictions....................................... 23
11. Redemption....................................................... 24
(a) Optional Redemption......................................... 24
(b) Mandatory Redemption........................................ 25
(c) Notice of Redemption........................................ 26
(d) No Redemption Under Certain Circumstances................... 26
(e) Absence of Funds Available for Redemption................... 26
(f) Auction Agent as Trustee of Redemption Payments by Fund..... 26
(g) Shares for Which Notice of Redemption Has Been Given Are No
Longer Outstanding.......................................... 26
(h) Compliance With Applicable Law.............................. 27
(i) Only Whole Shares of MuniPreferred May Be Redeemed.......... 27
12. Liquidation Rights............................................... 27
(a) Ranking..................................................... 27
(b) Distributions Upon Liquidation.............................. 27
(c) Pro Rata Distributions...................................... 27
(d) Rights of Junior Stock...................................... 27
(e) Certain Events Not Constituting Liquidation................. 28
13. Miscellaneous.................................................... 28
(a) Amendment of Appendix A to Add Additional Series............ 28
(b) Appendix A Incorporated By Reference........................ 28
(c) No Fractional Shares........................................ 28
(d) Status of Shares of MuniPreferred Redeemed, Exchanged or
Otherwise Acquired by the Fund.............................. 28
(e) Board May Resolve Ambiguities............................... 28
(f) Headings Not Determinative.................................. 28
(g) Notices..................................................... 28
PART II...................................................................... 29
1. Orders........................................................... 29
2. Submission of Orders by Broker-Dealers to Auction Agent.......... 30
3. Determination of Sufficient Clearing Bids, Winning Bid Rate and 32
Applicable Rate..................................................
4. Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares.................................. 33
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
5. Notification of Allocations...................................... 35
6. Auction Agent.................................................... 35
7. Transfer of Shares of MuniPreferred.............................. 35
8. Global Certificate............................................... 35
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-3
Section 4. Certain Definitions....................................... A-3
Section 5. Initial and Transitional Rate Periods..................... A-7
Section 6. Date for Purposes of Paragraph (yyy) Contained Under the
Heading "Definitions" in this Statement............................... A-7
Section 7. Party Named for Purposes of the Definition of "Rate
Multiple" in this Statement........................................... A-7
Section 8. Additional Definitions.................................... A-7
Section 9. Dividend Payment Dates.................................... A-7
Section 10. Amount for Purposes of Subparagraph (c)(i) of Section 5 of
Part I of this Statement.............................................. A-8
Section 11. Redemption Provisions Applicable to Initial Rate
Periods............................................................... A-8
Section 12. Applicable Rate for Purposes of Subparagraph (b)(iii) of
Section 3 of Part II of this Statement................................ A-8
</TABLE>
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<PAGE> 39
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
1
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<PAGE> 40
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.
(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.
2
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<PAGE> 41
(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.
(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
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<PAGE> 42
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.
(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.
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(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 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
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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);
6
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(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
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.
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(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.
(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.
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(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.
(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
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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
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
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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.
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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
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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 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
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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.
(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
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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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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.
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(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
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
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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 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)
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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 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
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(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
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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.
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").
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(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 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
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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.
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
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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
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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.
(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.
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(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 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
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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 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
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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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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
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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.
(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
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(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;
(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.
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(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 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;
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(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.
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(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;
(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
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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 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
35
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<PAGE> 74
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 11, 1997.
NUVEEN PREMIUM INCOME MUNICIPAL FUND,
INC.
BY:
--------------------------------------
Gifford R. Zimmerman
Vice President
ATTEST:
- ---------------------------------------------
Larry W. Martin
Assistant Secretary
36
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<PAGE> 75
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 12, 1997; have an
Applicable Rate for its Initial Rate Period equal to 3.64% 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 12, 1997; have an
Applicable Rate for its Initial Rate Period equal to 3.00% per annum; have an
initial Dividend Payment Date of September 4, 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 12, 1997; have an
Applicable Rate for its Initial Rate Period equal to 3.54% per annum; have an
initial Dividend Payment Date of August 14, 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
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<PAGE> 76
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 12, 1997;
have an Applicable Rate for its Initial Rate Period equal to 3.65% per annum;
have an initial Dividend Payment Date of August 14, 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 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 12, 1997; have an
Applicable Rate for its Initial Rate Period equal to 3.44% 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.
A-2
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<PAGE> 77
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.
"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.
A-3
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<PAGE> 78
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
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<PAGE> 79
penalty, (c) Liens to secure payment for services rendered or cash advanced to
the Fund by 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
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<PAGE> 80
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 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
A-6
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<PAGE> 81
(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
September 4, 1997. The Transitional Rate Period for shares of Series T
MuniPreferred shall be the period from and including September 4, 1997 to but
excluding September 10, 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 14, 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.
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;
A-7
A-49
<PAGE> 82
Series T MuniPreferred, for the Initial Rate Period on Thursday, September
4, 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 14,
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-8
A-50
<PAGE> 83
APPENDIX B
TAXABLE EQUIVALENT YIELD TABLE
The following tables demonstrate the effects for individuals of Federal
income taxes by showing the return that an individual would have to earn on a
taxable investment to equal a given tax-free return. The tables below use tax
rates based upon published 1997 marginal Federal tax rates (15%, 28%, 31%, 36%
and 39.6%). See "Tax Matters -- Federal Income Tax Matters."
In all cases, (i) the tables are for illustrative purposes only and are not
intended to predict the actual return an individual might earn on an investment
in the Fund, (ii) the Federal income tax rates have been rounded to the
nearest 1/2 of 1%, and (iii) the Federal income tax rates reflect the current
Federal tax limitations on itemized deductions and personal exemptions, which
may raise the effective tax rate and taxable equivalent yield for taxpayers
above certain income levels. Such limitations are subject to certain maximums,
which depend on the number of exemptions claimed and the total amount of the
taxpayer's itemized deductions. For example, the limitation on itemized
deductions will not cause a taxpayer to lose more than 80% of his allowable
itemized deductions, with certain exceptions. The tax rates shown here may be
higher or lower than an individual's actual tax rate. Investors should consult
their tax advisers to determine their actual tax rates.
MARGINAL TAX RATES FOR JOINT TAXPAYERS WITH FOUR PERSONAL EXEMPTIONS
<TABLE>
<CAPTION>
FEDERAL
FEDERAL ADJUSTED
TAXABLE GROSS MARGINAL
INCOME INCOME RATE 3.00% 3.25% 3.50% 3.75% 4.00% 4.25% 4.50% 4.75% 5.00%
- ------------------- ------------------- -------- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 - $41,200 $0 - $121,200 15.00% 3.53% 3.82% 4.12% 4.41% 4.71% 5.00% 5.29% 5.59% 5.88%
$41,200 - $99,600 $0 - $121,200 28.00% 4.17% 4.51% 4.86% 5.21% 5.56% 5.90% 6.25% 6.60% 6.94%
$121,200 - $181,800 29.00% 4.23% 4.58% 4.93% 5.28% 5.63% 5.99% 6.34% 6.69% 7.04%
$99,600 - $151,750 $0 - $121,200 31.00% 4.35% 4.71% 5.07% 5.43% 5.80% 6.16% 6.52% 6.88% 7.25%
$121,200 - $181,800 32.00% 4.41% 4.78% 5.15% 5.51% 5.88% 6.25% 6.62% 6.99% 7.35%
$181,800 - $304,300 34.50% 4.58% 4.96% 5.34% 5.73% 6.11% 6.49% 6.87% 7.25% 7.63%
$151,750 - $271,050 $121,200 - $181,800 37.00% 4.76% 5.16% 5.56% 5.95% 6.35% 6.75% 7.14% 7.54% 7.94%
$181,800 - $304,300 40.00% 5.00% 5.42% 5.83% 6.25% 6.67% 7.08% 7.50% 7.92% 8.33%
Over $304,000 37.00% 4.76% 5.16% 5.56% 5.95% 6.35% 6.75% 7.14% 7.54% 7.94%
Over $271,500 $121,200-$304,300 44.00% 5.36% 5.80% 6.25% 6.70% 7.14% 7.59% 8.04% 8.48% 8.93%
Over $304,300 41.00% 5.08% 5.51% 5.93% 6.36% 6.78% 7.20% 7.63% 8.05% 8.47%
</TABLE>
MARGINAL TAX RATES FOR SINGLE TAXPAYERS WITH ONE PERSONAL EXEMPTION
<TABLE>
<CAPTION>
FEDERAL
FEDERAL ADJUSTED
TAXABLE GROSS MARGINAL
INCOME INCOME RATE 3.00% 3.25% 3.50% 3.75% 4.00% 4.25% 4.50% 4.75% 5.00%
- ------------------- ------------------- -------- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 - $24,650 $0 - $121,200 15.00% 3.53% 3.82% 4.12% 4.41% 4.71% 5.00% 5.29% 5.59% 5.88%
$24,650 - $59,750 $0 - $121,200 28.00% 4.17% 4.51% 4.86% 5.21% 5.56% 5.90% 6.25% 6.60% 6.94%
$59,750 - $124,650 $0 - $121,200 31.00% 4.35% 4.71% 5.07% 5.43% 5.80% 6.16% 6.52% 6.88% 7.25%
$121,200 - $243,700 32.50% 4.44% 4.81% 5.19% 5.56% 5.93% 6.30% 6.67% 7.04% 7.41%
$124,650 - $271,050 $121,200 - $243,700 38.00% 4.84% 5.24% 5.65% 6.05% 6.45% 6.85% 7.26% 7.66% 8.06%
Over $243,700 37.00% 4.76% 5.16% 5.56% 5.95% 6.35% 6.75% 7.14% 7.54% 7.94%
Over $271,500 Over $243,700 41.00% 5.08% 5.51% 5.93% 6.36% 6.78% 7.20% 7.63% 8.05% 8.47%
</TABLE>
A-8
B-1
<PAGE> 84
================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Financial Highlights.................... 6
The Fund................................ 8
Use Of Proceeds......................... 8
Capitalization.......................... 9
Investment Objective And Policies....... 10
Management Of The Fund.................. 12
Description Of Munipreferred............ 13
The Auction............................. 22
Description Of Common Stock............. 24
Certain Provisions In The Articles Of
Incorporation......................... 24
Repurchase Of Shares Of Common Stock;
Conversion To Open-End Fund........... 25
Tax Matters............................. 26
Custodian, Transfer Agent, Dividend
Disbursing Agent And Redemption
Agent................................. 27
Underwriting............................ 27
Legal Opinions.......................... 28
Available Information................... 29
Table Of Contents For The Statement Of
Additional Information................ 30
Nuveen Premium Income Municipal Fund,
Inc. Amendment and Restatement of
Statement Establishing and Fixing the
Rights and Preferences of Municipal
Auction Rate Cumulative Preferred
Stock ("MuniPreferred")............... A-1
Taxable Equivalent Yield Table.......... B-1
</TABLE>
================================================================================
================================================================================
$125,000,000
NUVEEN
PREMIUM INCOME
MUNICIPAL FUND, INC.
MUNICIPAL AUCTION
RATE CUMULATIVE
PREFERRED STOCK
MUNIPREFERRED(R)
1,000 SHARES SERIES M
1,000 SHARES SERIES T
1,000 SHARES SERIES W
1,000 SHARES SERIES TH
1,000 SHARES SERIES F
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
BT ALEX.BROWN INCORPORATED
GOLDMAN, SACHS & CO.
JOHN NUVEEN & CO. INCORPORATED
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
, 1997
================================================================================
<PAGE> 85
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 22, 1997
NUVEEN PREMIUM
INCOME MUNICIPAL FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relating to this offering does not
constitute a prospectus, but should be read in conjunction with the Prospectus
relating thereto dated , 1997 (the "Prospectus"). This Statement of
Additional Information does not include all information that a prospective
investor should consider before purchasing shares of MuniPreferred in this
offering, and investors should obtain and read the Prospectus prior to
purchasing such shares. A copy of the Prospectus may be obtained without charge
by calling (800) 257-8787. Capitalized terms used but not defined in this
Statement of Additional Information have the meanings ascribed to them in the
Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies........................... S-1
Certain Trading Strategies of the Fund...................... S-4
Management of the Fund...................................... S-7
Portfolio Transactions...................................... S-11
Net Asset Value............................................. S-11
Additional Information Concerning the Auctions for
MuniPreferred............................................. S-12
Tax Matters................................................. S-13
Certain Owners of Record.................................... S-18
Experts..................................................... S-18
Financial Statements........................................ S-19
Report of Independent Auditors.............................. S-53
Ratings of Investments...................................... A-1
</TABLE>
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS , 1997.
<PAGE> 86
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide, through investment in a
professionally managed portfolio of investment grade tax-exempt Municipal
Obligations, a high level of current income exempt from regular Federal income
tax, consistent with preservation of capital.
PORTFOLIO INVESTMENTS
Except to the extent the Fund invests in temporary investments as described
in this Statement of Additional Information, the Fund will, as a fundamental
policy, invest substantially all of its net assets in tax-exempt Municipal
Obligations rated at the time of purchase within the four highest grades (Baa or
BBB or better) by Moody's or S&P, or in unrated Municipal Obligations which, in
the opinion of the Adviser, have credit characteristics equivalent to, and will
be of comparable quality to, Municipal Obligations rated within the four highest
grades by Moody's or S&P, provided that the Fund may not invest more than 20% of
its net assets in such unrated Municipal Obligations.
The foregoing investment objective and policies are fundamental policies of
the Fund and may not be changed without the approval of the holders of a
majority of the outstanding shares of Common Stock and shares of Preferred
Stock, including MuniPreferred, voting together as a single class, and of the
holders of a majority of the outstanding shares of Preferred Stock, including
MuniPreferred, voting as a separate class. For the purposes of the foregoing and
"Investment Restrictions," below, "majority of the outstanding," when used with
respect to particular shares of the Fund, means (i) 67% or more of the shares
present at a meeting, if the holders of more than 50% of the shares are present
or represented by proxy, or (ii) more than 50% of the shares, whichever is less.
See "Description of MuniPreferred -- Voting Rights" in the Prospectus for
additional information with respect to the voting rights of holders of Preferred
Stock.
If current market conditions persist, the Fund expects to invest
substantially all the net proceeds of this offering in Municipal Obligations
which are rated within the three highest grades of the investment grade category
and which may not be redeemed at the option of the issuer of any such Municipal
Obligations for approximately seven to eight years from the date of purchase by
the Fund. See "Certain Trading Strategies of The Fund -- Portfolio Trading and
Turnover Rate." Subject to market availability, the Fund would likely seek to
invest approximately 10% of the net proceeds of this offering in unrated
Municipal Obligations.
The Fund has not established any limit on the percentage of its portfolio
that may be invested in Municipal Obligations subject to the alternative minimum
tax provisions of Federal tax law, and a substantial portion of the income
produced by the Fund may be includable in alternative minimum taxable income.
Shares of MuniPreferred therefore would not ordinarily be a suitable investment
for investors who are subject to the Federal alternative minimum tax. The
suitability of an investment in shares of MuniPreferred will depend upon a
comparison of the after-tax yield likely to be provided from the Fund with that
from comparable tax-exempt investments not subject to the alternative minimum
tax, and from comparable fully taxable investments, in light of each such
investor's tax position. Special considerations apply to corporate investors. In
addition, the dividends paid on shares of MuniPreferred during specified Rate
Periods will include an allocated portion of any net capital gains or other
income taxable for Federal income tax purposes realized by the Fund. See "Tax
Matters."
During temporary defensive periods (e.g., times when, in the Adviser's
opinion, temporary imbalances of supply and demand or other temporary
dislocations in the tax-exempt bond market adversely affect the price at which
long-term or intermediate-term Municipal Obligations are available), and in
order to keep cash on hand fully invested, the Fund may invest any percentage of
its net assets in temporary investments, the income on which may be subject to
regular Federal income taxes. Temporary investments are high quality, short-term
securities which may be either tax-exempt or taxable. The Fund intends to invest
in taxable temporary investments only in the event that suitable tax-exempt
temporary investments are not available at reasonable prices and yields.
Tax-exempt temporary investments include various obligations issued by state and
local governmental issuers, such as tax-exempt notes (bond anticipation notes,
tax anticipation notes and revenue
S-1
<PAGE> 87
anticipation notes or other such Municipal Obligations maturing in three years
or less from the date of issuance) and municipal commercial paper. The Fund will
invest only in taxable temporary investments which are U.S. Government
securities or securities rated within the highest grade by Moody's or S&P, and
which mature within one year from the date of purchase or carry a variable or
floating rate of interest. See Appendix A for a general description of Moody's
and S&P's ratings of securities in such categories. Taxable temporary
investments of a Fund may include certificates of deposit issued by U.S. banks
with assets of at least $1 billion, or commercial paper or corporate notes,
bonds or debentures with a remaining maturity of one year or less, or repurchase
agreements. See "Certain Trading Strategies of The Fund--Repurchase Agreements."
To the extent the Fund invests in temporary investments the income on which is
subject to regular Federal income taxes, the Fund will not at such times be in a
position to achieve its investment objective of providing current income exempt
from regular Federal income taxes.
The foregoing policies as to ratings of portfolio investments will apply
only at the time of the purchase of a security, and the Fund will not be
required to dispose of securities in the event Moody's or S&P downgrades its
assessment of the credit characteristics of a particular issuer.
MUNICIPAL OBLIGATIONS
Included within the general category of Municipal Obligations described in
the Prospectus are participations in lease obligations or installment purchase
contract obligations (hereinafter collectively called "Municipal Lease
Obligations") of municipal authorities or entities. Although Municipal Lease
Obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a Municipal Lease Obligation is
ordinarily backed by the municipality's covenant to budget for, appropriate and
make the payments due under the Municipal Lease Obligation. However, certain
Municipal Lease Obligations contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. In the case of a "non-appropriation" lease, the Fund's ability to
recover under the lease in the event of non-appropriation or default will be
limited solely to the repossession of the leased property, without recourse to
the general credit of the lessee, and disposition or releasing of the property
might prove difficult. The Fund seeks to minimize these risks by not investing
more than 5% of its total investment assets in Municipal Lease Obligations that
contain "non-appropriation" clauses, and by only investing in those "non-
appropriation" Municipal Lease Obligations where (a) the nature of the leased
equipment or property is such that its ownership or use is essential to a
governmental function of the municipality, (b) the lease payments will commence
amortization of principal at an early date that results in an average life of
seven years or less for the Municipal Lease Obligation, (c) appropriate
covenants will be obtained from the municipal obligor prohibiting the
substitution or purchase of similar equipment if lease payments are not
appropriated, (d) the lease obligor has maintained good market acceptability in
the past, (e) the investment is of a size that will be attractive to
institutional investors and (f) the underlying leased equipment has elements of
portability or use, or both, that enhance its marketability in the event
foreclosure on the underlying equipment were ever required.
Certain Municipal Obligations may carry variable or floating rates of
interest whereby the rate of interest is not fixed but varies with changes in
specified market rates or indexes, such as a bank prime rate or a tax-exempt
money market index. As used in the Prospectus and in this Statement of
Additional Information, the term Municipal Obligations also includes
obligations, such as tax-exempt notes, municipal commercial paper and Municipal
Lease Obligations, having relatively short-term maturities, although the Fund
emphasizes investments in Municipal Obligations with long-term maturities.
Obligations of issuers of Municipal Obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Bankruptcy Reform Act of 1978, as amended. In
addition, the obligations of such issuers may become subject to laws enacted in
the future by Congress, state legislatures or referenda extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon municipalities to levy taxes. There is
also the possibility that, as a result of legislation or other conditions, the
power or ability of any issuer to pay, when due, the principal of and interest
on its Municipal Obligations may be materially affected.
S-2
<PAGE> 88
INVESTMENT RESTRICTIONS
Except as described below, the Fund, as a fundamental policy, may not,
without the approval of the holders of a majority of the outstanding shares of
common stock and preferred stock of the Fund, including MuniPreferred, voting
together as a single class, and of the holders of a majority of the outstanding
shares of preferred stock of the Fund, including MuniPreferred, voting as a
separate class:
(1) Issue senior securities, as defined in the 1940 Act, other than
preferred stock, except to the extent such issuance might be involved with
respect to borrowings described under subparagraph (3) below or with
respect to transactions involving futures contracts or the writing of
options within the limits described under "Certain Trading Strategies of
the Fund -- Financial Futures and Options Transactions" below;
(2) Make short sales of securities or purchase any securities on
margin (except for such short-term credits as are necessary for the
clearance of transactions), or write or purchase put or call options,
except to the extent that the purchase of a standby commitment may be
considered the purchase of a put, and except for transactions involving
options within the limits described under "Certain Trading Strategies of
the Fund -- Financial Futures and Options Transactions" below;
(3) Borrow money, except from banks for temporary or emergency
purposes or for repurchase of its shares, and then only in an amount not
exceeding one-third of the value of its total assets including the amount
borrowed; while any such borrowings exceed 5% of its total assets, no
additional purchases of investment securities will be made;
(4) Underwrite any issue of securities, except to the extent that the
purchase of Municipal Obligations in accordance with its investment
objective, policies and limitations may be deemed to be an underwriting;
(5) Invest more than 25% of its total assets in securities of issuers
in any one industry; provided, however, that such limitation shall not
apply to Municipal Obligations other than those Municipal Obligations
backed only by the assets and revenues of non-governmental users, nor shall
it apply to Municipal Obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
(6) Purchase or sell real estate, but this shall not prevent the Fund
from investing in Municipal Obligations secured by real estate or interests
therein or foreclosing upon and selling such security;
(7) Purchase or sell commodities or commodities contracts, except for
transactions involving futures contracts within the limits described under
"Certain Trading Strategies of the Fund -- Financial Futures and Options
Transactions" below;
(8) Make loans, other than by entering into repurchase agreements and
through the purchase of Municipal Obligations or temporary investments in
accordance with its investment objective, policies and limitations;
(9) Invest in securities other than Municipal Obligations and
temporary investments as described under "Investment Objective and
Policies -- Portfolio Investments" above;
(10) Invest more than 5% of its total assets in securities of any one
issuer, except that this limitation shall not apply to securities of the
U.S. Government, its agencies and instrumentalities or to the investment of
25% of its total assets;
(11) Pledge, mortgage or hypothecate its assets, except that, to
secure borrowings permitted by subparagraph (3) above, it may pledge
securities having a market value at the time of pledge not exceeding 20% of
the value of its total assets;
(12) Invest more than 10% of its total assets in repurchase agreements
maturing in more than seven days; and
(13) Purchase or retain the securities of any issuer other than its
own securities if, to its knowledge, those of its directors, or those
officers and directors of the Adviser, who individually own beneficially
more
S-3
<PAGE> 89
than 1/2 of 1% of the outstanding securities of such issuer, together own
beneficially more than 5% of such outstanding securities.
For the purpose of applying the limitation set forth in subparagraph (10)
above, an issuer shall be deemed the sole issuer of a security when its assets
and revenues are separate from other governmental entities and its securities
are backed only by its assets and revenues. Similarly, in the case of a
non-governmental user, such as an industrial corporation or a privately owned or
operated hospital, if the security is backed only by the assets and revenues of
the non-governmental user, then such non-governmental user would be deemed to be
the sole issuer. Where a security is also backed by the enforceable obligation
of a superior or unrelated governmental or other entity, it shall also be
included in the computation of securities owned that are issued by such
governmental or other entity. Where a security is guaranteed by a governmental
entity or some other facility, such as a bank guarantee or letter of credit,
such a guarantee or letter of credit would be considered a separate security and
would be treated as an issue of such government or other entity.
In addition to the limitations set forth above, the Fund will not, as a
matter of operating policy, (1) invest more than 5% of its total assets in
unsecured obligations of issuers which, together with their predecessors, have
been in operation for less than three years, (2) invest for the purpose of
exercising control or management, (3) invest more than 10% of its total assets
in securities that are unmarketable, illiquid or not readily marketable
(securities that cannot reasonably be sold within seven days, including
repurchase agreements maturing in more than seven days), or (4) borrow in excess
of 5% of its total assets if and so long as its preferred shares are
outstanding. These policies are not fundamental and may be changed by the Board
without shareholder approval.
The restrictions and other limitations set forth above will apply only at
the time of purchase of securities and will not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of an
acquisition of securities.
The Fund has no intention to 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.
CERTAIN TRADING STRATEGIES OF THE FUND
PORTFOLIO TRADING AND TURNOVER RATE
Portfolio trading may be undertaken to accomplish the investment objective
of the Fund in relation to actual and anticipated movements in interest rates.
In addition, a security may be sold and another of comparable quality purchased
at approximately the same time to take advantage of what the Adviser believes to
be a temporary price disparity between the two securities. Temporary price
disparities between two comparable securities may result from supply and demand
imbalances where, for example, a temporary oversupply of certain bonds may cause
a temporarily low price for such bonds, as compared with other bonds of like
quality and characteristics. The Fund may also engage to a limited extent in
short-term trading consistent with its investment objective. Securities may be
sold in anticipation of a market decline (a rise in interest rates) or purchased
in anticipation of a market rise (a decline in interest rates) and later sold,
but the Fund will not engage in trading solely to recognize a gain.
Subject to the foregoing, the Fund will attempt to achieve its investment
objective by prudent selection of Municipal Obligations with a view to holding
them for investment. While there can be no assurance thereof, the Fund
anticipates that its annual portfolio turnover rate generally will not exceed
100%. However, the rate of turnover will not be a limiting factor when the Fund
deems it desirable to sell or purchase securities. Therefore, depending upon
market conditions, the Fund's annual portfolio turnover rate may exceed 100% in
particular years.
WHEN-ISSUED AND DELAYED DELIVERY
The Fund may purchase and sell Municipal Obligations on a when-issued or
delayed delivery basis. When-issued and delayed delivery transactions arise when
securities are purchased or sold with payment and
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<PAGE> 90
delivery beyond the regular settlement date. (When-issued transactions normally
settle within 30-45 days). On such transactions the payment obligation and the
interest rate are fixed at the time the buyer enters into the commitment.
Beginning on the date the Fund enters into a commitment to purchase securities
on a when-issued or delayed delivery basis, it is required under the rules of
the Commission to maintain in a segregated account cash or liquid assets, equal
in value to the purchase price due on the settlement date. Income generated by
assets in such a segregated account which provides taxable income for Federal
income tax purposes is includable in the taxable income of the Fund. The Fund
currently intends to allocate net capital gains and other income taxable for
Federal income tax purposes, if any, proportionately between its common stock
and shares of its MuniPreferred, and dividends paid on shares of its
MuniPreferred during specified periods will include an allocated portion of any
such net capital gains and other taxable income. See "Tax Matters." The
commitment to purchase securities on a when-issued or delayed delivery basis may
involve an element of risk because the value of the securities is subject to
market fluctuation. No interest accrues to the purchaser prior to settlement of
the transaction, and at the time of delivery the market value may be less than
cost.
FINANCIAL FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its investment portfolio
against market risk by engaging in transactions in financial futures contracts,
options on financial futures or options that either are based on an index of
long-term Municipal Obligations (i.e., those with remaining maturities averaging
20-30 years) or relate to debt securities whose prices are anticipated by the
Adviser to correlate with the prices of the Municipal Obligations owned by the
Fund. The Fund has no present intention to engage in such hedging transactions
and in no event does it expect that any material portion of its assets would be
so committed. To accomplish such hedging, the Fund may take an investment
position in a futures contract or in an option which is expected to move in the
opposite direction from the position being hedged. Hedging may be utilized to
reduce the risk that the value of securities owned by the Fund may decline on
account of an increase in interest rates and to hedge against increases in the
cost of the securities the Fund intends to purchase as a result of a decline in
interest rates. The use of futures and options for hedging purposes can be
expected to result in taxable income or gain. The Fund currently intends to
allocate any taxable income or gain proportionately between its common stock and
shares of its MuniPreferred. See "Tax Matters."
The sale of financial futures or the purchase of put options on financial
futures or on debt securities or indexes is a means of hedging against the risk
of rising interest rates, whereas the purchase of financial futures or of call
options on financial futures or on debt securities or indexes is a means of
hedging the Fund's portfolio against an increase in the price of securities such
Fund intends to purchase. Writing a call option on a futures contract or on debt
securities or indexes may serve as a hedge against a modest decline in prices of
Municipal Obligations held in the Fund's portfolio, and writing a put option on
a futures contract or on debt securities or indexes may serve as a partial hedge
against an increase in the value of Municipal Obligations the Fund intends to
acquire. The writing of such options provides a hedge to the extent of the
premium received in the writing transaction.
Although certain risks are involved in futures and options transactions (as
discussed under "Risks of Futures and Options Transactions" below), because
these transactions will be engaged in by the Fund only for hedging purposes,
these futures and options portfolio strategies should not subject the Fund to
those risks frequently associated with speculation in futures or options
transactions. Regulations of the Commodity Futures Trading Commission (the
"CFTC") applicable to the Fund require that transactions in futures and options
on futures be engaged in only for bona fide hedging purposes or if the aggregate
initial margin deposits and premiums paid by the Fund do not exceed 5% of the
market value of its assets. The Fund will not purchase futures unless it has
segregated cash, government securities or high grade liquid debt equal to the
contract price of the futures less any margin on deposit, or unless the long
futures position is covered by the purchase of a put option. The Fund will not
sell futures unless the Fund owns the instruments underlying the futures or owns
options on such instruments or owns a portfolio whose market price may be
expected to move in tandem with the market price of the instruments or index
underlying the futures. In addition, for taxable years beginning prior to August
6, 1997, the Fund is subject to the Federal income tax requirement that it
S-5
<PAGE> 91
derive less than 30% of its gross income from the gain on the sale or other
disposition of securities held for less than three months. With respect to its
engaging in transactions involving the purchase or writing of put and call
options on debt securities or indexes, the Fund will not purchase such options
if more than 5% of its assets would be invested in the premiums for such
options, and it will only write "covered" or "secured" options, wherein the
securities or cash required to be delivered upon exercise are held by the Fund,
with such cash being maintained in a segregated account. These requirements and
limitations may limit the Fund's ability to engage in hedging transactions. So
long as Moody's or S&P, or both, are rating the Fund's shares of MuniPreferred,
that Fund will only engage in futures or options transactions in accordance with
the then-current guidelines of such rating agencies, and only after it has
received written confirmation from Moody's and S&P, as appropriate, that such
transactions would not impair the ratings then assigned by Moody's and S&P to
such shares.
DESCRIPTION OF FINANCIAL FUTURES AND OPTIONS. A futures contract is a
contract between a seller and a buyer for the sale and purchase of specified
property at a specified future date for a specified price. An option is a
contract that gives the holder of the option the right, but not the obligation,
to buy (in the case of a call option) specified property from, or to sell (in
the case of a put option) specified property to, the writer of the option for a
specified price during a specified period prior to the option's expiration.
Financial futures contracts and options cover specified debt securities (such as
U.S. Treasury securities) or indexes designed to correlate with price movements
in certain categories of debt securities. At least one exchange trades futures
contracts on an index designed to correlate with the long-term municipal bond
market. Financial futures contracts and options on financial futures contracts
are traded on exchanges regulated by the CFTC. Options on certain financial
instruments and financial indexes are traded on securities markets regulated by
the Commission. Although futures contracts and options on specified financial
instruments call for settlement by delivery of the financial instruments covered
by the contracts, in most cases positions in these contracts are closed out in
cash by entering into offsetting liquidating or closing transactions. Index
futures and options are designed for cash settlement only.
RISKS OF FUTURES AND OPTIONS TRANSACTIONS. There are certain risks
associated with the use of financial futures and options to hedge investment
portfolios. There may be an imperfect correlation between price movements of the
futures and options and price movements of the portfolio securities being
hedged. Losses may be incurred in hedging transactions, which could reduce the
portfolio gains that might have been realized if the hedging transactions had
not been entered into. The ability to close out positions in futures and options
depends upon the existence of a liquid secondary market, which may not exist for
all futures and options at all times. If the Fund engages in futures
transactions or in the writing of options on futures, it will be required to
maintain initial margin and maintenance margin and may be required to make daily
variation margin payments in accordance with applicable rules of the exchanges
and the CFTC. If the Fund purchases a financial futures contract or a call
option or writes a put option in order to hedge the anticipated purchase of
Municipal Obligations, and if the Fund fails to complete the anticipated
purchase transaction, such Fund may experience a loss or a gain on the futures
or options transaction that will not be offset by price movements in the
Municipal Obligations that were the subject of the anticipatory hedge. The cost
of put options on debt securities or indexes effectively increases the cost of
the securities subject to them, thereby reducing the yield otherwise available
from such securities. If the Fund decides to use futures contracts or options on
futures contracts for hedging purposes, the Fund will be required to establish
an account for such purposes with one or more CFTC-registered futures commission
merchants. A futures commission merchant could establish initial and maintenance
margin requirements for the Fund that are greater than those which would
otherwise be applicable to the Fund under applicable rules of the exchanges and
the CFTC.
REPURCHASE AGREEMENTS
As temporary investments, the Fund may invest in repurchase agreements. A
repurchase agreement is a contractual agreement whereby the seller of securities
(U.S. government securities or Municipal Obligations) agrees to repurchase the
same security at a specified price on a future date agreed upon by the parties.
The agreed-upon repurchase price determines the yield during the Fund's holding
period. Repurchase agreements are considered to be loans collateralized by the
underlying security that is the subject of the repurchase
S-6
<PAGE> 92
contract. Income generated from transactions in repurchase agreements will be
taxable. See "Tax Matters." A Fund will enter into repurchase agreements only
with registered securities dealers or domestic banks that, in the opinion of the
Adviser, present minimal credit risk. The risk to the Fund is limited to the
ability of the issuer to pay the agreed-upon repurchase price on the delivery
date; however, although the value of the underlying collateral at the time the
transaction is entered into always equals or exceeds the agreed-upon repurchase
price, if the value of the collateral declines, there is a risk of loss of both
principal and interest. In the event of default, the collateral may be sold but
the Fund might incur a loss if the value of the collateral declines, and might
incur disposition costs or experience delays in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with respect to
the seller of the security, realization upon the collateral by the Fund may be
delayed or limited. The Adviser will monitor the value of the collateral at the
time the transaction is entered into and at all times subsequent during the term
of the repurchase agreement in an effort to determine that such value always
equals or exceeds the agreed-upon repurchase price. In the event the value of
the collateral declines below the repurchase price, the Adviser will demand
additional collateral from the issuer to increase the value of the collateral to
at least that of the repurchase price, including interest.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The management of the Fund, including general supervision of the duties
performed by the Adviser under the Investment Management Agreement, is the
responsibility of its Board. There are eight directors of the Fund, two of whom
are "interested persons" (as defined in the 1940 Act) and six of whom are
"disinterested persons." The names and business addresses of the directors and
officers of the Fund and their principal occupations and other affiliations
during the past five years are set forth below, with those directors who are
"interested persons" of the Fund indicated by an asterisk.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES WITH
NAME, AGE AND ADDRESS FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
--------------------- -------------------------- --------------------------------------------
<S> <C> <C>
Timothy R. Schwertfeger*, 48 Chairman of the Board and Trustee and President (since July 1996) of
333 West Wacker Drive Director the Nuveen Select Tax-Free Portfolios
Chicago, IL 60606 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.
Anthony T. Dean*, 52 President and Director Chairman (since July 1996) and Trustee
333 West Wacker Drive (since July 1994) of the Nuveen Select
Chicago, IL 60606 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.
Robert P. Bremner, 57 Director Private investor and management consultant.
3725 Huntington Street,
N.W.
Washington, D.C. 20015
Lawrence H. Brown, 63 Director Retired in August 1989 as Senior Vice
201 Michigan Avenue President of The Northern Trust Company.
Highwood, IL 60040
Anne E. Impellizzeri, 64 Director President and Chief Executive Officer of
3 West 29th Street Blanton-Peale Institute, a training and
New York, NY 10001 counseling organization.
</TABLE>
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<PAGE> 93
<TABLE>
<CAPTION>
POSITIONS AND OFFICES WITH
NAME, AGE AND ADDRESS FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
--------------------- -------------------------- --------------------------------------------
<S> <C> <C>
Peter R. Sawers, 64 Director Adjunct Professor of Business and Economics,
22 The Landmark University of Dubuque, Iowa; Adjunct
Northfield, IL 60093 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.
William J. Schneider, 52 Director Senior Partner, Miller-Valentine Group, a
4000 Miller-Valentine Ct. development and contract company; Vice
P.O. Box 744 President, Miller-Valentine Realty, Inc., a
Dayton, OH 45401 commercial real estate company
Judith M. Stockdale, 49 Director Executive Director (since 1994) of the
35 East Wacker Drive Gaylord and Dorothy Donnelley Foundation, a
Chicago, IL 60601 private family foundation; prior thereto,
Executive Director (from 1990 to 1994) of
the Great Lakes Protection Fund.
William M. Fitzgerald, 32 Vice President Assistant Vice President (from September
333 West Wacker Drive 1992 to December 1995) and Assistant
Chicago, IL 60606 Portfolio Manager (from June 1988 to
September 1992) of Nuveen Advisory Corp.;
Chartered Financial Analyst.
Kathleen A. Flanagan, 50 Vice President Vice President of John Nuveen & Co.
333 West Wacker Drive Incorporated; Vice President (since June
Chicago, IL 60606 1996) of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.
J. Thomas Futrell, 42 Vice President Vice President of Nuveen Advisory Corp.;
333 West Wacker Drive Chartered Financial Analyst.
Chicago, IL 60606
Steven J. Krupa, 40 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Anna R. Kucinskis, 51 Vice President Vice President of John Nuveen & Co.
333 West Wacker Drive Incorporated.
Chicago, IL 60606
Larry W. Martin, 46 Vice President and Vice President (since September, 1992),
333 West Wacker Drive Assistant Secretary Assistant Secretary and Assistant General
Chicago, IL 60606 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, 32 Vice President Vice President of Nuveen Advisory Corp. and
333 West Wacker Drive Nuveen Institutional Advisory Corp. (since
Chicago, IL 60606 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 and Vice President and Controller of The John
333 West Wacker Drive Controller Nuveen Company, John Nuveen & Co.
Chicago, IL 60606 Incorporated, Nuveen Advisory Corp. and
Nuveen Institutional Advisory Corp.
Thomas C. Spalding, Jr., 45 Vice President Vice President of Nuveen Advisory Corp. and
333 West Wacker Drive Nuveen Institutional Advisory Corp.;
Chicago, IL 60606 Chartered Financial Analyst.
</TABLE>
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<PAGE> 94
<TABLE>
<CAPTION>
POSITIONS AND OFFICES WITH
NAME, AGE AND ADDRESS FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
--------------------- -------------------------- --------------------------------------------
<S> <C> <C>
H. William Stabenow, 63 Vice President and Vice President and Treasurer of The John
333 West Wacker Drive Treasurer Nuveen Company, John Nuveen & Co.
Chicago, IL 60606 Incorporated, Nuveen Advisory Corp. and
Nuveen Institutional Advisory Corp.
Gifford R. Zimmerman, 40 Vice President and Vice President (since September 1992),
333 West Wacker Drive Assistant Secretary Assistant Secretary and Assistant General
Chicago, IL 60606 Counsel of John Nuveen & Co. Incorporated;
Vice President (since May 1993) and
Assistant Secretary of Nuveen Advisory Corp.
and Nuveen Institutional Advisory Corp.
</TABLE>
At the next annual meeting of the Fund's shareholders, the holders of
MuniPreferred, voting as a separate class, will elect two directors, and holders
of outstanding Common Stock and MuniPreferred, voting together as a single
class, will elect six directors. See "Description of MuniPreferred -- Voting
Rights" in the Prospectus.
The directors affiliated with Nuveen or 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
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.
Timothy R. Schwertfeger, Anthony T. Dean and Peter R. Sawers serve as
members of the Executive Committee of the Board of Directors. The Executive
Committee, which meets between regular meetings of the Board of Directors, is
authorized to exercise all of the powers of the Board of Directors.
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 Nuveen funds accrued for
each director during the calendar year 1996.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE NUVEEN FUNDS
COMPENSATION ACCRUED FOR
NAME OF DIRECTOR FROM 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
Peter R. Sawers..................................... 1,940 59,000
William J. Schneider(2)............................. 0 0
Judith M. Stockdale(2).............................. 0 0
</TABLE>
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<PAGE> 95
- ---------------
(1) Includes compensation for service on the boards of 42 Nuveen open-end funds
and 52 Nuveen closed-end funds managed by the Adviser ("NAC Funds")
(2) Messrs. Bremner and Schneider were appointed to the Board 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.
At August 31, 1997, the Fund's officers and directors as a group owned less
than 1% of the outstanding shares of Common Stock and no shares of
MuniPreferred.
INVESTMENT ADVISER
Nuveen Advisory Corp. (the "Adviser"), 333 West Wacker Drive, Chicago,
Illinois 60606, acts as the investment adviser for, and manages the investment
and reinvestment of the assets of, the Fund. The Adviser also administers the
Fund's business affairs, provides office facilities and equipment and certain
clerical, bookkeeping and administrative services, and permits any of its
officers or employees to serve without compensation as directors or officers of
the Fund if elected to such positions.
Under the Management Agreement the Fund has agreed to pay an annual
management fee as follows:
MANAGEMENT FEE SCHEDULE
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS RATE
------------------------ -----
<S> <C>
Up to $125 million.......................................... .6500%
$125 to $250 million........................................ .6375
$250 to $500 million........................................ .6250
$500 million to $1 billion.................................. .6125
$1 billion to $2 billion.................................... .6000
$2 billion and over......................................... .5875
</TABLE>
The Fund paid aggregate management fees of $8,045,628, $7,947,123 and
$7,859,410 for the fiscal years ended October 31, 1996, 1995 and 1994, for an
effective management fee rate of .62%, .62% and .62%, respectively.
The Adviser was organized in 1976 and is a wholly-owned subsidiary of John
Nuveen & Co. Incorporated ("Nuveen"), 333 West Wacker Drive, Chicago, Illinois
60606. Founded in 1898, Nuveen currently sponsors 102 investment company
portfolios (including the Fund), having approximately $37 billion of assets
under management. Nuveen is a subsidiary of The John Nuveen Company which, in
turn, is a majority-owned subsidiary of The St. Paul Companies, Inc., a
management company of St. Paul, Minnesota, principally engaged in providing
property-liability insurance through subsidiaries.
The names, addresses and principal occupations of the principal executive
officers and the directors of the Adviser are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATIONS
---------------- ---------------------
<S> <C>
Timothy R. Schwertfeger....................... Chairman of the Board and Director,
Chairman of the Board and Director John Nuveen & Co. Incorporated
(Principal Executive Officer)
333 West Wacker Drive
Chicago, Illinois 60606
Anthony T. Dean............................... President and Director,
President and Director John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, Illinois 60606
John P. Amboian............................... Executive Vice President,
Executive Vice President John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, Illinois 60606
</TABLE>
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<PAGE> 96
PORTFOLIO TRANSACTIONS
The Adviser, in effecting purchases and sales of portfolio securities for
the account of the Fund, places orders in such manner as, in the opinion of the
Adviser's management, offers the best price and market for the execution of each
transaction. Portfolio securities are normally purchased directly from an
underwriter or in the over-the-counter market from the principal dealers in such
securities, unless it appears that a better price or execution may be obtained
elsewhere. Portfolio securities are not purchased from Nuveen or its affiliates
except in compliance with the 1940 Act.
Generally, all portfolio transactions are effected on a principal (as
opposed to an agency) basis and, accordingly, the Fund has not paid and does not
expect to pay any brokerage commissions. Purchases from underwriters include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers include the spread between the bid and asked price. Given the best
price and execution obtainable, it is the practice of the Fund to select dealers
which, in addition, furnish research information (primarily credit analyses of
issuers) and statistical and other services to the Adviser. It is not possible
to place a dollar value on information, statistical and other services received
from dealers. Since it is only supplementary to the Adviser's own research
efforts, the receipt of research information is not believed to reduce
significantly the Adviser's expenses. Any research benefits obtained are
available to all of the Adviser's other clients. While the Adviser is primarily
responsible for the placement of the business of the Fund, the policies and
practices of the Adviser in this regard must be consistent with the foregoing
and are at all times subject to review by the Board.
The Adviser reserves the right to, and does, manage other investment
accounts and investment companies for other clients which may have investment
objectives similar or identical to those of the Fund. Subject to applicable laws
and regulations, the Adviser will attempt to allocate equitably portfolio
transactions among the Fund and the portfolios of its other clients purchasing
or selling securities whenever decisions are made to purchase or sell securities
by the Fund and one or more of such other clients simultaneously. In making such
allocations, the main factors to be considered will be the respective investment
objectives of the Fund and such other clients, the relative size of the
portfolio holdings of the same or comparable securities, the availability of
cash for investment by the Fund and such other clients, the size of investment
commitments generally held by the Fund and such other clients and opinions of
the persons responsible for recommending investments to the Fund and such other
clients. While this procedure could have a detrimental effect on the price or
amount of the securities available to the Fund from time to time, it is the
opinion of the Board that the benefits available from the Adviser's organization
will outweigh any disadvantage that may arise from exposure to simultaneous
transactions. Notwithstanding the similarity of the investment objective of the
Fund with that of other funds managed by the Adviser, the Fund will be
separately managed and the composition of its investment portfolio is likely to
differ. Accordingly, the investment performance of the Fund will likely not be
the same as other funds.
Under the 1940 Act, the Fund may not purchase portfolio securities from any
underwriting syndicate of which Nuveen is a member except under certain limited
conditions set forth in Rule 10f-3. The Rule sets forth requirements relating
to, among other things, the terms of an issue of Municipal Obligations purchased
by the Fund and the amount of Municipal Obligations which may be purchased in
any one issue. In addition, purchases of securities made pursuant to the terms
of the Rule must be approved at least quarterly by the Board, including a
majority of the directors thereof who are not interested persons of the Fund.
For the fiscal years ended October 31, 1996, October 31, 1995 and October
31, 1994, the Fund did not pay any brokerage commissions.
NET ASSET VALUE
In determining the net asset value of the Fund, the Fund's custodian
utilizes the valuations of portfolio securities furnished by a pricing service
approved by the Board. 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 (which will constitute a majority of the
S-11
<PAGE> 97
securities held by the Fund) 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. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Board.
ADDITIONAL INFORMATION CONCERNING
THE AUCTIONS FOR MUNIPREFERRED
GENERAL
AUCTION AGENCY AGREEMENT. The Fund has entered into an Auction Agency
Agreement (the "Auction Agency Agreement") with the Auction Agent (currently,
Bankers Trust Company) which provides, among other things, that the Auction
Agent will follow the Auction Procedures for purposes of determining the
Applicable Rate for shares of each series of MuniPreferred so long as the
Applicable Rate for shares of such series is to be based on the results of an
Auction.
BROKER-DEALER AGREEMENTS. Each Auction requires the participation of one or
more Broker-Dealers. The Auction Agent has entered into agreements
(collectively, the "Broker-Dealer Agreements") with several Broker-Dealers
selected by the Fund, which provide for the participation of those
Broker-Dealers in Auctions for shares of MuniPreferred. See "Broker-Dealers"
below.
SECURITIES DEPOSITORY. The Depository Trust Company ("DTC") will act as the
Securities Depository for the Agent Members with respect to shares of each
series of MuniPreferred. One certificate for all of the shares of each series of
MuniPreferred will be registered in the name of Cede, as nominee of the
Securities Depository. Such certificate will bear a legend to the effect that
such certificate is issued subject to the provisions restricting transfers of
shares of MuniPreferred contained in the Statement. The Fund will also issue
stop-transfer instructions to the transfer agent for shares of each series of
MuniPreferred. Prior to the commencement of the right of holders of preferred
shares to elect a majority of the Fund's directors, as described under
"Description of MuniPreferred -- Voting Rights" in the Prospectus, Cede will be
the holder of record of all shares of each series of MuniPreferred and owners of
such shares will not be entitled to receive certificates representing their
ownership interest in such shares.
DTC, a New York-chartered limited purpose trust company, performs services
for its participants (including the Agent Members), some of whom (and/or their
representatives) own DTC. DTC maintains lists of its participants and will
maintain the positions (ownership interests) held by each such participant (the
"Agent Member") in shares of MuniPreferred, whether for its own account or as a
nominee for another person.
CONCERNING THE AUCTION AGENT
The Auction Agent is acting as agent for the Fund in connection with
Auctions. In the absence of bad faith or negligence on its part, the Auction
Agent will not be liable for any action taken, suffered, or omitted or for any
error of judgment made by it in the performance of its duties under the Auction
Agency Agreement and will not be liable for any error of judgment made in good
faith unless the Auction Agent will have been negligent in ascertaining the
pertinent facts.
The Auction Agent may rely upon, as evidence of the identities of the
Existing Holders of shares of MuniPreferred, the Auction Agent's registry of
Existing Holders, the results of Auctions and notices from any Broker-Dealer (or
other Person, if permitted by the Fund) with respect to transfers described
under "Description of MuniPreferred -- The Auction -- Secondary Market Trading
and Transfer of MuniPreferred" in the Prospectus and notices from the Fund. The
Auction Agent is not required to accept any such notice for an Auction unless it
is received by the Auction Agent by 3:00 p.m., New York City time, on the
Business Day preceding such Auction.
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<PAGE> 98
The Auction Agent may terminate the Auction Agency Agreement upon notice to
the Fund on a date no earlier than 45 days after such notice. If the Auction
Agent should resign, the Fund will use its best efforts to enter into an
agreement with a successor Auction Agent containing substantially the same terms
and conditions as the Auction Agency Agreement. The Fund may remove the Auction
Agent provided that prior to such removal the Fund shall have entered into such
an agreement with a successor Auction Agent.
BROKER-DEALERS
The Auction Agent after each Auction for shares of MuniPreferred will pay
to each Broker-Dealer, from funds provided by the Fund, a service charge at the
annual rate of 1/4 of 1% in the case of any Auction immediately preceding a Rate
Period of less than one year, or a percentage agreed to by the Fund and the
Broker-Dealers in the case of any Auction immediately preceding a Rate Period of
one year or longer, of the purchase price of shares of MuniPreferred placed by
such Broker-Dealer at such Auction. For the purposes of the preceding sentence,
shares of MuniPreferred will be placed by a Broker-Dealer if such shares were
(a) the subject of Hold Orders deemed to have been submitted to the Auction
Agent by the Broker Dealer and were acquired by such Broker-Dealer for its own
account or were acquired by such Broker-Dealer for its customers who are
Beneficial Owners or (b) the subject of an Order submitted by such Broker-Dealer
that is (i) a Submitted Bid of an Existing Holder that resulted in such Existing
Holder continuing to hold such shares as a result of the Auction or (ii) a
Submitted Bid of a Potential Holder that resulted in such Potential Holder
purchasing such shares as a result of the Auction or (iii) a valid Hold Order.
The Fund may request the Auction Agent to terminate one or more
Broker-Dealer Agreements at any time, provided that at least one Broker-Dealer
Agreement is in effect after such termination.
The Broker-Dealer Agreements provides that a Broker-Dealer (other than an
affiliate of the Fund) may submit Orders in Auctions for its own account, unless
the Fund notifies all Broker-Dealers that they may no longer do so, in which
case Broker-Dealers may continue to submit Hold Orders and Sell Orders for their
own accounts. Any Broker-Dealer that is an affiliate of the Fund may submit
Orders in Auctions, but only if such Orders are not for its own account. If a
Broker-Dealer submits an Order for its own account in any Auction, it might have
an advantage over other Bidders because it would have knowledge of all Orders
submitted by it in that Auction; such Broker-Dealer, however, would not have
knowledge of Orders submitted by other Broker-Dealers in that Auction.
TAX MATTERS
The following is based upon the advice of Vedder, Price, Kaufman &
Kammholz, counsel to the Fund.
The Fund qualifies under Subchapter M of the Code as a regulated investment
company and satisfies conditions which enable dividends on Common Stock or
shares of MuniPreferred which are attributable to interest on Municipal
Obligations to be exempt from Federal income tax in the hands of owners of such
stock, subject to the possible application of the alternative minimum tax.
To qualify under Subchapter M for tax treatment as a regulated investment
company, the Fund must, among other things: (a) distribute to its shareholders
at least 90% of the sum of (i) its investment company taxable income (as that
term is defined in the Code determined without regard to the deduction for
dividends paid) and (ii) its net tax-exempt income; (b) with respect to taxable
years beginning prior to August 6, 1997, derive less than 30% of its annual
gross income from the sale or other disposition of stock, securities, options,
futures, or forward contracts held for less than three months; and (c) diversify
its holdings so that, at the end of each fiscal quarter of the Fund (i) at least
50% of the market value of the Fund's assets is represented by cash, cash items,
U.S. government securities and securities of other regulated investment
companies, and other securities, with these other securities limited, with
respect to any one issuer, to an amount not greater in value than 5% of the
Fund's total assets, and to not more than 10% of the outstanding voting
securities of such issuer; and (ii) not more than 25% of the market value of the
Fund's assets is invested in the securities of any one issuer (other than U.S.
government securities or securities of other regulated investment companies). In
meeting these requirements of Subchapter M of the Code, the Fund may be
restricted in the selling of
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portfolio securities held for less than three months (but only for its taxable
year ending October 31, 1997) and in the utilization of certain of the
investment techniques described under "Investment Objective and Policies --
Investment Restrictions" above. If in any year the Fund should fail to qualify
under Subchapter M for tax treatment as a regulated investment company, the Fund
would incur a regular Federal corporate income tax upon its taxable income for
that year, and distributions to its shareholders would be taxable to such
holders as ordinary income to the extent of the earnings and profits of the
Fund. A regulated investment company that fails to distribute, by the close of
each calendar year, an amount equal to the sum of 98% of its ordinary taxable
income for such year and 98% of its capital gain net income for the one year
period ending October 31 in such year, plus any shortfalls from the prior year's
required distribution, is liable for a 4% excise tax on the portion of the
undistributed amount of such income that is less than the required amount for
such distributions. To avoid the imposition of this excise tax, the Fund
generally makes the required distributions of its ordinary taxable income, if
any, and its capital gain net income, to the extent possible, by the close of
each calendar year.
The Fund intends to qualify to pay "exempt-interest" dividends on its
shares of Common Stock and shares of MuniPreferred as defined under the Code.
Under the Code, at the close of each quarter of its taxable year, if at least
50% of the value of its total assets consists of Municipal Obligations, the Fund
shall be qualified to pay exempt-interest dividends to its shareholders.
Exempt-interest dividends are dividends or any part thereof (other than a
capital gain dividend) paid by the Fund which are attributable to interest on
Municipal Obligations and are so designated by the Fund. Exempt-interest
dividends will be exempt from Federal income tax, subject to the possible
application of the Federal alternative minimum tax. Insurance proceeds received
by the Fund under any insurance policies in respect of scheduled interest
payments on defaulted Municipal Obligations, as described herein, will be
excludable from Federal gross income under Section 103(a) of the Code. In the
case of non-appropriation by a political subdivision, however, there can be no
assurance that payments made by the issuer representing interest on such
"non-appropriation" Municipal Lease Obligations will be excludable from gross
income for Federal income tax purposes. See "Investment Objective and
Policies -- Municipal Obligations" above. Gains of the Fund that are
attributable to market discount on certain Municipal Obligations acquired after
April 30, 1993 are treated as ordinary income. Distributions to shareholders by
the Fund of net income received, if any, from taxable temporary investments and
net short-term capital gains, if any, realized by the Fund will be taxable to
its shareholders as ordinary income. Distributions by the Fund of net capital
gains, if any, are taxable as long-term capital gain, regardless of the length
of time the shareholder has owned shares of Common Stock or shares of
MuniPreferred of the Fund. The amount of taxable income allocable to the Fund's
shares of MuniPreferred will depend upon the amount of such income realized by
the Fund, but is not generally expected to be significant. Except for dividends
paid on shares of MuniPreferred which include an allocated portion of any net
capital gains or other taxable income, the Fund anticipates that all other
dividends paid on shares of its MuniPreferred will constitute exempt-interest
dividends for Federal income tax purposes. As long as the Fund qualifies as a
regulated investment company under the Code, no part of its distributions to
shareholders will qualify for the dividends-received deduction for corporations.
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 IRS Revenue Ruling 89-81, regulated
investment companies can make non-proportionate designations pursuant to a rule
described in a registration statement filed with the Commission prior to June
13, 1989. In the past, the Fund designated exempt-interest dividends
disproportionately to holders of Preferred Stock and designated net capital gain
and investment company taxable income to holders of its Common Stock pursuant to
this "grandfather" provision. The Fund now intends each year to allocate, to the
fullest extent practicable, net tax-exempt interest, net capital gains (i.e.,
the excess of net long-term capital gain over net short-term capital loss) and
other taxable income, if any, between its shares of Common Stock and shares of
MuniPreferred in proportion to the total dividends paid to each class with
respect to such year. To the extent permitted under applicable law, the Fund
reserves the right to make special allocations of income within a class,
consistent with the objectives of the Fund. The Fund shall, in the case of a
Minimum Rate Period or a Special Rate Period of 28 Rate Period Days, and may, in
the case of any other Special Rate
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<PAGE> 100
Period, notify the Auction Agent of the amount of any net capital gains or other
income taxable for Federal income tax purposes to be included in any dividend on
shares of its MuniPreferred prior to the Auction establishing the Applicable
Rate for such dividend. If, (a) 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 required by the Statement 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 its MuniPreferred or
the liquidation of the Fund or (b) in the case of any Special Rate Period of
more than 28 Rate Period Days, the Fund allocates any net capital gains or other
taxable income for Federal income tax purposes to shares of its MuniPreferred
without having given advance notice thereof as described above, the Fund will
arrange to make certain payments to owners of shares of its MuniPreferred to
which such allocation was made to offset the Federal income tax effect thereof
as described under "Description of MuniPreferred -- Dividends and Dividend
Periods -- Gross-up Payments" in the Prospectus.
The Fund has received an opinion of counsel to the effect that the manner
in which the Fund intends to allocate items of tax-exempt income, net capital
gains and other taxable income, if any, between its shares of Common Stock and
shares of MuniPreferred will be respected for Federal income tax purposes. This
opinion of counsel represents only counsel's best legal judgment, and is not
binding on the IRS or the courts. Currently there is no guidance from the IRS or
other sources specifically addressing whether the Fund's method for making such
allocations will be respected for Federal income tax purposes, and it is
possible that the IRS could disagree with counsel's opinion. If the IRS were to
disagree with the Fund's allocation, it either could assert the need to
reallocate the Fund's net capital gains or other taxable income or it could
disallow a portion of the Fund's dividends paid deduction. In the event of a
reallocation, some of the dividends identified by that Fund as tax-exempt to
owners of its shares of MuniPreferred may be recharacterized as additional
capital gain or other taxable income. Under these circumstances, the Fund would
not be required to make gross-up payments to such owners to offset the tax
effect of such reallocation. In addition, a reallocation or a disallowance of
part of the Fund's dividends paid deduction would likely cause the Fund to be
liable for income tax on any reallocated taxable income and possibly an excise
tax. Counsel has advised the Fund that, in its opinion, if the IRS were to
challenge in court the Fund's allocations of income and gain, the IRS should not
prevail.
In order for any distributions to owners of the Fund's shares of
MuniPreferred to be eligible to be treated as exempt-interest dividends, such
shares of MuniPreferred must be treated as stock for Federal income tax
purposes. The Fund has received an opinion of counsel to the effect that its
shares of MuniPreferred will constitute stock of the Fund for Federal income tax
purposes and, therefore, distributions declared and paid at the Applicable Rate
as dividends with respect to the Fund's shares of MuniPreferred, to the extent
paid out of current or accumulated earnings and profits of the Fund, will
constitute dividends for Federal income tax purposes. This opinion of counsel is
based, among other things, on (a) a revenue ruling published by the IRS in 1990,
which holds that a preferred stock that has its dividend rate periodically set
pursuant to an auction process substantially similar to the auction process to
be established for the Fund's shares of MuniPreferred is treated as stock for
Federal income tax purposes and (b) the Fund's representation to counsel that
there is no express or implied agreement between or among a Broker-Dealer or any
other party and the Fund, Nuveen or any owner of the Fund's shares of
MuniPreferred that the Broker-Dealer or other party will guarantee or otherwise
arrange to ensure that an owner of such shares will be able to sell such shares.
This opinion represents only counsel's best legal judgment and is not binding on
the IRS or the courts.
If at any time when the Fund's shares of MuniPreferred are outstanding the
Fund fails to meet the MuniPreferred Basic Maintenance Amount or the 1940 Act
MuniPreferred Asset Coverage, the Fund will be required to suspend distributions
to holders of its shares of Common Stock until such maintenance amount or asset
coverage, as the case may be, is restored. See "Description of
MuniPreferred -- Dividends and Dividend Periods -- Restrictions on Dividends and
Other Distributions" in the Prospectus. This may prevent the Fund from
distributing at least 90% of its investment company taxable income and net
tax-exempt income, and may therefore jeopardize the Fund's qualification for
taxation as a regulated investment company or cause the Fund to incur a tax
liability or a non-deductible 4% excise tax on the undistributed taxable income
(including
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<PAGE> 101
gain), or both. Upon failure to meet the MuniPreferred Basic Maintenance Amount
or the 1940 Act MuniPreferred Asset Coverage, the Fund will be required to
redeem its shares of MuniPreferred in order to maintain or restore such
maintenance amount or asset coverage and avoid the adverse consequences to the
Fund and its shareholders of failing to qualify as a regulated investment
company. There can be no assurance, however, that any such redemption would
achieve such objectives.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry the Fund's shares to which exempt-interest dividends are
allocated is not deductible. Under rules used by the IRS for determining when
borrowed funds are considered used for the purpose of purchasing or carrying
particular assets, the purchase or ownership of shares may be considered to have
been made with borrowed funds even though such funds are not directly used for
the purchase or ownership of such shares.
The interest on private activity bonds in most instances is not Federally
tax-exempt to a person who is a "substantial user" of a facility financed by
such bonds or a "related person" of such "substantial user." As a result, the
Fund may not be an appropriate investment for shareholders who are considered
either a "substantial user" or a "related person" within the meaning of the
Code. In general, a "substantial user" of a facility includes a "non-exempt
person who regularly uses a part of such facility in his trade or business."
"Related persons" are in general defined to include persons among whom there
exists a relationship, either by family or business, which would result in a
disallowance of losses in transactions among them under various provisions of
the Code (or if they are members of the same controlled group of corporations
under the Code), including a partnership and each of its partners (and their
spouses and minor children), an S corporation and each of its shareholders (and
their spouses and minor children) and various combinations of these
relationships. The foregoing is not a complete statement of all of the
provisions of the Code covering the definitions of "substantial user" and
"related person."
The Fund may, at its option, redeem shares of its MuniPreferred in whole or
in part, and is required to redeem shares of its MuniPreferred to the extent
required to maintain the MuniPreferred Basic Maintenance Amount and the 1940 Act
MuniPreferred Asset Coverage. Gain or loss, if any, resulting from a redemption
of the shares of MuniPreferred will be taxed as gain or loss from the sale or
exchange of the shares of MuniPreferred under Section 302 of the Code rather
than as a dividend, but only if the redemption distribution (a) is deemed not to
be essentially equivalent to a dividend, (b) is in complete redemption of an
owner's interest in the Fund, (c) is substantially disproportionate with respect
to the owner, or (d) with respect to non-corporate owners, is in partial
liquidation of the Fund. For purposes of (a), (b) and (c) above, an owner's
common shares ownership of the Fund will be taken into account.
Nonresident alien individuals and certain foreign corporations and other
entities ("foreign investors") generally are subject to U.S. withholding tax at
the rate of 30% (or possibly a lower rate provided by an applicable tax treaty)
on distributions of taxable net investment income and net short-term capital
gains. To the extent received by foreign investors, exempt-interest dividends,
distributions of net long-term capital gains and any gain from the sale or other
disposition of the shares of MuniPreferred generally are exempt from U.S.
taxation. Different tax consequences may result if the owner is engaged in a
trade or business in the United States or, in the case of an individual, is
present in the United States for more than 182 days during a taxable year.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January will be treated as having been distributed by the Fund (and received by
the shareholders) on December 31 of the year declared.
The sale or other disposition of shares of Common Stock or shares of
MuniPreferred of the Fund will normally result in capital gain or loss to
shareholders. Present law taxes both long-term and short-term capital gains of
corporations at the rates applicable to ordinary income. For non-corporate
taxpayers, however, under current law short-term capital gains and ordinary
income will be taxed at a maximum rate of 39.6% while other capital gains of
non-corporate taxpayers may be taxed at more favorable rates. However, because
of the limitations on itemized deductions and the deduction for personal
exemptions applicable to higher income taxpayers, the effective rate of tax may
be higher in certain circumstances. Losses realized by a shareholder on
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<PAGE> 102
the sale or exchange of shares of the Fund held for six months or less are
disallowed to the extent of any distribution of exempt-interest dividends
received with respect to such shares, and, if not disallowed, such losses are
treated as long-term capital losses to the extent of any distribution of
long-term capital gain received with respect to such shares.
Non-corporate investors who, after May 6, 1997, dispose of capital assets
held for more than eighteen (18) months generally will pay tax upon disposition
of those assets at a 10% rate if they are in the lowest tax bracket (for 1997,
singles with taxable income of $24,650 or less and married couples filing
jointly with taxable income of $41,200 or less), and at a 20% rate if they are
in higher tax brackets. Gain on capital assets held for more than one (1) year
but not more than eighteen (18) months will be subject to a 28% maximum rate
(15% for investors in the lowest tax bracket). In addition, generally commencing
with taxable years beginning after December 31, 2000 and subject to certain
conditions, the gain resulting from certain capital assets held for more than
five years will be taxed at an 8% rate for investors in the lowest tax bracket
and an 18% rate for other investors.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such as
bonds issued to make loans for housing purposes or to private entities (but not
to certain tax-exempt organizations such as universities and non-profit
hospitals) is included as an item of tax preference in determining the amount of
a taxpayer's alternative minimum taxable income. To the extent that the Fund
receives income from Municipal Obligations subject to the Federal alternative
minimum tax, a portion of the dividends paid by it, although otherwise exempt
from Federal income tax, will be taxable to its shareholders to the extent that
their tax liability is determined under the alternative minimum tax. The Fund
will annually supply a report indicating the percentage of the Fund's income
attributable to Municipal Obligations subject to the Federal alternative minimum
tax.
In addition, for certain corporations, alternative minimum taxable income
is increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all Municipal Obligations, and
therefore all distributions by the Fund that would otherwise be tax-exempt, is
included in calculating a corporation's adjusted current earnings.
For taxable years beginning after December 31, 1997, certain small
corporations are not subject to the alternative minimum tax. A corporation
qualifies for such exemption provided that (i) for the corporation's first
taxable year beginning after December 31, 1996, its average annual gross
receipts for the three prior taxable year period does not exceed $5,000,000 and
(ii) the corporation's average annual gross receipts for each three prior
taxable year period thereafter does not exceed $7,500,000.
Tax-exempt income, including exempt-interest dividends paid by the Fund, is
taken into account in calculating the amount of social security and railroad
retirement benefits that may be subject to Federal income tax.
The Fund is required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of the Fund's
shares who do not furnish to the Fund their correct taxpayer identification
number (in the case of individuals, their social security number) and certain
certifications, or who are otherwise subject to backup withholding.
The Code provides that every shareholder required to file a tax return must
include for information purposes on such return the amount of tax-exempt
interest received during the taxable year, including any exempt-interest
dividends received from the Fund.
The value of shares of Common Stock acquired pursuant to the Fund's
Dividend Reinvestment Plan will generally be excluded from gross income to the
extent that the cash amount reinvested would be excluded from gross income.
The foregoing is a general, abbreviated summary of the provisions of the
Code and regulations thereunder presently in effect as they directly govern the
taxation of the Fund and its shareholders. These provisions are subject to
change by legislative or administrative action, and any such change may be
retroactive with respect
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<PAGE> 103
to the Fund's transactions. Moreover, the foregoing does not address many of the
factors that may be determinative of whether an investor will be liable for the
alternative minimum tax. Shareholders are advised to consult their own tax
advisers for more detailed information concerning Federal income tax matters.
CERTAIN OWNERS OF RECORD
As of August 31, 1997, no person is known to the Fund to own of record or
beneficially five percent or more of the outstanding shares of Common Stock or
MuniPreferred.
EXPERTS
The Statement of Net Assets of the Fund as of October 31, 1996 appearing in
this Prospectus has been audited by Ernst & Young LLP, Sears Tower, 233 South
Wacker Drive, Chicago, Illinois 60606, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and is included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing. Ernst & Young audits and reports on the Fund's annual financial
statements, reviews certain regulatory reports and the Fund's Federal income tax
returns, and performs other professional accounting, auditing, tax and advisory
services when engaged to do so by the Fund.
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<PAGE> 104
FINANCIAL STATEMENTS
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
PORTFOLIO OF INVESTMENTS
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
ALASKA -- 0.7%
$ 1,770,000 Alaska Housing Finance Corporation, Insured Mortgage
Program Bonds, 1990 First Series, 7.800%, 12/01/30..... Aa1 12/00 at 102 $ 1,781,700
880,000 Alaska State Housing Finance Corporation, Collateralized
Home Mortgage Bonds, 1987 Series B, 8.750%, 12/01/16... Aaa 6/98 at 102 900,152
6,000,000 North Slope Borough, Alaska, General Obligation Refunding
Bonds of 1988, Series G, 8.350%, 6/30/98............... A- No Opt. Call 6,275,700
ARIZONA -- 1.6%
3,160,000 The Industrial Development Authority of the City of
Phoenix, Arizona, Home Purchase Mortgage Revenue Bonds
(GNMA Mortgage-Backed Securities Program), Series
1988B, 8.200%, 4/01/22 (Alternative Minimum Tax)....... AAA 10/98 at 102 3,289,592
12,465,000 The Industrial Development Authority of the County of
Pima (Arizona), Industrial Development Lease Obligation
Refunding Revenue Bonds, 1988 Series A (Irvington
Project), 7.250%, 7/15/10.............................. Aaa 1/02 at 103 13,748,770
3,795,000 The Industrial Development Authority of the County of
Pima, Single Family Mortgage Revenue Bonds (GNMA
Mortgage-Backed Securities Program), Series 1988,
8.125%, 9/01/20 (Alternative Minimum Tax).............. AAA 3/99 at 102 3,951,658
CALIFORNIA -- 15.9%
17,000,000 California Health Facilities Financing Authority, Kaiser
Permanente, Medical Care Program, Semiannual Tender
Revenue Bonds, 1985 Tender Bonds, 5.550%, 8/15/25...... AA 2/02 at 101 16,039,840
14,650,000 California Health Facilities Financing Authority,
Hospital Revenue Bonds (Children's Hospital of Los
Angeles), 1991 Series A, 7.125%, 6/01/21 (Pre-refunded
to 6/01/01)............................................ Aaa 6/01 at 102 16,218,576
26,725,000 State Public Works Board of the State of California,
Lease Revenue Refunding Bonds (The Regents of the
University of California), 1993 Series A (Various
University of California Projects), 5.500%, 6/01/21.... A1 6/03 at 102 25,178,424
11,395,000 State Public Works Board of the State of California,
Lease Revenue Bonds (Department of Corrections), 1993
Series E (California State Prison-Madera County (II)),
5.500%, 6/01/15........................................ A No Opt. Call 11,221,340
15,975,000 State of California Department of Transportation East Bay
State Building Authority, Certificates of
Participation, Series 1991A, 6.500%, 3/01/16........... A 3/01 at 102 16,636,525
13,000,000 State of California, Various Purpose General Obligation
Refunding Bonds, 5.150%, 10/01/19...................... A1 10/03 at 102 11,893,570
15,285,000 Los Angeles Convention and Exhibition Center Authority,
Lease Revenue Bonds, 1993 Refunding Series A, The City
of Los Angeles (California), 5.375%, 8/15/18........... Aaa 8/03 at 102 14,414,978
5,000,000 Department of Water and Power of The City of Los Angeles,
California, Electric Plant Refunding Revenue Bonds,
Second Issue of 1993, 4.750%, 11/15/19................. Aaa 11/03 at 102 4,290,850
12,250,000 Los Angeles County Transportation Commission
(California), Sales Tax Revenue Refunding Bonds, Series
1991-B, 5.750%, 7/01/18................................ AA- 7/01 at 100 12,167,313
1,285,000 City of Martinez (California), Home Mortgage Revenue
Bonds, 1983 Issue A, 10.750%, 2/01/16.................. Aaa No Opt. Call 1,953,637
</TABLE>
S-19
<PAGE> 105
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
CALIFORNIA (Continued)
$ 4,125,000 Redevelopment Agency of the City of Moorpark, Moorpark
Redevelopment Project, 1993 Tax Allocation Bonds,
6.125%, 10/01/18....................................... A- 10/03 at 102 $ 4,140,881
20,000,000 City of Pomona, California, Single Family Mortgage
Revenue Refunding Bonds (GNMA and FNMA Mortgage-Backed
Securities), Series 1990A, 7.600%, 5/01/23............. Aaa No Opt. Call 25,015,200
3,955,000 City of Redlands, California, Refunding Certificates of
Participation (Loma Linda University Medical Center
Project), Series 1993-D, 5.000%, 12/01/22.............. Aaa 12/03 at 102 3,485,383
5,000,000 Sacramento, California, Municipal Utility District,
Electric Revenue Refunding Bonds, 1993 Series D,
5.250%, 11/15/20....................................... Aaa 11/03 at 102 4,616,000
San Bernardino Joint Powers Financing Authority, Tax
Allocation Refunding Bonds, Series 1995A:
6,675,000 5.750%, 10/01/15......................................... Aaa 10/05 at 102 6,655,843
12,500,000 5.750%, 10/01/25......................................... Aaa 10/05 at 102 12,404,125
3,000,000 San Diego Public Facilities Financing Authority Sewer
Revenue Bonds, Series 1993, 5.250%, 5/15/20............ Aaa 5/03 at 102 2,771,940
17,540,000 The Regents of the University of California, Refunding
Revenue Bonds (Multiple Purpose Projects), Series B,
4.750%, 9/01/21........................................ Aaa 9/03 at 102 14,920,226
COLORADO -- 2.9%
City and County of Denver, Colorado, Airport System
Revenue Bonds, Series 1991D:
9,450,000 7.750%, 11/15/13 (Alternative Minimum Tax)............... Baa No Opt. Call 11,241,248
8,275,000 7.750%, 11/15/21 (Alternative Minimum Tax)............... Baa 11/01 at 102 9,106,555
3,500,000 City and County of Denver, Colorado, Airport System
Revenue Bonds, Series 1992B, 7.250%, 11/15/23
(Alternative Minimum Tax).............................. Baa 11/02 at 102 3,765,160
8,700,000 City and County of Denver, Colorado, Airport System
Revenue Bonds, Series 1992C, 6.750%, 11/15/22
(Alternative Minimum Tax).............................. Baa 11/02 at 102 9,040,170
3,115,000 Colorado Local Single Family Mortgage Revenue Bonds (City
and County of Denver, Colorado -- Issuer, GNMA
Mortgage-Backed Securities Program), Series 1988A,
8.125%, 12/01/20 (Alternative Minimum Tax)............. AAA 12/98 at 102 3,235,052
1,023,489 El Paso County, Colorado, Single Family Mortgage Revenue
Tax-Exempt Refunding Bonds, Series 1992A Class A-2,
8.750%, 6/01/11........................................ Aaa No Opt. Call 1,103,230
DISTRICT OF COLUMBIA -- 2.1%
10,740,000 District of Columbia, Hospital Revenue Refunding Bonds
(Providence Hospital Issue), Series 1988A, 7.875%,
12/01/15............................................... AA 12/98 at 102 11,455,069
14,800,000 District of Columbia Housing Finance Agency,
Collateralized Single Family Mortgage Revenue Bonds,
Series 1988E-4, 6.375%, 6/01/26 (Alternative Minimum
Tax)................................................... AAA 12/04 at 103 15,043,756
FLORIDA -- 4.4%
9,775,000 Florida Housing Finance Agency, GNMA Collateralized Home
Ownership Mortgage Revenue Bonds, 1988 Series G1 Bonds,
8.300%, 6/01/20 (Alternative Minimum Tax).............. Aaa 12/98 at 103 10,172,256
</TABLE>
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<PAGE> 106
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
FLORIDA (Continued)
$ 9,290,000 State of Florida, Full Faith and Credit Department of
Transportation Right-of-Way Acquisition and Bridge
Construction Bonds, Series 1995, 5.800%, 7/01/21....... Aa 7/05 at 101 $ 9,247,266
Greater Orlando Aviation Authority, Airport Facilities
Revenue Bonds, Series 1988 of the City of Orlando,
Florida (Alternative Minimum Tax):
1,470,000 8.375%, 10/01/16 (Pre-refunded to 10/01/98).............. A1 10/98 at 102 1,580,735
13,530,000 8.375%, 10/01/16......................................... A1 10/98 at 102 14,439,216
City of Pensacola Health Facilities Authority, Health
Facilities Revenue Refunding Bonds, Series 1988
(Daughters of Charity National Health System Sacred
Heart Hospital of Pensacola Florida):
11,655,000 7.875%, 1/01/08 (Pre-refunded to 1/01/98)................ Aaa 1/98 at 12,130,407
101 1/2
9,435,000 7.875%, 1/01/11 (Pre-refunded to 1/01/98)................ Aaa 1/98 at 9,819,854
101 1/2
GEORGIA -- 3.2%
7,700,000 Municipal Electric Authority of Georgia, Power Revenue
Bonds, Series Q, 8.375%, 1/01/16....................... A 1/98 at 102 8,071,448
5,850,000 Municipal Electric Authority of Georgia, Power Revenue
Bonds, Series O, 8.125%, 1/01/17....................... A 1/98 at 102 6,117,053
2,210,000 Urban Residential Finance Authority of the City of
Atlanta, Georgia, Single Family Mortgage Revenue Bonds
(GNMA Collateralized Home Mortgage Program), Series
1988, in cooperation with the Housing Authority of
Fulton County, Georgia, 8.250%, 10/01/21 (Alternative
Minimum Tax)........................................... AAA 10/98 at 103 2,300,522
23,420,000 Development Authority of Monroe County (Georgia),
Pollution Control Revenue Bonds (Georgia Power Company
Plant Scherer Project), Second Series 1994, 6.750%,
10/01/24............................................... A1 10/99 at 102 24,376,707
ILLINOIS -- 5.2%
8,230,000 Illinois Development Finance Authority, Pollution Control
Refunding Revenue Bonds, 1994 Series A (Illinois Power
Company Project), 5.700%, 2/01/24...................... Aaa 2/04 at 102 8,025,238
8,500,000 Illinois Educational Facilities Authority, Revenue
Refunding Bonds, The University of Chicago, Series
1993B, 5.600%, 7/01/24................................. Aa1 7/03 at 102 8,095,400
5,000,000 Illinois Health Facilities Authority, Revenue Bonds,
Series 1992 (Highland Park Hospital), 6.200%,
10/01/22............................................... Aaa 10/02 at 102 5,084,300
2,000,000 Illinois Health Facilities Authority Revenue Bonds,
Series 1997A (Highland Park Hospital Project), 5.750%,
10/01/26 (WI).......................................... Aaa 10/07 at 102 1,948,700
12,700,000 Illinois Health Facilities Authority, Revenue Bonds,
Series 1988B (Evangelical Hospitals Corporation),
8.100%, 1/01/08 (Pre-refunded to 1/01/99).............. Aaa 1/99 at 102 13,584,682
5,890,000 Illinois Housing Development Authority, Residential
Mortgage Revenue Bonds, 1988 Series C, 8.100%, 2/01/22
(Alternative Minimum Tax).............................. Aa 8/98 at 102 6,087,079
5,695,000 Illinois Housing Development Authority, Residential
Mortgage Revenue Bonds, 1988 Series C, 8.100%,
8/01/17................................................ Aa 8/98 at 103 5,968,303
6,000,000 City of Chicago (Illinois), Chicago-O'Hare International
Airport, General Airport Second Lien, Revenue Refunding
Bonds, 1993 Series C, 5.000%, 1/01/18.................. Aaa 1/04 at 102 5,402,400
5,000,000 City of Chicago, Collateralized Single Family Mortgage
Revenue Bonds, Series 1996-A, 7.000%, 9/01/27
(Alternative Minimum Tax).............................. Aaa 3/06 at 105 5,477,850
</TABLE>
S-21
<PAGE> 107
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
ILLINOIS (Continued)
$ 785,000 Regional Transportation Authority, Cook, DuPage, Kane,
Lake, McHenry and Will Counties, Illinois, General
Obligation Bonds, Series 1992B, 9.000%, 6/01/06........ Aaa No Opt. Call $ 998,449
4,925,000 Regional Transportation Authority, Cook, DuPage, Kane,
Lake, McHenry and Will Counties, Illinois, General
Obligation Bonds, Series 1992A, 9.000%, 6/01/06........ Aaa No Opt. Call 6,264,157
INDIANA -- 3.7%
2,550,000 Indiana State Office Building Commission, Correctional
Facilities Program Revenue Bonds, Series 1995A, 5.500%,
7/01/20................................................ Aaa 7/05 at 102 2,445,119
30,000,000 The Indianapolis Local Public Improvement Bond Bank,
Series 1988 D Bonds, 8.500%, 2/01/18 (Pre-refunded to
2/01/98)............................................... N/R 2/98 at 102 31,588,800
8,000,000 Metropolitan School District of Steuben County Middle
School Building Corporation, First Mortgage Bonds,
Series 1995, Steuben County, Indiana, 6.375%,
7/15/16................................................ Aaa 7/05 at 102 8,396,960
5,300,000 Whitley County Middle School Building Corporation, First
Mortgage Bonds, Series 1994, Columbia City, Indiana,
6.250%, 7/15/15........................................ Aaa 1/04 at 102 5,488,150
IOWA -- 0.8%
3,000,000 Iowa Finance Authority, Private College Refunding Revenue
Bonds (Drake University Project), Series 1996, 5.400%,
12/01/16............................................... Aaa 12/05 at 102 2,868,900
5,785,000 Iowa Finance Authority, Variable Rate Demand Industrial
Revenue Refunding Bonds, Series A 1989 (Urbandale Hotel
Corporation Project No. 00475), 8.500%, 8/01/16
(Alternative Minimum Tax) (Pre-refunded to 7/15/14).... AAA 7/14 at 100 7,521,136
KANSAS -- 0.8%
9,345,000 Sedgwick County, Kansas and Shawnee County, Kansas, GNMA
Collateralized Mortgage Revenue Bonds, 1988 Series E,
8.250%, 11/01/20 (Alternative Minimum Tax)............. AAA 11/98 at 103 9,764,404
LOUISIANA -- 0.8%
7,660,000 Louisiana Public Facilities Authority, Extended Care
Facilities Revenue Bonds (Comm-Care Corporation
Project), Series 1994, 11.000%, 2/01/14................ BBB No Opt. Call 10,323,229
MASSACHUSETTS -- 0.9%
3,000,000 Massachusetts Industrial Finance Agency, Resource
Recovery Revenue Bonds, SEMASS Project, Series 1991B,
9.250%, 7/01/15 (Alternative Minimum Tax).............. N/R 7/01 at 103 3,362,970
8,800,000 Massachusetts Water Resources Authority General Revenue
Bonds, 1992 Series A, 5.500%, 7/15/22.................. A 7/02 at 100 8,258,184
MICHIGAN -- 1.6%
4,000,000 School District of the City of Detroit, Wayne County,
Michigan, School Building and Site Improvement and
Refunding Bonds (Unlimited Tax General Obligation),
Series 1993, 5.400%, 5/01/13........................... AA 5/03 at 102 3,885,320
8,870,000 City of Detroit, Michigan, Sewage Disposal System Revenue
Bonds, Series 1995-A, 5.000%, 7/01/25.................. Aaa 7/05 at 100 7,862,279
9,625,000 Livonia Public Schools School District, County of Wayne,
State of Michigan, 1993 Refunding Bonds, 5.500%,
5/01/21................................................ Aaa 5/03 at 102 9,187,448
MINNESOTA -- 3.5%
4,375,000 Minnesota Housing Finance Agency, Single Family Mortgage
Bonds, 1988 Series C, 8.500%, 7/01/19 (Alternative
Minimum Tax)........................................... AA+ 7/98 at 102 4,513,600
</TABLE>
S-22
<PAGE> 108
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
MINNESOTA (Continued)
$ 2,945,000 The Minneapolis/Saint Paul Housing Finance Board, Single
Family Mortgage Revenue Bonds (Minneapolis/Saint Paul
Family Housing Program, Phase X, FNMA and GNMA
Mortgage-Backed Securities Program), Series 1994,
7.500%, 11/01/27 (Alternative Minimum Tax)............. AAA 11/04 at 102 $ 3,093,870
21,970,000 The Housing and Redevelopment Authority of the City of
Saint Paul, Minnesota, Sales Tax Revenue Refunding
Bonds (Civic Center Project), Series 1996, 7.100%,
11/01/23............................................... Aaa 11/15 at 103 25,818,046
2,900,000 The Housing and Redevelopment Authority of the City of
Saint Paul, Minnesota, Single Family Mortgage Revenue
Bonds, Refunding Series 1991-B, 7.250%, 9/01/11........ Aa No Opt. Call 3,047,871
8,175,000 Port Authority of the City of Saint Paul, Energy Park Tax
Increment Revenue Refunding Bonds, Series 1988, 8.000%,
12/01/07 (Pre-refunded to 12/01/98).................... AAA 12/98 at 102 8,529,877
MISSOURI -- 1.6%
7,000,000 Missouri Housing Development Commission Single Family
Mortgage Revenue Bonds (Homeownership Loan Program),
1996 Series C, 7.450%, 9/01/27 (Alternative Minimum
Tax)................................................... AAA 3/07 at 105 7,703,570
11,120,000 Francis Howell School District, St. Charles County,
Missouri, General Obligation Refunding Bonds, Series
1994A, 7.800%, 3/01/08................................. Aaa No Opt. Call 13,518,918
NEVADA -- 0.8%
10,000,000 Clark County School District, Nevada, General Obligation,
School Improvement Bonds, Series 1988A, 8.000%, 3/01/08
(Pre-refunded to 3/01/98).............................. N/R 3/98 at 102 10,521,300
NEW HAMPSHIRE -- 2.3%
10,000,000 Business Finance Authority of the State of New Hampshire,
Pollution Control Refunding Revenue Bonds (The United
Illuminating Company Project-1993 Series A), 5.875%,
10/01/33............................................... BBB- 10/03 at 102 9,292,200
11,000,000 New Hampshire Housing Finance Authority, Single Family
Mortgage Revenue Bonds, 1993 Series B, 6.050%,
7/01/25................................................ Aa 7/03 at 102 10,998,900
9,135,000 New Hampshire Housing Finance Authority, Single Family
Mortgage Acquisition Revenue Bonds, 1996 Series B,
6.400%, 1/01/27 (Alternative Minimum Tax).............. Aa 7/06 at 102 9,268,645
NEW MEXICO -- 0.4%
5,445,000 New Mexico Mortgage Finance Authority, Single Family
Mortgage Purchase Refunding Senior Bonds, 1992 Series
A, 6.900%, 7/01/24..................................... Aa1 7/02 at 102 5,659,097
NEW YORK -- 10.0%
12,365,000 New York State Energy Research and Development Authority,
Facilities Revenue Bonds, Series 1993 A (Consolidated
Edison Company of New York, Inc. Project), 6.000%,
3/15/28 (Alternative Minimum Tax)...................... A1 3/03 at 102 12,375,510
20,030,000 New York State Medical Care Facilities Finance Agency,
Hospital and Nursing Home FHA-Insured Mortgage Revenue
Bonds, 1993 Series B, 5.500%, 2/15/22.................. AAA 2/04 at 102 18,953,988
18,000,000 Metropolitan Transportation Authority (New York),
Commuter Facilities 1987 Service Contract Bonds, Series
2, 8.000%, 7/01/18 (Pre-refunded to 7/01/98)........... Aaa 7/98 at 102 19,166,040
</TABLE>
S-23
<PAGE> 109
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
NEW YORK (Continued)
$ 7,060,000 Municipal Assistance Corporation for the City of New York
(A Public Benefit Corporation of the State of New
York), Series 61 Bonds, 6.875%, 7/01/07 (Pre-refunded
to 7/01/97)............................................ AA 7/97 at 102 $ 7,237,277
11,540,000 Municipal Assistance Corporation for the City of New
York, New York, Series 60 Bonds, 7.000%, 7/01/06
(Pre-refunded to 7/01/97).............................. AA 7/97 at 102 11,832,077
7,500,000 The City of New York, General Obligation Bonds, Fiscal
1991 Series 9.500%, 6/01/03............................ Baa1 No Opt. Call 9,029,025
10,000,000 The City of New York, General Obligation Bonds, Fiscal
1996 Series G, 5.750%, 2/01/07......................... Baa1 2/06 at 9,999,000
101 1/2
10,000,000 The City of New York, General Obligation Bonds, Fiscal
1997 Series G, 6.000%, 10/15/26........................ Baa1 10/07 at 101 9,710,700
12,930,000 New York City Municipal Water Finance Authority, Water
and Sewer Revenue Bonds, Fiscal 1993 Series A, 5.500%,
6/15/20................................................ A2 6/02 at 100 12,164,544
10,000,000 New York City Municipal Water Finance Authority, Water
and Sewer System Revenue Bonds, Fiscal 1996 Series B,
5.750%, 6/15/26........................................ Aaa 6/06 at 101 9,936,300
7,955,000 New York City Municipal Water Finance Authority, Water
and Sewer System Revenue Bonds, Series 1992C, 6.500%,
6/15/21 (Pre-refunded to 6/15/97)...................... Aaa 6/97 at 8,100,815
101 1/2
NORTH CAROLINA -- 1.3%
16,415,000 North Carolina Eastern Municipal Power Agency, Power
System Revenue Bonds, Refunding Series 1988A, 8.000%,
1/01/21 (Pre-refunded to 1/01/98)...................... Aaa 1/98 at 102 17,183,058
OHIO -- 1.4%
7,065,000 Ohio Housing Finance Agency, Single Family Mortgage
Revenue Bonds (GNMA Mortgage-Backed Securities
Program), 1988 Series B, 8.250%, 12/15/19 (Alternative
Minimum Tax)........................................... AAA 12/98 at 102 7,473,357
11,300,000 State of Ohio, Turnpike Revenue Bonds, 1994 Series A,
Issued by the Ohio Turnpike Commission, 5.750%,
2/15/24................................................ AA- 2/04 at 102 11,139,427
OKLAHOMA -- 1.5%
11,770,000 Oklahoma Housing Finance Agency, GNMA Collateralized
Single Family Mortgage Revenue Bonds, Series 1988A,
8.250%, 12/01/20 (Alternative Minimum Tax)............. AAA 12/98 at 102 12,261,986
6,750,000 Washington County Medical Authority (Bartlesville,
Oklahoma), Hospital Revenue Bonds (Jane Phillips
Episcopal Hospital), Series 1989A, 8.500%, 11/01/10
(Pre-refunded to 5/01/99).............................. N/R 5/99 at 102 7,373,498
PENNSYLVANIA -- 4.2%
10,000,000 Pennsylvania Housing Finance Agency, Single Family
Mortgage Revenue Bonds, Series 1993-37A, 5.450%,
10/01/17............................................... AA+ 10/03 at 102 9,606,900
14,500,000 County of Allegheny, Pennsylvania, Airport Revenue Bonds,
Series 1988C (Greater Pittsburgh International
Airport), 8.250%, 1/01/16 (Alternative Minimum Tax).... Aaa 1/98 at 102 15,140,030
12,875,000 Allegheny County Hospital Development Authority
(Pennsylvania), Health Center Revenue Bonds, Series
1992A (Presbyterian University Health System, Inc.
Project), 6.250%, 11/01/23............................. Aaa 11/02 at 100 13,190,180
5,000,000 The School District of Philadelphia, Pennsylvania,
General Obligation Bonds, Series B of 1995, 5.500%,
9/01/25................................................ Aaa 9/05 at 102 4,782,100
10,180,000 City of Philadelphia, Pennsylvania, Water and Sewer
Revenue Bonds, Sixteenth Series, 7.500%, 8/01/10
(Pre-refunded to 8/01/01).............................. AAA 8/01 at 102 11,414,325
</TABLE>
S-24
<PAGE> 110
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
SOUTH CAROLINA -- 1.2%
$ 17,250,000 South Carolina Jobs-Economic Development Authority,
Hospital Revenue Bonds (Anderson Area Medical Center,
Inc.), Series 1996, 5.250%, 2/01/26.................... Aaa 2/06 at 102 $ 15,894,840
TEXAS -- 9.0%
10,305,000 Alliance Airport Authority, Inc., Special Facilities
Revenue Bonds, Series 1990 (American Airlines, Inc.
Project), 7.500%, 12/01/29 (Alternative Minimum Tax)... Baa2 12/00 at 102 10,994,405
11,020,000 Brazos River Authority (Texas), Collateralized Pollution
Control Revenue Bonds (Texas Utilities Electric Company
Project), Series 1994A, 7.875%, 3/01/21 (Alternative
Minimum Tax)........................................... Baa1 3/01 at 102 12,027,008
10,095,000 Brazos River Authority (Texas), Collateralized Revenue
Refunding Bonds (Houston Lighting & Power Company
Project), Series 1988A, 8.250%, 5/01/19................ A2 5/98 at 102 10,593,794
5,565,000 Dallas-Fort Worth International Airport Facility
Improvement Corporation, American Airlines, Inc.
Revenue Bonds, Series 1990, 7.500%, 11/01/25
(Alternative Minimum Tax).............................. Baa2 11/00 at 102 5,918,934
40,000,000 Harris County Health Facilities Development Corporation,
Adjustable Convertible Extendable Securities (Greater
Houston Pooled Health Care Loan Program), Series 1985B,
7.375%, 12/01/25 (Mandatory put 12/01/98).............. Aa3 11/97 at 100 40,324,000
3,385,000 Harris County, Texas, Toll Road Senior Lien Revenue
Bonds, Series 1985-B, 8.700%, 8/15/17 (Pre-refunded to
8/15/97)............................................... AAA 8/97 at 103 3,533,297
12,700,000 Harris County, Texas, Toll Road Multiple Mode Senior Lien
Revenue Bonds, Series 1985-D, 8.300%, 8/15/17
(Pre-refunded to 8/15/98).............................. AAA 8/98 at 103 13,728,573
15,000,000 Harris County, Texas, Toll Road Senior Lien Revenue
Refunding Bonds, Series 1994, 5.300%, 8/15/13.......... Aaa 8/04 at 102 14,639,250
4,500,000 Tyler Health Facilities Development Corporation, Hospital
Refunding Revenue Bonds (East Texas Hospital Foundation
Project), Series 1988A, 8.250%, 11/01/06 (Pre-refunded
to 11/01/98)........................................... N/R 11/98 at 102 4,840,380
UTAH -- 2.3%
6,550,000 Intermountain Power Agency, Utah, Power Supply Revenue
Refunding Bonds, 1987 Series D, 8.625%, 7/01/21........ A1 7/97 at 102 6,728,291
3,000,000 Intermountain Power Agency, Utah, Power Supply Revenue
Refunding Bonds, 1987 Series C, 8.625%, 7/01/21
(Pre-refunded to 7/01/97).............................. Aaa 7/97 at 102 3,083,820
20,000,000 Intermountain Power Agency (Utah), Power Supply Revenue
Bonds, Series 1987B, 7.200%, 7/01/19................... A1 7/97 at 102 20,497,000
VIRGINIA -- 0.3%
1,000,000 Virginia Housing Development Authority, Commonwealth
Mortgage Bonds, 1987 Series C, Subseries C-7, 8.375%,
1/01/28 (Alternative Minimum Tax)...................... Aa1 1/99 at 102 1,002,860
3,355,000 Virginia Housing Development Authority, Commonwealth
Mortgage Bonds, 1992 Series B-AMT, Subseries B-7,
5.650%, 1/01/27 (Alternative Minimum Tax).............. Aa1 1/02 at 102 3,215,231
WASHINGTON -- 12.1%
5,000,000 Washington Health Care Facilities Authority, Revenue
Bonds, Series 1987 (Virginia Mason Medical Center,
Seattle), 8.000%, 7/01/15.............................. Aaa 7/97 at 102 5,133,200
12,900,000 Washington Public Power Supply System, Nuclear Project
No. 1 Refunding Revenue Bonds, Series 1993A, 5.700%,
7/01/17................................................ Aaa 7/03 at 102 12,589,368
</TABLE>
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<PAGE> 111
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
WASHINGTON (Continued)
$ 23,370,000 Washington Public Power Supply System, Nuclear Project
No. 1 Refunding Revenue Bonds, Series 1993B, 5.600%,
7/01/15................................................ Aaa 7/03 at 102 $ 22,755,135
4,300,000 Washington Public Power Supply System, Nuclear Project
No. 1 Refunding Revenue Bonds, Series 1989B, 7.250%,
7/01/15 (Pre-refunded to 1/01/00)...................... Aaa 1/00 at 102 4,660,684
15,960,000 Washington Public Power Supply System, Nuclear Project
No. 1 Refunding Revenue Bonds, Series 1989A, 7.500%,
7/01/15 (Pre-refunded to 7/01/99)...................... Aaa 7/99 at 102 17,243,024
7,500,000 Washington Public Power Supply System, Nuclear Project
No. 2 Refunding Revenue Bonds, Series 1991A, 6.000%,
7/01/12................................................ Aa1 7/01 at 100 7,539,000
14,440,000 Washington Public Power Supply System, Nuclear Project
No. 2 Refunding Revenue Bonds, Series 1993A, 5.750%,
7/01/12................................................ Aa1 7/03 at 102 14,259,067
6,770,000 Washington Public Power Supply System, Nuclear Project
No. 2 Refunding Revenue Bonds, Series 1993B, 5.625%,
7/01/12................................................ Aa1 7/03 at 102 6,600,953
21,530,000 Washington Public Power Supply System, Nuclear Project
No. 3 Refunding Revenue Bonds, Series 1993C, 5.375%,
7/01/15................................................ Aa1 7/03 at 102 20,175,763
13,500,000 Washington Public Power Supply System, Nuclear Project
No. 3 Refunding Revenue Bonds, Series 1989B, 7.250%,
7/01/15 (Pre-refunded to 1/01/00)...................... Aaa 1/00 at 102 14,632,380
17,050,000 Municipality of Metropolitan Seattle, (Seattle,
Washington), Sewer Refunding Revenue Bonds, Series Z,
5.500%, 1/01/33........................................ Aaa 1/03 at 102 15,882,580
6,360,000 Public Utility District No. 1 of Snohomish County,
Washington, Generation System Revenue Bonds, Series
1993, 5.500%, 1/01/14.................................. Aaa 1/03 at 100 6,213,720
7,000,000 City of Spokane, Washington, Regional Solid Waste
Management System Revenue Bonds, Series 1989B, 7.750%,
1/01/11 (Alternative Minimum Tax)...................... Aaa 1/99 at 102 7,460,250
WEST VIRGINIA -- 1.2%
15,000,000 West Virginia Housing Development Fund, Housing Finance
Bonds, 1992 Series D, 7.050%, 11/01/24................. Aaa 5/02 at 102 15,776,250
PUERTO RICO -- 0.4%
5,250,000 Puerto Rico Electric Power Authority, Power Revenue
Bonds, Series 5.500%, 7/01/25.......................... Baa1 7/05 at 100 4,938,833
- --------------------------------------------------------------------------------------------------------------------------
$1,234,983,489 Total Investments -- (cost $1,230,212,288) -- 98.1%................................... 1,267,025,305
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS IN SHORT-TERM MUNICIPAL SECURITIES
-- 0.4%
$ 1,300,000 The Medical Clinic Board of the City of Birmingham-UAHSF,
Medical Clinic Revenue Bonds, UAHSF Series 1991,
Variable Rate Demand Bonds, 3.850%, 12/01/26+.......... A-1+ 1,300,000
700,000 Irvine Ranch Water District Variable Rate Demand Bonds,
3.750%, 6/01/15+....................................... VMIG-1 700,000
700,000 Health and Educational Facilities Authority of the State
of Missouri, Variable Rate Demand Bonds, Health
Facilities Revenue Bonds (St. Francis' Medical Center),
Series 1996A, 4.100%, 6/01/26+......................... A-1+ 700,000
</TABLE>
S-26
<PAGE> 112
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
$ 225,000 New York City Municipal Water Finance Authority, Water
and Sewer System Revenue 1994 G, Variable Rate Demand
Bonds, 3.950%, 6/15/24+................................ VMIG-1 $ 225,000
1,700,000 Santa Clara County Transit District, Refunding Equipment
Trust Certificates, Variable Rate Demand Bonds, 3.950%,
6/01/15+............................................... VMIG-1 1,700,000
- --------------------------------------------------------------------------------------------------------------------------
$ 4,625,000 Total Temporary Investments -- 0.4%................................................... 4,625,000
- --------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 1.5%................................................. 20,005,604
--------------------------------------------------------------------------------------------------------
Net Assets -- 100%.................................................................... $1,291,655,909
========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
STANDARD NUMBER OF MARKET MARKET
& POOR'S MOODY'S SECURITIES VALUE PERCENT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of AAA Aaa 69 $ 652,255,010 51%
ratings* AA+, AA, AA- Aa1, Aa, Aa2, Aa3 25 241,147,958 19
portfolio of A+ A1 8 117,069,453 9
investments A, A- A, A2, A3 9 83,479,469 7
(excluding BBB+, BBB, BBB- Baa1, Baa, Baa2, Baa3 13 115,386,467 9
temporary Non-Rated Non-Rated 5 57,686,948 5
investments):
- -----------------------------------------------------------------------------------------------------
TOTAL 129 $1,267,025,305 100%
=====================================================================================================
* Ratings: Using the higher of Standard & Poor's or Moody's
rating.
N/R -- Investment is not rated.
** Optional Call Provisions: Dates (month and year) and prices
of the earliest optional call or redemption. There may be
other call provisions at varying prices at later dates.
(WI) Security purchased on when-issued basis (note 1).
+ The security has a maturity of more than one year, but has
variable rate and demand features which qualify it as a
short-term security. The rate disclosed is that currently in
effect. This rate changes periodically based on market
conditions or a specified market index.
</TABLE>
See accompanying notes to financial statements.
S-27
<PAGE> 113
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
STATEMENT OF NET ASSETS
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments in municipal securities, at market value (note
1)........................................................ $1,267,025,305
Temporary investments in short-term municipal securities, at
amortized cost (note 1)................................... 4,625,000
Cash........................................................ 26,414
Receivables:
Interest.................................................. 26,724,221
Investments sold.......................................... 1,072,936
Other assets................................................ 635,017
--------------
Total assets......................................... 1,300,108,893
--------------
LIABILITIES
Payable for investments purchased........................... 1,920,692
Accrued expenses:
Management fees (note 6).................................. 652,468
Other..................................................... 270,459
Preferred share dividends payable........................... 538,423
Common share dividends payable.............................. 5,070,942
--------------
Total liabilities.................................... 8,452,984
--------------
Net assets (note 7)......................................... $1,291,655,909
==============
Preferred shares, at liquidation value...................... $ 350,000,000
==============
Preferred shares outstanding................................ 14,000
==============
Common shares outstanding................................... 63,785,431
==============
Net asset value per Common share outstanding (net assets
less Preferred shares at liquidation value, divided by
Common shares outstanding)................................ $ 14.76
==============
</TABLE>
See accompanying notes to financial statements.
S-28
<PAGE> 114
0
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Tax-exempt interest income (note 1)......................... $41,411,281
-----------
EXPENSES:
Management fees (note 6).................................. 3,985,487
Preferred shares -- remarketing fees...................... 408,330
Preferred shares -- dividend disbursing agent fees........ 14,815
Shareholders' servicing agent fees and expenses........... 111,755
Custodian's fees and expenses............................. 79,049
Directors' fees and expenses (note 6)..................... 19,588
Professional fees......................................... 13,907
Shareholders' reports -- printing and mailing expenses.... 137,721
Stock exchange listing fees............................... 26,180
Investor relations expense................................ 55,534
Other expenses............................................ 30,227
-----------
Total expenses....................................... 4,882,593
-----------
Net investment income............................. 36,528,688
-----------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain from investment transactions (notes 1 and
3)........................................................ 78,189
Net change in unrealized appreciation or depreciation of
investments............................................... (10,840,877)
-----------
Net gain (loss) from investments.................. (10,762,688)
-----------
Net increase in net assets from operations.................. $25,766,000
===========
</TABLE>
See accompanying notes to financial statements.
S-29
<PAGE> 115
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED 4/30/97 10/31/96
------------- ----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
OPERATIONS
Net investment income....................................... $ 36,528,688 $ 73,868,581
Net realized gain from investment transactions (notes 1 and
3)........................................................ 78,189 1,864,659
Net change in unrealized appreciation or depreciation of
investments............................................... (10,840,877) (8,027,802)
-------------- --------------
Net increase in net assets from operations............. 25,766,000 67,705,438
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS (note 1)
From undistributed net investment income:
Common shareholders.................................... (30,425,648) (61,521,076)
Preferred shareholders................................. (6,013,674) (12,507,980)
From accumulated net realized gains from investment
transactions:
Common shareholders.................................... (1,862,536) (3,157,383)
-------------- --------------
Decrease in net assets from distributions to
shareholders........................................... (38,301,858) (77,186,439)
-------------- --------------
Net increase (decrease) in net assets.................. (12,535,858) (9,481,001)
Net assets at beginning of period........................... 1,304,191,767 1,313,672,768
-------------- --------------
Net assets at end of period................................. $1,291,655,909 $1,304,191,767
============== ==============
Balance of undistributed net investment income at end of
period.................................................... $ 776,890 $ 687,524
============== ==============
</TABLE>
See accompanying notes to financial statements.
S-30
<PAGE> 116
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997
(UNAUDITED)
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Nuveen Premium Income Municipal Fund, Inc. (the "Fund") invests primarily
in a diversified portfolio of municipal obligations issued by state and local
government authorities. The Fund is registered under the Investment Company Act
of 1940 as a closed-end, diversified management investment company.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio are
provided by a pricing service approved and supervised by the Fund's Board of
Directors. When price quotes are not readily available (which is usually the
case for municipal securities), the pricing service establishes fair market
value based on yields or prices of municipal bonds of comparable quality, type
of issue, coupon, maturity and rating, indications of value from securities
dealers and general market conditions. Temporary investments in securities that
have variable rate and demand features qualifying them as short-term securities
are traded and valued at amortized cost.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains
and losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may be settled a month or more after the transaction date. The securities so
purchased are subject to market fluctuation during this period. The Fund has
instructed the custodian to segregate assets in a separate account with a
current value at least equal to the amount of its purchase commitments. At April
30, 1997, the Fund had an outstanding purchase commitment of $1,920,692.
Interest Income
Interest income is determined on the basis of interest accrued, adjusted
for amortization of premiums and accretion of discounts on long-term debt
securities when required for federal income tax purposes.
Federal Income Taxes
The Fund intends to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
tax-exempt net investment income, in addition to any significant amounts of net
realized capital gains and/or market discount realized from investment
transactions. The Fund currently considers significant net realized capital
gains and/or market discount as amounts in excess of $.001 per Common share.
Furthermore, the Fund intends to satisfy conditions which will enable interest
from municipal securities, which is exempt from regular federal income tax, to
retain such tax-exempt status when distributed to shareholders of the Fund. Net
realized capital gain and market discount distributions are subject to federal
taxation.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and
payment is made or reinvestment is credited to shareholder accounts after
month-end. Net realized capital gains and/or market
S-31
<PAGE> 117
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1997
(UNAUDITED)
discount from investment transactions are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryovers.
Distributions to shareholders of tax-exempt net investment income, net
realized capital gains and/or market discount are recorded on the ex-dividend
date. The amount and timing of distributions are determined in accordance with
federal income tax regulations, which may differ from generally accepted
accounting principles. Accordingly, temporary over-distributions as a result of
these differences may occur and will be classified as either distributions in
excess of net investment income, distributions in excess of net realized gains
and/or distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
Preferred Shares
The Fund has issued and outstanding 2,800 shares of each Series A, B, C, D
and E $25,000 stated value Preferred shares. The dividend rate on each Series
may change every 28 days as set by the auction agent, except for series E which
may change every seven days.
Derivative Financial Instruments
The Fund may invest in transactions in certain derivative financial
instruments including futures, forward, swap, and option contracts, and other
financial instruments with similar characteristics. Although the Fund is
authorized to invest in such financial instruments, and may do so in the future,
it did not make any such investments during the six months ended April 30, 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
2. FUND SHARES
There were no share transactions during the six months ended April 30,
1997, or during the year ended October 31, 1996.
3. SECURITIES TRANSACTIONS
Purchase and sales (including maturities) of investments in municipal
securities and temporary municipal investments during the six months ended April
30, 1997, were as follows:
<TABLE>
<CAPTION>
<S> <C>
PURCHASES
Investments in municipal securities......................... $35,291,613
Temporary municipal investments............................. 33,325,000
SALES AND MATURITIES
Investments in municipal securities......................... 37,126,820
Temporary municipal investments............................. 28,800,000
===========
</TABLE>
At April 30, 1997, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes
for the Fund.
S-32
<PAGE> 118
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1997
(UNAUDITED)
4. DISTRIBUTIONS TO COMMON SHAREHOLDERS
On May 1, 1997, the Fund declared a Common share dividend distribution of
$.0765 from its tax-exempt net investment income which was paid June 2, 1997, to
shareholders of record on May 15, 1997.
5. UNREALIZED APPRECIATION (DEPRECIATION)
Gross unrealized appreciation and gross unrealized depreciation of
investments at April 30, 1997, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized:
appreciation.............................................. $42,399,109
depreciation.............................................. (5,586,092)
-----------
Net unrealized appreciation................................. $36,813,017
===========
</TABLE>
6. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Fund's investment management agreement with Nuveen Advisory Corp.
(the "Adviser"), a wholly owned subsidiary of The John Nuveen Company, the Fund
pays an annual management fee, payable monthly, at the rates set forth below,
which are based upon the average daily net asset value of the Fund:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
----------------------------- --------------
<S> <C>
For the first $125 million.................................. .6500 of 1%
For the next $125 million................................... .6375 of 1
For the next $250 million................................... .6250 of 1
For the next $500 million................................... .6125 of 1
For the next $1 billion..................................... .6000 of 1
For net assets over $2 billion.............................. .5875 of 1
</TABLE>
The fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Fund pays no
compensation directly to those Directors who are affiliated with the Adviser or
to their officers, all of whom receive remuneration for their services to the
Fund from the Adviser.
7. COMPOSITION OF NET ASSETS
At April 30, 1997, net assets consisted of:
<TABLE>
<CAPTION>
<S> <C>
Preferred shares, $25,000 stated value per share, at
liquidation value......................................... $ 350,000,000
Common shares, $.01 par value per share..................... 637,854
Paid-in surplus............................................. 903,352,774
Balance of undistributed net investment income.............. 776,890
Accumulated net realized gain from investment
transactions.............................................. 75,374
Net unrealized appreciation of investments.................. 36,813,017
--------------
Net assets................................................ $1,291,655,909
==============
Authorized shares:
Common.................................................... 200,000,000
Preferred................................................. 1,000,000
==============
</TABLE>
S-33
<PAGE> 119
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1997
(UNAUDITED)
8. INVESTMENT COMPOSITION
The Fund invests in municipal securities which include general obligation,
escrowed and revenue bonds. At April 30, 1997, the revenue sources by municipal
purpose for these investments, expressed as a percent of total investments, were
as follows:
<TABLE>
<CAPTION>
<S> <C>
Revenue Bonds:
Housing Facilities........................................ 14%
Electric Utilities........................................ 11
Health Care Facilities.................................... 10
Pollution Control Facilities.............................. 9
Transportation............................................ 7
Water/Sewer Facilities.................................... 5
Educational Facilities.................................... 4
Lease Rental Facilities................................... 3
Other..................................................... 7
General Obligation Bonds.................................... 8
Escrowed Bonds.............................................. 22
---
100%
===
</TABLE>
48% of the long-term and intermediate-term investments owned by the Fund
are either covered by insurance issued by several private insurers or are backed
by an escrow or trust containing U.S. Government or U.S. Government agency
securities, both of which ensure the timely payment of principal and interest in
the event of default. Such insurance or escrow, however, does not guarantee the
market value of the municipal securities or the value of any of the Fund's
shares.
All of the temporary investments in short-term municipal securities have
credit enhancements (letters of credit, guarantees or insurance) issued by third
party domestic or foreign banks or other institutions.
For additional information regarding each investment security, refer to the
Portfolio of Investments of the Fund.
9. OTHER MATTERS
On June 3, 1997, after notice to shareholders, the federal district court
in Chicago approved the settlement of litigation pending and a similar lawsuit
(dismissed in December 1996) which was pending in state court in Hennepin
County, Minnesota, against John Nuveen & Co., Incorporated, Nuveen Advisory
Corp., current and former directors of two of the Nuveen exchange-traded
investment companies, Nuveen Municipal Value Fund, Inc. and Nuveen Premium
Income Municipal Fund, Inc., inside counsel to Nuveen & Co. (collectively the
"Nuveen Defendants") and the two Funds' former outside legal counsel, making
various allegations with respect to the two Funds' January 1994 rights
offerings. The settlement, which in no way constitutes an admission of liability
by any defendant, will be paid one half each by the insurer for the Funds'
former outside counsel and by the insurer for the Nuveen Defendants. The
settlement will become final 30 days after its approval, absent appeal. If
appealed, the settlement will become final if and when the district court's
approval is affirmed.
S-34
<PAGE> 120
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
FINANCIAL HIGHLIGHTS
Selected data for a Common Share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
SIX
MONTHS YEAR ENDED 10/31
ENDED -------------------------------------------------
4/30/97+++ 1996 1995 1994 1993
---------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value
beginning of
period.............. $ 14.960 $ 15.110 $ 14.140 $ 16.300 $ 15.790
OPERATING
PERFORMANCE:
Net investment
income............ .573 1.158 1.235 1.256 1.431
Net realized &
unrealized gain
(loss) from
investments....... (.173) (.097) 1.006 (2.016)*** .612
DIVIDENDS FROM
TAX-EXEMPT NET
INVESTMENT INCOME:
To Common
shareholders...... (.477) (.965) (1.056) (1.172) (1.364)
To Preferred
shareholders+..... (.094) (.196) (.215) (.156) (.169)
DISTRIBUTIONS FROM
CAPITAL GAINS:
To Common
shareholders...... (.029) (.050) -- (.072) --
To Preferred
shareholders+..... -- -- -- -- --
Organization and
offering costs and
Preferred share
underwriting
discounts........... -- -- -- -- --
Net asset value end
of period........... 14.760 14.960 15.110 14.140 16.300
Per Common share
market value end of
period.............. 14.125 14.500 14.375 13.250 17.750
Total investment
return on market
value**............. .93% 8.24% 16.88% (19.13)% 20.96%
Total return on net
asset value**....... 2.06% 5.92% 14.84% (5.88)% 12.33%
RATIOS/SUPPLEMENTAL
DATA:
Net assets end of
period (in
thousands)........ $1,291,656 $1,304,192 $1,313,673 $1,252,208 $1,213,064
Ratio of expenses to
average net
assets++.......... .76%* .75% .76% .77% .79%
Ratio of net
investment income
to average net
assets++.......... 5.66%* 5.67% 6.13% 6.08% 6.28%
Portfolio turnover
rate.............. 3% 16% 12% 15% 11%
<CAPTION>
FIVE
MONTHS YEAR ENDED 5/31
ENDED ------------------------------------ 7/18/88 TO
10/31/92 1992 1991 1990 5/31/89
-------- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Net asset value
beginning of
period.............. $ 15.760 $ 15.180 $ 14.600 $ 14.720 $ 14.050
OPERATING
PERFORMANCE:
Net investment
income............ .602 1.492 1.504 1.508 1.101
Net realized &
unrealized gain
(loss) from
investments....... .023 .492 .532 (.115) .741
DIVIDENDS FROM
TAX-EXEMPT NET
INVESTMENT INCOME:
To Common
shareholders...... (.516) (1.135) (1.080) (1.080) (.747)
To Preferred
shareholders+..... (.079) (.269) (.376) (.433) (.268)
DISTRIBUTIONS FROM
CAPITAL GAINS:
To Common
shareholders...... -- -- -- -- --
To Preferred
shareholders+..... -- -- -- -- --
Organization and
offering costs and
Preferred share
underwriting
discounts........... -- -- -- -- (.157)
Net asset value end
of period........... 15.790 15.760 15.180 14.600 14.720
Per Common share
market value end of
period.............. 15.875 16.250 15.375 15.000 14.875
Total investment
return on market
value**............. .73% 13.32% 10.14% 8.39% 4.38%
Total return on net
asset value**....... 3.46% 11.72% 11.88% 6.74% 10.44%
RATIOS/SUPPLEMENTAL
DATA:
Net assets end of
period (in
thousands)........ $1,173,329 $1,167,042 $1,127,103 $1,090,365 $1,089,152
Ratio of expenses to
average net
assets++.......... .78%* .66% .65% .65% .62%*
Ratio of net
investment income
to average net
assets++.......... 6.33%* 6.71% 6.97% 6.98% 6.92%*
Portfolio turnover
rate.............. 2% 2% 1% 4% 7%
</TABLE>
- -------------------------
* Annualized.
** Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and changes
in stock price per share. Total Return on Net Asset Value is the combination
of reinvested dividend income, reinvested capital gains distributions, if
any, and changes in net asset value per share.
*** Includes ($.187) effect of the Fund's Rights Offering of shares as a price
below NAV and costs of the offering.
+ The amounts shown are based on Common share equivalents.
++ Ratios do not reflect the effect of dividend payments to Preferred
shareholders.
+++ Unaudited.
S-35
<PAGE> 121
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
ALASKA -- 0.8%
$ 1,950,000 Alaska Housing Finance Corporation, Insured Mortgage
Program Bonds, 1990 First Series, 7.800%, 12/01/30..... Aa1 12/00 at 102 $ 1,983,950
1,470,000 Alaska State Housing Finance Corporation, Collateralized
Home Mortgage Bonds, 1987 Series B, 8.750%, 12/01/16... Aaa 6/98 at 102 1,522,141
6,000,000 North Slope Borough, Alaska, General Obligation Refunding
Bonds of 1988, Series G, 8.350%, 6/30/98............... A- No Opt. Call 6,383,220
ARIZONA -- 1.6%
3,160,000 The Industrial Development Authority of the City of
Phoenix, Arizona, Home Purchase Mortgage Revenue Bonds
(GNMA Mortgage-Backed Securities Program), Series
1988B, 8.200%, 4/01/22 (Alternative Minimum Tax)....... AAA 10/98 at 102 3,315,061
12,510,000 The Industrial Development Authority of the County of
Pima (Arizona), Industrial Development Lease Obligation
Refunding Revenue Bonds, 1988 Series A (Irvington
Project), 7.250%, 7/15/10.............................. Aaa 1/02 at 103 13,870,337
4,035,000 The Industrial Development Authority of the County of
Pima, Single Family Mortgage Revenue Bonds (GNMA
Mortgage-Backed Securities Program), Series 1988,
8.125%, 9/01/20 (Alternative Minimum Tax).............. AAA 3/99 at 102 4,228,599
CALIFORNIA -- 15.8%
17,000,000 California Health Facilities Financing Authority, Kaiser
Permanente, Medical Care Program, Semiannual Tender
Revenue Bonds, 1985 Tender Bonds, 5.550%, 8/15/25...... AA 2/02 at 101 16,235,510
14,650,000 California Health Facilities Financing Authority,
Hospital Revenue Bonds (Children's Hospital of Los
Angeles), 1991 Series A, 7.125%, 6/01/21 (Pre-refunded
to 6/01/01)............................................ Aaa 6/01 at 102 16,507,181
26,725,000 State Public Works Board of the State of California,
Lease Revenue Refunding Bonds (The Regents of the
University of California), 1993 Series A (Various
University of California Projects), 5.500%, 6/01/21.... A1 16/03 at 102 25,295,747
11,395,000 State Public Works Board of the State of California,
Lease Revenue Bonds (Department of Corrections), 1993
Series E (California State Prison -- Madera County
(II)), 5.500%, 6/01/15................................. A No Opt. Call 11,205,729
15,975,000 State of California Department of Transportation, East
Bay State Building Authority, Certificates of
Participation, Series 1991A, 6.500%, 3/01/16........... A 3/01 at 102 16,640,519
13,000,000 State of California, Various Purpose General Obligation
Refunding Bonds, 5.150%, 10/01/19...................... A1 10/03 at 102 12,020,580
15,285,000 Los Angeles Convention and Exhibition Center Authority,
Lease Revenue Bonds, 1993 Refunding Series A, The City
of Los Angeles, California, 5.375%, 8/15/18............ Aaa 8/03 at 102 14,585,711
12,250,000 Los Angeles County Transportation Commission, California,
Sales Tax Revenue Refunding Bonds, Series 1991-B,
5.750%, 7/01/18........................................ AA- 7/01 at 100 12,121,743
1,285,000 City of Martinez, California, Home Mortgage Revenue
Bonds, 1983 Issue A, 10.750%, 2/01/16.................. Aaa No Opt. Call 1,962,709
4,125,000 Redevelopment Agency of the City of Moorpark, Moorpark
Redevelopment Project, 1993 Tax Allocation Bonds,
6.125%, 10/01/18....................................... A- 10/03 at 102 4,133,168
20,000,000 City of Pomona, California, Single Family Mortgage
Revenue Refunding Bonds (GNMA and FNMA Mortgage-Backed
Securities), Series 1990A, 7.600%, 5/01/23............. Aaa No Opt. Call 23,700,200
</TABLE>
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NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
CALIFORNIA (Continued)
$ 3,955,000 City of Redlands, California, Refunding Certificates of
Participation (Loma Linda University Medical Center
Project), Series 1993-D, 5.000%, 12/01/22.............. Aaa 12/03 at 102 $ 3,554,082
5,000,000 Sacramento, California, Municipal Utility District,
Electric Revenue Refunding Bonds, 1993 Series D,
5.250%, 11/15/20....................................... Aaa 11/03 at 102 4,679,450
San Bernardino Joint Powers Financing Authority, Tax
Allocation Refunding Bonds, Series 1995A:
6,675,000 5.750%, 10/01/15......................................... Aaa 10/05 at 102 6,704,170
12,500,000 5.750%, 10/01/25......................................... Aaa 10/05 at 102 12,490,500
3,000,000 Redevelopment Agency of the City and County of San
Francisco, Multifamily Housing Refunding Revenue Bonds,
Series 1994 (GNMA Collateralized - South Beach Marina
Project), 5.700%, 3/01/29.............................. Aaa 3/04 at 102 2,930,460
6,455,000 The Regents of the University of California, Refunding
Revenue Bonds (Multiple Purpose Projects), Series C,
5.000%, 9/01/11........................................ Aaa 9/03 at 102 6,152,131
17,540,000 The Regents of the University of California, Refunding
Revenue Bonds (Multiple Purpose Projects), Series B,
4.750%, 9/01/21........................................ Aaa 9/03 at 102 15,203,497
COLORADO--2.9%
City and County of Denver, Colorado, Airport System
Revenue Bonds, Series 1991D:
9,325,000 7.750%, 11/15/13 (Alternative Minimum Tax)............... Baa No Opt. Call 11,101,226
8,250,000 7.750%, 11/15/21 (Alternative Minimum Tax)............... Baa 11/01 at 102 9,142,155
3,500,000 City and County of Denver, Colorado, Airport System
Revenue Bonds, Series 1992B, 7.250%, 11/15/23
(Alternative Minimum Tax).............................. Baa 11/02 at 102 3,772,370
8,700,000 City and County of Denver, Colorado, Airport System
Revenue Bonds, Series 1992C, 6.750%, 11/15/22
(Alternative Minimum Tax).............................. Baa 11/02 at 102 9,024,075
3,465,000 Colorado Local Single Family Mortgage Revenue Bonds, City
and County of Denver, Colorado, GNMA Mortgage-Backed
Securities Program, Series 1988A, 8.125%, 12/01/20
(Alternative Minimum Tax).............................. AAA 12/98 at 102 3,621,549
1,083,276 El Paso County, Colorado, Single Family Mortgage Revenue
Tax-Exempt Refunding Bonds, Series 1992A Class A-2,
8.750%, 6/01/11........................................ Aaa No Opt. Call 1,175,247
DISTRICT OF COLUMBIA -- 2.1%
11,040,000 District of Columbia, Hospital Revenue Refunding Bonds
(Providence Hospital Issue), Series 1988A, 7.875%,
12/01/15............................................... Aa 12/98 at 102 11,910,504
14,800,000 District of Columbia Housing Finance Agency,
Collateralized Single Family Mortgage Revenue Bonds,
Series 1988E-4, 6.375%, 6/01/26 (Alternative Minimum
Tax)................................................... AAA 12/04 at 103 15,087,564
FLORIDA -- 4.5%
10,250,000 Florida Housing Finance Agency, GNMA Collateralized Home
Ownership Mortgage Revenue Bonds, 1988 Series G1 Bonds,
8.300%, 6/01/20 (Alternative Minimum Tax).............. Aaa 12/98 at 103 10,695,875
9,290,000 State of Florida, Full Faith and Credit, Department of
Transportation Right-of-Way Acquisition and Bridge
Construction Bonds, Series 1995, 5.800%, 7/01/21....... Aa 7/05 at 101 9,374,632
Greater Orlando Aviation Authority, Airport Facilities
Revenue Bonds, Series 1988 of the City of Orlando,
Florida:
1,470,000 8.375%, 10/01/16 (Alternative Minimum Tax) (Pre-refunded
to 10/01/98)........................................... A1 10/98 at 102 1,610,414
13,530,000 8.375%, 10/01/16 (Alternative Minimum Tax)............... A1 10/98 at 102 14,637,566
</TABLE>
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PORTFOLIO OF INVESTMENTS -- (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
FLORIDA (Continued)
City of Pensacola Health Facilities Authority, Health
Facilities Revenue Refunding Bonds, Series 1988
(Daughters of Charity National Health System Sacred
Heart Hospital of Pensacola Florida):
$ 11,655,000 7.875%, 1/01/08 (Pre-refunded to 1/01/98)................ Aaa 1/98 at $ 12,346,608
101 1/2
9,435,000 7.875%, 1/01/11 (Pre-refunded to 1/01/98)................ Aaa 1/98 at 9,994,873
101 1/2
GEORGIA -- 3.2%
7,700,000 Municipal Electric Authority of Georgia, Power Revenue
Bonds, Series Q, 8.375%, 1/01/16....................... A 1/98 at 102 8,205,967
5,850,000 Municipal Electric Authority of Georgia, Power Revenue
Bonds, Series Q, 8.125%, 1/01/17....................... A 1/98 at 102 6,217,965
2,410,000 Urban Residential Finance Authority of the City of
Atlanta, Georgia, Single Family Mortgage Revenue Bonds
(GNMA Collateralized Home Mortgage Program), Series
1988, in cooperation with the Housing Authority of
Fulton County, Georgia, 8.250%, 10/01/21 (Alternative
Minimum Tax)........................................... AAA 10/98 at 103 2,522,306
23,420,000 Development Authority of Monroe County, Georgia,
Pollution Control Revenue Bonds (Georgia Power Company
Plant Scherer Project), Second Series 1994, 6.750%,
10/01/24............................................... A1 10/99 at 102 24,446,733
ILLINOIS -- 5.2%
8,230,000 Illinois Development Finance Authority, Pollution Control
Refunding Revenue Bonds, 1994 Series A (Illinois Power
Company Project), 5.700%, 2/01/24...................... Aaa 2/04 at 102 8,133,791
8,500,000 Illinois Educational Facilities Authority, Revenue
Refunding Bonds, The University of Chicago, Series
1993B, 5.600%, 7/01/24................................. Aa1 7/03 at 102 8,159,150
5,000,000 Illinois Health Facilities Authority, Revenue Bonds,
Series 1992 (Highland Park Hospital), 6.200%,
10/01/22............................................... Aaa 10/02 at 102 5,136,400
13,400,000 Illinois Health Facilities Authority, Revenue Bonds,
Series 1988B (Evangelical Hospitals Corporation),
8.100%, 1/01/08 (Pre-refunded to 1/01/99).............. Aaa 1/99 at 102 14,656,250
Illinois Housing Development Authority, Residential
Mortgage Revenue Bonds, 1988 Series C:
7,020,000 8.100%, 8/01/17.......................................... Aa 8/98 at 103 7,410,803
6,250,000 8.100%, 2/01/22 (Alternative Minimum Tax)................ Aa 8/98 at 102 6,496,313
5,900,000 City of Chicago, Illinois, Chicago - O'Hare International
Airport, General Airport Second Lien, Revenue Refunding
Bonds, 1993 Series C, 5.000%, 1/01/18.................. Aaa 1/04 at 102 5,365,106
5,000,000 City of Chicago, Collateralized Single Family Mortgage
Revenue Bonds, Series 1996-A, 7.000%, 9/01/27
(Alternative Minimum Tax).............................. Aaa 3/06 at 105 5,519,400
785,000 Regional Transportation Authority, Cook, DuPage, Kane,
Lake, McHenry and Will Counties, Illinois, General
Obligation Bonds, Series 1992B, 9.000%, 6/01/06........ Aaa No Opt. Call 1,018,577
4,925,000 Regional Transportation Authority, Cook, DuPage, Kane,
Lake, McHenry and Will Counties, Illinois, General
Obligation Bonds, Series 1992A, 9.000%, 6/01/06........ Aaa No Opt. Call 6,390,434
INDIANA -- 3.7%
2,550,000 Indiana State Office Building Commission, Correctional
Facilities Program Revenue Bonds, Series 1995A, 5.500%,
7/01/20................................................ Aaa 7/05 at 102 2,469,497
30,000,000 The Indianapolis Local Public Improvement Bond Bank,
Series 1988 D Bonds, 8.500%, 2/01/18 (Pre-refunded to
2/01/98)............................................... N/R 2/98 at 102 32,162,700
</TABLE>
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NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
INDIANA (Continued)
$ 8,000,000 Metropolitan School District of Steuben County Middle
School Building Corporation, First Mortgage Bonds,
Series 1995, Steuben County, Indiana, 6.375%,
7/15/16................................................ Aaa 7/05 at 102 $ 8,644,000
5,300,000 Whitley County Middle School Building Corporation, First
Mortgage Bonds, Series 1994, Columbia City, Indiana,
6.250%, 7/15/15........................................ Aaa 1/04 at 102 5,628,812
IOWA -- 0.8%
3,000,000 Iowa Finance Authority, Private College Refunding Revenue
Bonds (Drake University Project), Series 1996, 5.400%,
12/01/16............................................... Aaa 12/05 at 102 2,919,240
5,785,000 Iowa Finance Authority, Variable Rate Demand Industrial
Revenue Refunding Bonds, Series A 1989 (Urbandale Hotel
Corporation Project No. 00475), 8.500%, 8/01/16
(Alternative Minimum Tax) (Pre-refunded to 7/15/14).... AAA 7/14 at 100 7,718,694
KANSAS -- 0.8%
9,815,000 Sedgwick County, Kansas and Shawnee County, Kansas, GNMA
Collateralized Mortgage Revenue Bonds, 1988 Series E,
8.250%, 11/01/20 (Alternative Minimum Tax)............. AAA 11/98 at 103 10,311,933
LOUISIANA -- 0.9%
7,660,000 Louisiana Public Facilities Authority, Extended Care
Facilities Revenue Bonds (Comm-Care Corporation
Project), Series 1994, 11.000%, 2/01/14................ BBB No Opt. Call 10,291,133
1,610,000 East Baton Rouge Mortgage Finance Authority, Single
Family Mortgage Revenue Refunding Bonds (GNMA and FNMA
Mortgage-Backed Securities Program), Series 1993B
Bonds, 5.300%, 10/01/14................................ Aaa 10/03 at 102 1,531,271
MASSACHUSETTS -- 0.9%
3,000,000 Massachusetts Industrial Finance Agency, Resource
Recovery Revenue Bonds, Semass Project, Series 1991B,
9.250%, 7/01/15 (Alternative Minimum Tax).............. N/R 7/01 at 103 3,354,720
8,800,000 Massachusetts Water Resources Authority, General Revenue
Bonds, 1990 Series A, 5.500%, 7/15/22.................. A 7/02 at 100 8,499,920
MICHIGAN -- 1.6%
4,000,000 School District of the City of Detroit, Wayne County,
Michigan, School Building and Site Improvement and
Refunding Bonds (Unlimited Tax General Obligation),
Series 1993, 5.400%, 5/01/13........................... Aa 5/03 at 102 3,908,280
8,870,000 City of Detroit, Michigan, Sewage Disposal System Revenue
Bonds, Series 1995-A, 5.000%, 7/01/25.................. Aaa 7/05 at 100 8,026,374
9,625,000 Livonia Public Schools School District, County of Wayne,
State of Michigan, 1993 Refunding Bonds, 5.500%,
5/01/21................................................ Aaa 5/03 at 102 9,292,456
MINNESOTA -- 4.3%
13,645,000 Minnesota Housing Finance Agency, Single Family Mortgage
Bonds, 1988 Series C, 8.500%, 7/01/19 (Alternative
Minimum Tax)........................................... AA+ 7/98 at 102 14,317,835
2,945,000 The Minneapolis/Saint Paul Housing Finance Board, Single
Family Mortgage Revenue Bonds (Minneapolis/Saint Paul
Family Housing Program, Phase X, FNMA and GNMA
Mortgage-Backed Securities Program), Series 1994,
7.500%, 11/01/27 (Alternative Minimum Tax)............. AAA 11/04 at 102 3,099,377
21,970,000 The Housing and Redevelopment Authority of the City of
Saint Paul, Minnesota, Sales Tax Revenue Refunding
Bonds (Civic Center Project), Series 1996, 7.100%,
11/01/23............................................... Aaa 11/15 at 103 26,202,301
</TABLE>
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NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
MINNESOTA (Continued)
$ 2,900,000 Housing and Redevelopment Authority of the City of Saint
Paul, Minnesota, Single Family Mortgage Revenue Bonds,
Refunding Series 1991-B, 7.250%, 9/01/11............... Aa No Opt. Call $ 3,064,923
8,635,000 Port Authority of the City of Saint Paul, Energy Park Tax
Increment Revenue Refunding Bonds, Series 1988, 8.000%,
12/01/07 (Pre-refunded to 12/01/98).................... AAA 12/98 at 102 9,285,906
MISSOURI -- 1.6%
7,000,000 Missouri Housing Development Commission Single Family
Mortgage Revenue Bonds (Homeownership Loan Program),
1996 Series C, 7.450%, 9/01/27 (Alternative Minimum
Tax)................................................... AAA 3/07 at 105 7,727,090
11,120,000 Francis Howell School District, St. Charles County,
Missouri, General Obligation Refunding Bonds, Series
1994A, 7.800%, 3/01/08................................. AAA No Opt. Call 13,712,739
NEVADA -- 0.8%
10,000,000 Clark County School District, Nevada, General Obligation,
School Improvement Bonds, Series 1988A, 8.000%, 3/01/08
(Pre-Refunded to 3/01/98).............................. N/R 3/98 at 102 10,681,500
NEW HAMPSHIRE -- 2.3%
10,000,000 Business Finance Authority of the State of New Hampshire,
Pollution Control Refunding Revenue Bonds (The United
Illuminating Company Project -- 1993 Series A), 5.875%,
10/01/33............................................... BBB- 10/03 at 102 9,312,400
11,000,000 New Hampshire Housing Finance Authority, Single Family
Mortgage Revenue Bonds, 1993 Series B, 6.050%,
7/01/25................................................ Aa 7/03 at 102 11,050,380
9,135,000 New Hampshire Housing Finance Authority Single Family
Mortgage Acquisition Revenue Bonds, 1996 Series B,
6.400%, 1/01/27 (Alternative Minimum Tax).............. Aa 7/06 at 10 9,287,920
NEW MEXICO -- 0.5%
5,655,000 New Mexico Mortgage Finance Authority, Single Family
Mortgage Purchase Refunding Senior Bonds, 1992 Series
A, 6.900%, 7/01/24..................................... Aa1 7/02 at 102 5,921,068
NEW YORK -- 9.0%
12,365,000 New York State Energy Research and Development Authority,
Facilities Revenue Bonds, Series 1993 A (Consolidated
Edison Company of New York, Inc. Project), 6.000%,
3/15/28 (Alternative Minimum Tax)...................... A1 3/03 at 102 12,401,848
16,960,000 New York State Medical Care Facilities Finance Agency,
Hospital and Nursing Home FHA-Insured Mortgage Revenue
Bonds, 1993 Series B, 5.500%, 2/15/22.................. AAA 2/04 at 102 16,276,851
18,000,000 Metropolitan Transportation Authority, New York, Commuter
Facilities 1987 Service Contract Bonds, Series 2,
8.000%, 7/01/18 (Pre-refunded to 7/01/98).............. Aaa 7/98 at 102 19,486,440
11,540,000 Municipal Assistance Corporation for the City of New York
(A Public Benefit Corporation of the State of New
York), Series 60 Bonds, 7.000%, 7/01/06................ Aa 7/97 at 102 11,970,327
7,060,000 Municipal Assistance Corporation for the City of New York
(A Public Benefit Corporation of the State of New
York), Series 61 Bonds, 6.875%, 7/01/07................ Aa 7/97 at 102 7,332,304
7,500,000 The City of New York, General Obligation Bonds, Fiscal
1991 Series B, 9.500%, 6/01/03......................... Baal No Opt. Call 9,128,400
10,000,000 The City of New York, General Obligation Bonds, Fiscal
1996 Series G, 5.750%, 2/01/07......................... Baa1 2/06 at 9,930,300
101 1/2
12,930,000 New York City Municipal Water Finance Authority, Water
and Sewer Revenue Bonds, Fiscal 1993 Series A, 5.500%,
6/15/20................................................ A 6/02 at 100 12,282,336
</TABLE>
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NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
NEW YORK (Continued)
$ 10,000,000 New York City Municipal Water Finance Authority, Water
and Sewer System Revenue Bonds, Fiscal 1996 Series B,
5.750%, 6/15/26........................................ Aaa 6/06 at 101 $ 9,992,200
7,955,000 New York City Municipal Water Finance Authority, Water
and Sewer System Revenue Bonds, Series 1992C, 6.500%,
6/15/21 (Pre-refunded to 6/15/97)...................... Aaa 6/97 at 8,209,003
101 1/2
NORTH CAROLINA -- 1.6%
16,415,000 North Carolina Eastern Municipal Power Agency, Power
System Revenue Bonds, Refunding Series 1988 A, 8.000%,
1/01/21 (Pre-refunded to 1/01/98)...................... Aaa 1/98 at 102 17,481,975
North Carolina Eastern Municipal Power Agency, Power
System Revenue Bonds, Refunding Series 1987 A:
395,000 7.250%, 1/01/21 (Pre-refunded to 1/01/97)................ Aaa 1/97 at 102 405,175
2,605,000 7.250%, 1/01/21.......................................... Baa1 1/97 at 102 2,661,138
OHIO -- 1.5%
7,540,000 Ohio Housing Finance Agency, Single Family Mortgage
Revenue Bonds (GNMA Mortgage-Backed Securities
Program), 1988 Series B, 8.250%, 12/15/19 (Alternative
Minimum Tax)........................................... AAA 12/98 at 102 7,974,153
11,300,000 State of Ohio, Turnpike Revenue Bonds, 1994 Series A,
Issued by the Ohio Turnpike Commission, 5.750%,
2/15/24................................................ AA- 2/04 at 102 11,260,337
OKLAHOMA -- 1.6%
12,730,000 Oklahoma Housing Finance Agency, GNMA Collateralized
Single Family Mortgage Revenue Bonds, Series 1988A,
8.250%, 12/01/20 (Alternative Minimum Tax)............. AAA 12/98 at 102 13,303,232
6,750,000 Washington County Medical Authority (Bartlesville,
Oklahoma), Hospital Revenue Bonds (Jane Phillips
Episcopal Hospital), Series 1989A, 8.500%, 11/01/10
(Pre-refunded to 5/01/99).............................. BBB 5/99 at 102 7,528,208
PENNSYLVANIA -- 4.2%
10,000,000 Pennsylvania Housing Finance Agency, Single Family
Mortgage Revenue Bonds, Series 1993-37A, 5.450%,
10/01/17............................................... AA+ 10/03 at 102 9,672,500
14,500,000 County of Allegheny, Pennsylvania, Airport Revenue Bonds,
Series 1988C (Greater Pittsburgh International
Airport), 8.250%, 1/01/16 (Alternative Minimum Tax).... Aaa 1/98 at 102 15,391,170
12,875,000 Allegheny County Hospital Development Authority
(Pennsylvania), Health Center Revenue Bonds, Series
1992A (Presbyterian University Health System, Inc.
Project ), 6.250%, 11/01/23............................ Aaa 11/02 at 100 13,319,703
5,000,000 The School District of Philadelphia, Pennsylvania,
General Obligation Bonds, Series B of 1995, 5.500%,
9/01/25................................................ Aaa 9/05 at 102 4,869,200
10,180,000 City of Philadelphia, Pennsylvania, Water and Sewer
Revenue Bonds, Sixteenth Series, 7.500%, 8/01/10
(Pre-refunded to 8/01/01).............................. AAA 8/01 at 102 11,639,201
SOUTH CAROLINA -- 1.2%
17,250,000 South Carolina Jobs -- Economic Development Authority,
Hospital Revenue Bonds (Anderson Area Medical Center,
Inc.), Series 1996, 5.250%, 2/01/26.................... Aaa 2/06 at 102 16,114,950
TEXAS -- 8.0%
10,305,000 Alliance Airport Authority, Inc., Special Facilities
Revenue Bonds, Series 1990 (American Airlines, Inc.
Project), 7.500%, 12/01/29 (Alternative Minimum Tax)... Baa2 12/00 at 102 10,983,893
10,095,000 Brazos River Authority, Texas, Collateralized Revenue
Refunding Bonds (Houston Lighting & Power Company
Project), Series 1988A, 8.250%, 5/01/19................ A2 5/98 at 102 10,774,494
</TABLE>
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NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
TEXAS (Continued)
$ 5,565,000 Dallas-Forth Worth International Airport Facility
Improvement Corporation, American Airlines, Inc.
Revenue Bonds, Series 1990, 7.500%, 11/01/25
(Alternative Minimum Tax).............................. Baa2 11/00 at 102 $ 5,926,836
40,000,000 Harris County Health Facilities Development Corporation,
Adjustable Convertible Extendable Securities (Greater
Houston Pooled Health Care Loan Program), Series 1985B,
7.375%, 12/01/25 (Mandatory put 12/01/98).............. Aa3 11/96 at 40,324,000
100 1/2
3,385,000 Harris County, Texas, Toll Road Senior Lien Revenue
Bonds, Series 1985-B, 8.700%, 8/15/17 (Pre-refunded to
8/15/97)............................................... AAA 8/97 at 103 3,612,472
12,700,000 Harris, County, Texas, Toll Road Multiple Mode Senior
Lien Revenue Bonds, Series 1985-D, 8.300%, 8/15/17
(Pre-refunded to 8/15/98).............................. AAA 8/98 at 103 13,975,969
15,000,000 Harris County, Texas, Toll Road Senior Lien Revenue
Refunding Bonds, Series 1994, 5.300%, 8/15/13.......... Aaa 8/04 at 102 14,616,450
4,500,000 Tyler Health Facilities Development Corporation, Hospital
Refunding Revenue Bonds (East Texas Hospital Foundation
Project), Series 1988A, 8.250%, 11/01/06 (Pre-refunded
to 11/01/98)........................................... AA 11/98 at 102 4,933,080
UTAH -- 2.4%
6,550,000 Intermountain Power Agency, Utah, Power Supply Revenue
Refunding Bonds, 1987 Series D, 8.625%, 7/01/21........ Aa 7/97 at 102 6,866,496
3,000,000 Intermountain Power Agency, Utah, Power Supply Revenue
Refunding Bonds, 1987 Series C, 8.625%, 7/01/21
(Pre-refunded to 7/01/97).............................. Aaa 7/97 at 102 3,154,140
20,000,000 Intermountain Power Agency (Utah), Power Supply Revenue
Bonds, Series 1987B, 7.200%, 7/01/19................... Aa 7/97 at 102 20,781,200
VIRGINIA -- 0.8%
1,000,000 Virginia Housing Development Authority, Commonwealth
Mortgage Bonds, 1987 Series C, Subseries C-7, 8.375%,
1/01/28 (Alternative Minimum Tax)...................... Aa1 11/99 at 102 1,012,960
Virginia Housing Development Authority, Commonwealth
Mortgage Bonds, 1992 Series B-AMT, Subseries B-7:
2,445,000 5.600%, 7/01/21 (Alternative Minimum Tax).............. Aa1 1/02 at 102 2,298,765
7,605,000 5.650%, 1/01/27 (Alternative Minimum Tax).............. Aa1 1/02 at 102 7,164,747
WASHINGTON -- 11.9%
5,000,000 Washington Health Care Facilities Authority, Revenue
Bonds, Series 1987 (Virginia Mason Medical Center,
Seattle), 8.000%, 7/01/15.............................. Aaa 7/97 at 102 5,225,050
12,900,000 Washington Public Power Supply System, Nuclear Project
No. 1 Refunding Revenue Bonds, Series 1993A, 5.700%,
7/01/17................................................ Aaa 7/03 at 102 12,691,278
22,370,000 Washington Public Power Supply System, Nuclear Project
No. 1 Refunding Revenue Bonds, Series 1993B, 5.600%,
7/10/15................................................ Aaa 7/03 at 102 21,774,958
4,300,000 Washington Public Power Supply System, Nuclear Project
No. 1 Refunding Revenue Bonds, Series 1989B, 7.250%,
7/10/15 (Pre-refunded to 1/01/00)...................... Aaa 1/00 at 102 4,737,697
Washington Public Power Supply System, Nuclear Project
No. 1, Refunding Revenue Bonds, Series 1989A:
4,060,000 7.500%, 7/01/15 (Pre-refunded to 7/01/99).............. Aaa 7/99 at 102 4,459,991
11,900,000 7.500%, 7/01/15 (Pre-refunded to 7/01/99).............. Aa1 7/99 at 102 13,085,002
7,500,000 Washington Public Power Supply System, Nuclear Project
No. 2, Refunding Revenue Bonds, Series 1991A, 6.000%,
7/01/12................................................ Aa1 7/01 at 100 7,530,975
14,440,000 Washington Public Power Supply System, Nuclear Project
No. 2 Refunding Revenue Bonds, Series 1993A, 5.750%,
7/01/12................................................ Aa1 7/03 at 102 14,270,041
</TABLE>
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NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION RATINGS* PROVISIONS** VALUE
--------- ----------- -------- ------------ ------
<C> <S> <C> <C> <C>
WASHINGTON (Continued)
$ 6,770,000 Washington Public Power Supply System, Nuclear Project
No. 2 Refunding Revenue Bonds, Series 1993B, 5.625%,
7/01/12................................................ Aa1 7/03 at 102 $ 6,604,338
21,530,000 Washington Public Power Supply System, Nuclear Project
No. 3 Refunding Revenue Bonds, Series 1993C, 5.375%,
7/01/15................................................ Aa1 7/03 at 102 20,247,888
13,500,000 Washington Public Power Supply System, Nuclear Project
No. 3 Refunding Revenue Bonds, Series 1989B, 7.250%,
7/01/15 (Pre-refunded to 1/01/00)...................... Aaa 1/00 at 102 14,874,165
17,050,000 Municipality of Metropolitan Seattle, Seattle,
Washington, Sewer Refunding Revenue Bonds, Series Z,
5.500%, 1/01/33........................................ Aaa 1/03 at 102 16,142,940
6,360,000 Public Utility District No. 1 of Snohomish County,
Washington, Generation System Revenue Bonds, Series
1993, 5.500%, 1/01/14.................................. Aaa 1/03 at 100 6,265,807
7,000,000 City of Spokane, Washington, Regional Solid Waste
Management System Revenue Bonds, Series 1989B, 7.750%,
1/01/11 (Alternative Minimum Tax)...................... Aaa 1/99 at 102 7,585,830
WEST VIRGINIA -- 1.2%
15,000,000 West Virginia Housing Development Fund, Housing Finance
Bonds, 1992 Series D, 7.050%, 11/01/24................. Aa1 5/02 at 102 15,865,950
PUERTO RICO -- 0.4%
5,250,000 Puerto Rico Electric Power Authority, Power Revenue
Bonds, Series X, 5.500%, 7/01/25....................... Baa1 7/05 at 100 4,971,224
- --------------------------------------------------------------------------------------------------------------------------
$1,237,073,276 Total Investments -- (cost $1,232,758,410) -- 98.1%................................... 1,280,412,304
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS IN SHORT-TERM MUNICIPAL SECURITIES
-- 0.1%
$ 100,000 Maricopa County, Arizona Pollution Control Corporation,
============== Public Service Company Palo Verde Project), 1994 Series
C, Variable Rate Demand Bonds, 3.600%, 5/01/29+........
A-1+ 100,000
--------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 1.8%................................................. 23,679,463
--------------------------------------------------------------------------------------------------------
Net Assets -- 100%.................................................................... $1,304,191,767
========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
STANDARD NUMBER OF MARKET MARKET
& POOR'S MOODY'S SECURITIES VALUE PERCENT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of AAA Aaa 69 $ 633,219,899 49%
ratings* AA+, AA, AA- Aa1, Aa, Aa2, Aa3 31 322,463,921 25
portfolio of A+ A1 6 90,412,888 7
investments A, A- A, A2, A3 9 84,343,318 7
(excluding BBB+, BBB, BBB- Baa1, Baa, Baa2, Baa3 13 103,773,358 8
temporary Non-Rated Non-Rated 3 46,198,920 4
investments):
- -----------------------------------------------------------------------------------------------------
TOTAL..................................................... 131 $1,280,412,304 100%
=====================================================================================================
* Ratings (not covered by the report of independent auditors):
Using the higher of Standard & Poor's or Moody's rating.
N/R Investment is not rated.
** Optional Call Provisions (not covered by the report of
independent auditors): Dates (month and year) and prices of
the earliest optional call or redemption. There may be other
call provisions at varying prices at later dates.
+ The security has a maturity of more than one year, but has
variable rate and demand features which qualify it as a
short-term security. The rate disclosed is that currently in
effect. This rate changes periodically based on market
conditions or a specified market index.
See accompanying notes to financial statements.
</TABLE>
S-43
<PAGE> 129
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
STATEMENT OF NET ASSETS
OCTOBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments in municipal securities, at market value (note
1)........................................................ $1,280,412,304
Temporary investments in short-term municipal securities, at
amortized cost (note 1)................................... 100,000
Cash........................................................ 417,891
Receivables:
Interest.................................................. 26,961,591
Investments sold.......................................... 2,092,226
Other assets................................................ 605,101
--------------
Total assets......................................... 1,310,589,113
--------------
LIABILITIES
Accrued expenses:
Management fees (note 6).................................. 680,514
Other..................................................... 339,840
Preferred share dividends payable........................... 306,050
Common share dividends payable.............................. 5,070,942
--------------
Total liabilities.................................... 6,397,346
--------------
Net assets (note 7)......................................... $1,304,191,767
==============
Preferred shares, at liquidation value...................... $ 350,000,000
==============
Preferred shares outstanding................................ 14,000
==============
Common shares outstanding................................... 63,785,431
==============
Net asset value per Common share outstanding (net assets
less Preferred shares at liquidation value, divided by
Common shares outstanding)................................ $ 14.96
==============
</TABLE>
See accompanying notes to financial statements.
S-44
<PAGE> 130
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Tax-exempt interest income (note 1)......................... $83,668,548
-----------
Expenses:
Management fees (note 6).................................. 8,045,628
Preferred shares -- remarketing fees...................... 816,659
Preferred shares -- dividend disbursing agent fees........ 30,000
Shareholders' servicing agent fees and expenses........... 273,678
Custodian's fees and expenses............................. 114,442
Directors' fees and expenses (note 6)..................... 42,961
Professional fees......................................... 37,297
Shareholders' reports -- printing and mailing expenses.... 257,036
Stock exchange listing fees............................... 44,336
Investor relations expense................................ 97,531
Other expenses............................................ 40,399
-----------
Total expenses....................................... 9,799,967
-----------
Net investment income............................. 73,868,581
-----------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain from investment transactions, net of
taxes, if applicable (notes 1 and 3)...................... 1,864,659
Net change in unrealized appreciation or depreciation of
investments............................................... (8,027,802)
-----------
Net gain (loss) from investments.................. (6,163,143)
-----------
Net increase in net assets from operations.................. $67,705,438
===========
</TABLE>
See accompanying notes to financial statements.
S-45
<PAGE> 131
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
10/31/96 10/31/95
---------- ----------
<S> <C> <C>
OPERATIONS
Net investment income....................................... $ 73,868,581 $ 78,793,817
Net realized gain from investment transactions, net of
taxes, if applicable (notes 1 and 3)...................... 1,864,659 4,129,049
Net change in unrealized appreciation or depreciation of
investments............................................... (8,027,802) 59,644,723
-------------- --------------
Net increase in net assets from operations................ 67,705,438 142,567,589
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS (note 1)
From undistributed net investment income:
Common shareholders.................................... (61,521,076) (67,357,422)
Preferred shareholders................................. (12,507,980) (13,745,101)
From accumulated net realized gains from investment
transactions:
Common shareholders.................................... (3,157,383) --
-------------- --------------
Decrease in net assets from distributions to
shareholders........................................... (77,186,439) (81,102,523)
-------------- --------------
Net increase (decrease) in net assets.................. (9,481,001) 61,465,066
Net assets at beginning of year............................. 1,313,672,768 1,252,207,702
-------------- --------------
Net assets at end of year................................... $1,304,191,767 $1,313,672,768
============== ==============
Balance of undistributed net investment income at end of
year...................................................... $ 687,524 $ 847,999
============== ==============
</TABLE>
See accompanying notes to financial statements.
S-46
<PAGE> 132
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Nuveen Premium Income Municipal Fund, Inc. (the "Fund") invests primarily
in a diversified portfolio of municipal obligations issued by state and local
government authorities. The Fund is registered under the Investment Company Act
of 1940 as a closed-end, diversified management investment company.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
Portfolio securities for which market quotations are readily available are
valued at the mean between the quoted bid and asked prices or the yield
equivalent. Portfolio securities for which market quotations are not readily
available are valued at fair value by consistent application of methods
determined in good faith by the Board of Directors. Temporary investments in
securities that have variable rate and demand features qualifying them as
short-term securities are traded and valued at amortized cost.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains
and losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may be settled a month or more after the transaction date. The securities so
purchased are subject to market fluctuation during this period. The Fund has
instructed the custodian to segregate assets in a separate account with a
current value at least equal to the amount of their purchase commitments. At
October 31, 1996, there were no such purchase commitments in the Fund.
Interest Income
Interest income is determined on the basis of interest accrued, adjusted
for amortization of premiums and accretion of discounts on long-term debt
securities when required for federal income tax purposes.
Federal Income Taxes
The Fund intends to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies by distributing to
shareholders all of its tax-exempt net investment income, in addition to any
significant amounts of net realized capital gains and/or market discount
realized from investment transactions. The Fund currently considers significant
net realized capital gains and/or market discount as amounts in excess of $.001
per Common share. Furthermore, the Fund intends to satisfy conditions which will
enable interest from municipal securities, which is exempt from regular federal
income tax, to retain such tax-exempt status when distributed to shareholders of
the Fund. All regular monthly income dividends paid during the year ended
October 31, 1996, have been designated Exempt Interest Dividends which are
exempt from regular federal personal income tax. Net realized capital gain and
market discount distributions are subject to federal taxation.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and
payment is made or reinvestment is credited to shareholder accounts after
month-end. Net realized capital gains and/or market discount from investment
transactions are distributed to shareholders not less frequently than annually.
Furthermore, capital gains are distributed only to the extent they exceed
available capital loss carryovers.
S-47
<PAGE> 133
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1996
Distributions to shareholders of tax-exempt net investment income, net
realized capital gains and/or market discount are recorded on the ex-dividend
date. The amount and timing of such distributions are determined in accordance
with federal income tax regulations, which may differ from generally accepted
accounting principles. Accordingly, temporary over-distributions as a result of
these differences may occur and will be classified as either distributions in
excess of net investment income, distributions in excess of net realized gains
and/or distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
Preferred Shares
The Board of Directors of the Fund approved a 4 for 1 split of the Fund's
Preferred shares effective as of the close of business on August 9, 1995, which
lowered the stated value from $100,000 to $25,000 per share.
The Fund has issued and outstanding 2,800 shares of each Series A, B, C, D
and E $25,000 stated value Preferred shares. The dividend rate on each Series
may change every 28 days as set by the auction agent, except for series E which
may change every seven days.
Derivative Financial Instruments
In October 1994, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 119 Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments which prescribes
disclosure requirements for transactions in certain derivative financial
instruments including futures, forward, swap, and option contracts, and other
financial instruments with similar characteristics. Although the Fund is
authorized to invest in such financial instruments, and may do so in the future,
it did not make any such investments during the year ended October 31, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
2. FUND SHARES
There were no share transactions during the year ended October 31, 1996, or
the year ended October 31, 1995.
S-48
<PAGE> 134
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1996
3. SECURITIES TRANSACTIONS
Purchase and sales (including maturities) of investments in municipal
securities and temporary municipal investments during the year ended October 31,
1996, were as follows:
<TABLE>
<S> <C>
PURCHASES
Investments in municipal securities......................... $230,329,706
Temporary municipal investments............................. 175,150,000
SALES AND MATURITIES
Investments in municipal securities......................... 206,132,550
Temporary municipal investments............................. 178,550,000
============
</TABLE>
At October 31, 1996, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes
for the Fund.
4. DISTRIBUTIONS TO COMMON SHAREHOLDERS
On November 1, 1996, the Fund declared a Common share dividend distribution
of $.0795 from its tax-exempt net investment income which was paid December 2,
1996, to shareholders of record on November 15, 1996.
5. UNREALIZED APPRECIATION (DEPRECIATION)
Gross unrealized appreciation and gross unrealized depreciation of
investments at October 31, 1996, were as follows:
<TABLE>
<S> <C>
Gross unrealized:
Appreciation.............................................. $51,365,713
Depreciation.............................................. (3,711,819)
-----------
Net unrealized appreciation................................. $47,653,894
===========
</TABLE>
6. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Fund's investment management agreement with Nuveen Advisory Corp
(the "Adviser"), a wholly owned subsidiary of The John Nuveen Company, the Fund
pays to the Adviser an annual management fee, payable monthly, at the rates set
forth below, which are based upon the average daily net asset value of the Fund:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
----------------------------- --------------
<S> <C>
For the first $125,000,000.................................. .65 of 1%
For the next $125,000,000................................... .6375 of 1
For the next $250,000,000................................... .625 of 1
For the next $500,000,000................................... .6125 of 1
For the next $1,000,000,000................................. .6 of 1
For net assets over $2,000,000,000.......................... .5875 of 1
</TABLE>
The fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Fund pays no
compensation directly to those Directors who are affiliated with the Adviser or
to their officers, all of whom receive remuneration for their services to the
Fund from the Adviser.
S-49
<PAGE> 135
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1996
7. COMPOSITION OF NET ASSETS
At October 31, 1996, net assets consisted of:
<TABLE>
<S> <C>
Preferred shares, $25,000 stated value per share, at
liquidation value......................................... $ 350,000,000
Common shares, $.01 par value per share..................... 637,854
Paid-in surplus............................................. 903,352,773
Balance of undistributed net investment income.............. 687,524
Accumulated net realized gain from investment
transactions.............................................. 1,859,722
Net unrealized appreciation of investments.................. 47,653,894
--------------
Net assets................................................ $1,304,191,767
==============
Authorized shares:
Common.................................................... 200,000,000
Preferred................................................. 1,000,000
==============
</TABLE>
8. INVESTMENT COMPOSITION
The Fund invests in municipal securities which include general obligation,
escrowed and revenue bonds. At October 31, 1996, the revenue sources by
municipal purpose for these investments, expressed as a percent of total
investments, were as follows:
<TABLE>
<S> <C>
Revenue Bonds:
Housing Facilities........................................ 16%
Electric Utilities........................................ 11
Health Care Facilities.................................... 9
Pollution Control Facilities.............................. 8
Transportation............................................ 7
Educational Facilities.................................... 5
Lease Rental Facilities................................... 4
Water / Sewer Facilities.................................. 4
Other..................................................... 8
General Obligation Bonds.................................... 7
Escrowed Bonds.............................................. 21
---
100%
===
</TABLE>
Certain long-term and intermediate-term investments owned by the Fund are
either covered by insurance issued by several private insurers or are backed by
an escrow or trust containing U.S Government or U.S. Government agency
securities, both of which ensure the timely payment of principal and interest in
the event of default. Such insurance or escrow, however, does not guarantee the
market value of the municipal securities or the value of any of the Fund's
shares.
All of the temporary investments in short-term municipal securities have
credit enhancements (letters of credit, guarantees or insurance) issued by third
party domestic or foreign banks or other institutions.
For additional information regarding each investment security, refer to the
Portfolio of Investments of the Fund.
9. OTHER MATTERS
As previously reported, certain legal actions challenging the Fund's 1993
rights offering brought by certain Fund shareholders are pending in federal
district court in Chicago against John Nuveen & Co. Incorporated ("Nuveen"),
Nuveen Advisory Corp., the directors of the Fund, in-house counsel to Nuveen
S-50
<PAGE> 136
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1996
(collectively "the Nuveen Defendants"), and the Fund's former outside legal
counsel. Certain of the claims in these actions are asserted on behalf of Fund
shareholders and certain are asserted on behalf of the Fund.
On November 4, 1996, a Memorandum of Understanding was signed on behalf of
the plaintiffs by their counsel and on behalf of the Nuveen Defendants by their
counsel, pursuant to which the above litigation will be settled contingent on
agreement by the parties on settlement documentation, approval by the Court of
that final settlement documentation, resolution of related claims involving the
Fund's former outside counsel, and certain other contingencies. A similar
agreement has been reached between plaintiffs and the Fund's former outside
counsel. The settlements, which in no way constitute an admission of liability
by any defendant, will be paid one half each by the insurer for the Fund's
former outside counsel and by the insurer for the Nuveen Defendants. The
Memorandum of Understanding provides that the settlement amounts will be paid
primarily to the Fund's shareholders allegedly injured by the rights offering
and that the Fund will be reimbursed for litigation related expenses and will
receive any amounts after shareholder claims are satisfied. If the Court
preliminary approves the settlement and related documentation, shareholders will
receive formal notification which will include information on the shareholders'
rights under the settlement and the procedure for filing any claims. Thereafter,
the Court will conduct a hearing to determine whether to grant final approval of
the settlement.
S-51
<PAGE> 137
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
FINANCIAL HIGHLIGHTS
Selected data for a Common Share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED 10/31
----------------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value beginning of
period........................ $ 15.110 $ 14.140 $ 16.300 $ 15.790
OPERATING PERFORMANCE:
Net investment income......... 1.158 1.235 1.256 1.431
Net realized & unrealized gain
(loss) from investments++... (.097) 1.006 (2.016)+++ .612
DIVIDENDS FROM TAX-EXEMPT NET
INVESTMENT INCOME:
To Common shareholders........ (.965) (1.056) (1.172) (1.364)
To Preferred shareholders+.... (.196) (.215) (.156) (.169)
DISTRIBUTIONS FROM CAPITAL
GAINS:
To Common shareholders........ (.050) -- (.072) --
Organization and offering costs
and Preferred share
underwriting discounts........ -- -- -- --
Net asset value end of
period........................ 14.960 15.110 14.140 16.300
Per Common share market value
end of period................. 14.500 14.375 13.250 17.750
Total investment return on
market value**................ 8.24% 16.88% (19.13)% 20.96%
Total return on net asset
value**....................... 5.92% 14.84% (5.88)% 12.33%
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period (in
thousands).................. $1,304,192 $1,313,673 $1,252,208 $1,213,064
Ratio of expenses to average
net assets***............... .75% .76% .77% .79%
Ratio of net investment income
to average net assets***.... 5.67% 6.13% 6.08% 6.28%
Portfolio turnover rate....... 16% 12% 15% 11%
<CAPTION>
FIVE
MONTHS YEAR ENDED 5/31
ENDED ------------------------------------ 7/18/88 TO
10/31/92 1992 1991 1990 5/31/89
-------- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Net asset value beginning of
period........................ $ 15.760 $ 15.180 $ 14.600 $ 14.720 $ 14.050
OPERATING PERFORMANCE:
Net investment income......... .602 1.492 1.504 1.508 1.101
Net realized & unrealized gain
(loss) from investments++... .023 .492 .532 (.115) .741
DIVIDENDS FROM TAX-EXEMPT NET
INVESTMENT INCOME:
To Common shareholders........ (.516) (1.135) (1.080) (1.080) (.747)
To Preferred shareholders+.... (.079) (.269) (.376) (.433) (.268)
DISTRIBUTIONS FROM CAPITAL
GAINS:
To Common shareholders........ -- -- -- -- --
Organization and offering costs
and Preferred share
underwriting discounts........ -- -- -- -- (.157)
Net asset value end of
period........................ 15.790 15.760 15.180 14.600 14.720
Per Common share market value
end of period................. 15.875 16.250 15.375 15.000 14.875
Total investment return on
market value**................ .73% 13.32% 10.14% 8.39% 4.38%
Total return on net asset
value**....................... 3.46% 11.72% 11.88% 6.74% 10.44%
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period (in
thousands).................. $1,173,329 $1,167,042 $1,127,103 $1,090,365 $1,089,152
Ratio of expenses to average
net assets***............... .78%* .66% .65% .65% .62%*
Ratio of net investment income
to average net assets***.... 6.33%* 6.71% 6.97% 6.98% 6.92%*
Portfolio turnover rate....... 2% 2% 1% 4% 7%
</TABLE>
- -------------------------
* Annualized.
** Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and changes
in stock price per share. Total Return on Net Asset Value is the combination
of reinvested dividend income, reinvested capital gains distributions, if
any, and changes in net asset value per share.
*** Ratios do not reflect the effect of dividend payments to Preferred
shareholders.
+ The amounts shown are based on Common share equivalents.
++ Net of taxes, if applicable.
+++ Includes ($.187) effect of the Fund's Rights Offering of shares as a price
below NAV and costs of the offering.
S-52
<PAGE> 138
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Nuveen Premium Income Municipal Fund, Inc.
We have audited the accompanying statement of net assets, including the
portfolio of investments, of Nuveen Premium Income Municipal Fund, Inc. as of
October 31, 1996, and the related statements of operations and changes in net
assets and the financial highlights for the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Nuveen Premium Income Municipal Fund, Inc., at October 31, 1996, and the results
of its operations, changes in its net assets and its financial highlights for
the periods indicated therein in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Chicago, Illinois
December 13, 1996
S-53
<PAGE> 139
APPENDIX A
RATINGS OF INVESTMENTS
STANDARD & POOR'S RATINGS GROUP -- A brief description of the applicable
Standard & Poor's Ratings Group ("S&P") rating symbols and their meanings (as
published by S&P) follows:
LONG TERM DEBT
An S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees. The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished by
the issuer or obtained by S&P from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances. The ratings are based, in varying degrees, on the
following considerations:
1. Likelihood of default -- capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
INVESTMENT GRADE
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
SPECULATIVE GRADE RATING
Debt rated "BB", "B", "CCC", "CLARK CURBO" and "C" is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics these are outweighed by major uncertainties or major exposures
to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The "BB" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "BBB-" rating.
A-1
<PAGE> 140
B Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
The "B" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to
have the capacity to pay interest and repay principal.
The "CCC" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "B" or "B-" rating.
CLARK CURBO The rating "CLARK CURBO" typically is applied to debt
subordinated to senior debt that is assigned an actual or
implied "CCC" debt rating.
C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is being
paid.
D Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The "D" rating also
will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
PROVISIONAL RATINGS: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project financed by the debt being rated and indicates that payment of debt
service requirements is largely or entirely dependent upon the successful and
timely completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise judgment with respect to such likelihood and risk.
L The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is
federally insured and interest is adequately collateralized.* In the case
of certificates of deposit the letter "L" indicates that the deposit,
combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the
federal insurance limits within 30 days after closing of the insured
institution or, in the event that the deposit is assumed by a successor
insured institution, upon maturity.
* Continuance of the rating is contingent upon S&P's receipt of an executed
copy of the escrow agreement or closing documentation confirming
investments and cash flow.
NR Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
A-2
<PAGE> 141
-- Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
NOTE RATING SYMBOLS ARE AS FOLLOWS:
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
A note rating is not a recommendation to purchase, sell, or hold a security
inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of such
information or based on other circumstances.
COMMERCIAL PAPER
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designation.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell, or
hold a security inasmuch as it does not comment as to market price or
suitability for a particular investor. The ratings are based on current
information furnished to S&P by the issuer or obtained by S&P from other sources
it considers reliable. S&P does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information or based on other circumstances.
MOODY'S INVESTORS SERVICE, INC -- A brief description of the applicable
Moody's Investors Service, Inc. ("Moody's") rating symbols and their meanings
(as published by Moody's) follows:
MUNICIPAL BONDS
AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
A-3
<PAGE> 142
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
BAA Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
CON(--) Bonds for which the security depends upon the completion of some act or
the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes
probable credit stature upon completion of construction or elimination
of basis of condition.
NOTE: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols
Aa1, A1, Baa1, Ba1 and B1.
SHORT-TERM LOANS
MIG 1/VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
A-4
<PAGE> 143
MIG 3/VMIG 3 This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less
well-established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is
specific risk.
S.G. This designation denotes speculative quality. Debt
instruments in this category lack margins of protection.
COMMERCIAL PAPER
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
A-5
<PAGE> 144
NUVEEN PREMIUM
INCOME MUNICIPAL FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
, 1997
NPI 9/97
<PAGE> 145
PART C -- OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS:
PART I
Portfolio of Investments, April 30, 1997 (unaudited)
Statement of Net Assets, April 30, 1997 (unaudited)
Statement of Operations for the six months ended April 30, 1997
(unaudited)
Statement of Changes in Net Assets for the six months ended April 30,
1997 (unaudited) and for the year ended October 31, 1996 (audited)
Portfolio of Investments, October 31, 1996 (audited)
Statement of Net Assets, October 31, 1996 (audited)
Statement of Operations for the year ended October 31, 1996 (audited)
Statement of Changes in Net Assets for the two years ended October 31,
1996 (audited)
(2) EXHIBITS
The exhibits to this Registration Statement are listed in the Exhibit Index
located elsewhere herein.
ITEM 25: MARKETING ARRANGEMENTS
See Sections 2(a) and 3(i) of the Purchase Agreement filed as an Exhibit
herein.
ITEM 26: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission fees $ 37,879
Printing and engraving expenses 100,000
Legal fees 80,000
Accounting expenses 3,000
Rating Agency fees 75,000
Blue Sky filing fees and expenses 10,000
Miscellaneous expenses 5,000
--------
Total* $310,879
========
</TABLE>
- ---------------
[*Estimated]
ITEM 27: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 28: NUMBER OF HOLDERS OF SECURITIES
At September 15, 1997:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
Common Stock, $.01 par value................................ 12,598
Preferred Stock, $.01 par value............................. 24
</TABLE>
C-1
<PAGE> 146
ITEM 29: INDEMNIFICATION
Article EIGHTH of the Registrant's Articles of Incorporation provides as
follows:
EIGHTH: To the maximum extent permitted by the Minnesota Business
Corporation Act, as from time to time amended, the Corporation shall indemnify
its currently acting and its former directors, officers, employees and agents,
and those persons who, at the request of the Corporation, serve or have served
another corporation, partnership, joint venture, trust or other enterprise in
one or more such capacities. The indemnification provided for herein shall not
be deemed exclusive of any other rights to which those seeking indemnification
may otherwise be entitled.
Expenses (including attorneys' fees) incurred in defending a civil or
criminal action, suit or proceeding (including costs connected with the
preparation of a settlement) may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding, if authorized by the Board
of Directors in the specific case, upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay that amount of the
advance which exceeds the amount which it is ultimately determined that he is
entitled to receive from the Corporation by reason of indemnification as
authorized herein; provided, however, that prior to making any such advance at
least one of the following conditions shall have been met: (1) the indemnitee
shall provide a security for his undertaking, (2) the Corporation shall be
insured against losses arising by reason of any lawful advances, or (3) a
majority of a quorum of the disinterested, non-party directors of the
Corporation, or an independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts, that there is reason to
believe that the indemnitee ultimately will be found entitled to
indemnification.
Nothing in these Articles of Incorporation or in the By-Laws shall be
deemed to protect or provide indemnification to any director or officer of the
Corporation against any liability to the Corporation or to its security holders
to which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office ("disabling conduct"), and the Corporation shall not
indemnify any of its officers or directors against any liability to the
Corporation or to its security holders unless a determination shall have been
made in the manner provided hereafter that such liability has not arisen from
such officer's or director's disabling conduct. A determination that an officer
or director is entitled to indemnification shall have been properly made if it
is based upon (1) a final decision on the merits by a court or other body before
whom the proceeding was brought that the indemnitee was not liable by reason of
disabling conduct or, (2) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the indemnitee was not
liable by reason of disabling conduct, by (a) the vote of a majority of a quorum
of directors who are neither "interested persons" of the Corporation as defined
in the Investment Company Act of 1940 nor parties to the proceeding, or (b) an
independent legal counsel in a written opinion.
The directors and officers of the Registrant are covered by Investment
Trust Errors and Omission policies in the aggregate amount of $40,000,000 (with
a maximum deductible of $500,000) against liability and expenses of claims of
wrongful acts arising out of their position with the Registrant, except for
matters which involve willful acts, bad faith, gross negligence and willful
disregard of duty (i.e., where the insured did not act in good faith for a
purpose he or she reasonably believed to be in the best interest of the
Registrant or where he or she had reasonable cause to believe this conduct was
unlawful).
Section 7 of the Purchase Agreement filed as Exhibit h to this Registration
Statement provides for each of the parties thereto, including the Registrant and
the Underwriters, to indemnify the others, their directors, certain of their
officers and directors and persons who control them against certain liabilities
in connection with the offering described herein, including liabilities under
the Federal securities laws.
ITEM 30: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Nuveen Advisory Corp. serves as investment adviser to the following
open-end management type investment companies: Nuveen Flagship Multistate Trust
I, Nuveen Flagship Multistate Trust II, Nuveen Flagship Multistate Trust III,
Nuveen Flagship Multistate Trust IV, Nuveen Flagship Municipal Trust,
C-2
<PAGE> 147
Flagship Admiral Funds Inc., Nuveen California Tax-Free Fund, Inc., Nuveen
Tax-Free Money Market Fund, Inc., Nuveen Tax-Exempt Money Market Fund, Inc., and
Nuveen Tax-Free Reserves, Inc. It also serves as investment adviser to the
following closed-end management type investment companies: Nuveen Municipal
Value Fund, Inc., Nuveen California Municipal Value Fund, Inc., Nuveen New York
Municipal Value Fund, Inc., Nuveen Municipal Income Fund, Inc., Nuveen Premium
Income Municipal Fund, Inc., Nuveen Performance Plus Municipal Fund, Inc.,
Nuveen California Performance Plus Municipal Fund, Inc., Nuveen New York
Performance Plus Municipal Fund, Inc., Nuveen Municipal Advantage Fund, Inc.,
Nuveen Municipal Market Opportunity Fund, Inc., Nuveen California Municipal
Market Opportunity Fund, Inc., Nuveen Investment Quality Municipal Fund, Inc.,
Nuveen California Investment Quality Municipal Fund, Inc., Nuveen New York
Investment Quality Municipal Fund, Inc., Nuveen Insured Quality Municipal Fund,
Inc., Nuveen Florida Investment Quality Municipal Fund, Nuveen New Jersey
Investment Quality Municipal Fund, Inc., Nuveen Pennsylvania Investment Quality
Municipal Fund, Nuveen Select Quality Municipal Fund, Inc., Nuveen California
Select Quality Municipal Fund, Inc., Nuveen New York Select Quality Municipal
Fund, Inc., Nuveen Quality Income Municipal Fund, Inc., Nuveen Insured Municipal
Opportunity Fund, Inc., Nuveen Florida Quality Income Municipal Fund, Nuveen
Michigan Quality Income Municipal Fund, Inc., Nuveen Ohio Quality Income
Municipal Fund, Inc., Nuveen Texas Quality Income Municipal Fund, Nuveen
California Quality Income Municipal Fund, Inc., Nuveen New York Quality Income
Municipal Fund, Inc., Nuveen Premier Municipal Income Fund, Inc., Nuveen Premier
Insured Municipal Income Fund, Inc., Nuveen Premium Income Municipal Fund 2,
Inc., Nuveen Insured California Premium Income Municipal Fund, Inc., Nuveen
Insured New York Premium Income Municipal Fund, Inc., Nuveen Select Maturities
Municipal Fund, Nuveen Arizona Premium Income Municipal Fund, Inc., Nuveen
Insured Florida Premium Income Municipal Fund, Nuveen Michigan Premium Income
Municipal Fund, Inc., Nuveen New Jersey Premium Income Municipal Fund, Inc.,
Nuveen Premium Income Municipal Fund 4, Inc., Nuveen Insured California Premium
Income Municipal Fund 2, Inc., Nuveen Pennsylvania Premium Income Municipal Fund
2, Nuveen Maryland Premium Income Municipal Fund, Nuveen Massachusetts Premium
Income Municipal Fund, Nuveen Virginia Premium Income Municipal Fund, Nuveen
Washington Premium Income Municipal Fund, Nuveen Connecticut Premium Income
Municipal Fund, Nuveen Georgia Premium Income Municipal Fund, Nuveen Missouri
Premium Income Municipal Fund, Nuveen North Carolina Premium Income Municipal
Fund, Nuveen California Premium Income Municipal Fund, and Nuveen Insured
Premium Income Municipal Fund 2. Nuveen Advisory Corp. has no other clients or
business at the present time. The principal business address for all of these
investment companies is 333 West Wacker Drive, Chicago, Illinois 60606.
ITEM 31: LOCATION OF ACCOUNTS AND RECORDS
Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, Illinois 60606,
maintains Articles of Incorporation, By-Laws, minutes of directors and
shareholders meetings, and contracts of the Registrant and all advisory material
of the investment adviser.
The Chase Manhattan Bank, 4 New York Plaza, New York, New York 10004,
maintains all general and subsidiary ledgers, journals, trial balances, records
of all portfolio purchases and sales, and all other required records not
maintained by Nuveen Advisory Corp. It also maintains all the required records
in its capacity as transfer, dividend paying, and shareholder service agent with
respect to shares of the Registrant's Common Stock. Bankers Trust Company, 4
Albany Street, New York, New York 10006, maintains all required records in its
capacity as transfer agent, registrar, dividend disbursing agent and redemption
agent with respect to shares of the Registrant's Municipal Auction Rate
Cumulative Preferred Stock.
ITEM 32: MANAGEMENT SERVICES
Not applicable
ITEM 33: UNDERTAKINGS
(1) Registrant undertakes to suspend the offering of its shares until it
amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than
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<PAGE> 148
10 percent from its net asset value as of the effective date of the Registration
Statement, or (2) the net asset value increases to an amount greater than its
net proceeds as stated in the prospectus.
(2) Not applicable
(3) Not applicable
(4) Not applicable
(5) Registrant undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a
part of a registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant under Rule 497(h) under the
Securities Act of 1933 shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of the securities at that
time shall be deemed to be the initial bona fide offering thereof.
(6) Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, any Statement of Additional Information.
(7) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding (is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C-4
<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago, and State of Illinois, on the
22nd day of September, 1997.
NUVEEN PREMIUM INCOME
MUNICIPAL FUND, INC.
/s/ LARRY W. MARTIN
--------------------------------------
Larry W. Martin, Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ O. WALTER RENFFTLEN Vice President and September 22, 1997
- ------------------------------------------------ Controller (Principal
O. Walter Renfftlen Financial and Accounting
Officer)
</TABLE>
Timothy R. Schwertfeger* Chairman of the Board and
Director (Principal
Executive Officer)
Anthony T. Dean* President and Director
Robert P. Bremner* Director
Lawrence H. Brown* Director
Anne E. Impellizzeri* Director
Peter R. Sawers* Director
William J. Schneider* Director
By
/s/ LARRY W. MARTIN
-----------------------
Larry W. Martin
Attorney-in-Fact
September 22, 1997
- ---------------
* An original power of attorney authorizing, among others, Timothy R.
Schwertfeger, Anthony T. Dean, Gifford R. Zimmerman, Larry W. Martin, and each
of them, to execute this Registration Statement, and Amendments thereto, for
each of the officers and directors of Registrant on whose behalf this
Registration Statement is filed, have been executed and are filed herewith.
C-5
<PAGE> 150
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
------- ------------
<S> <C> <C> <C>
a. Restated Articles of Incorporation of Registrant, as
amended, including the Amendment and Restatement of
Statement Establishing and Fixing the Rights and Preferences
of Registrant's Municipal Auction Rate Cumulative Preferred
Stock (incorporated by reference to Exhibit a of the
Registration Statement on Form N-2 (Registration Nos.
333-33651 and 866-5570, which was filed August 14, 1997)....
b. By-Laws of Registrant (incorporated by reference to Exhibit
b of the Registration Statement on Form N-2 (Registration
Nos. 333-33651 and 866-5570, which was filed August 14,
1997).......................................................
c. Not applicable..............................................
d.1 Basic Terms of Auction Agency Agreement, including form of
request and acceptance letter related thereto (incorporated
by reference to Exhibit d.1 of the Registration Statement on
Form N-2 (Registration Nos. 333-33651 and 866-5570, which
was filed August 14, 1997)..................................
d.2 Basic Terms of Broker-Dealer Agreement, including form of
request and acceptance letter related thereto (incorporated
by reference to Exhibit d.2 of the Registration Statement on
Form N-2 (Registration Nos. 333-33651 and 866-5570, which
was filed August 14, 1997)..................................
d.3 Form of Letter of Representation to The Depository Trust
Company relating to each Series of MuniPreferred
(incorporated by reference to Exhibit d.3 of the
Registration Statement on Form N-2 (Registration Nos.
333-33651 and 866-5570, which was filed August 14, 1997)....
e. Dividend Reinvestment Plan (incorporated by reference to
Exhibit e of the Registration Statement on Form N-2
(Registration Nos. 333-33651 and 866-5570, which was filed
August 14, 1997)............................................
f. Not applicable..............................................
g. Investment Management Agreement (incorporated by reference
to Exhibit g of the Registration Statement on Form N-2
(Registration Nos. 333-33651 and 866-5570, which was filed
August 14, 1997)............................................
h. Form of Purchase Agreement..................................
i. Deferred Compensation Plan for Non-Employee Directors
(incorporated by reference to Exhibit i of the Registration
Statement on Form N-2 (Registration Nos. 333-33651 and
866-5570, which was filed August 14, 1997)..................
j.1 Exchange Traded Fund Custody Agreement (incorporated by
reference to Exhibit j.1 of the Registration Statement on
Form N-2 (Registration Nos. 333-33651 and 866-5570, which
was filed August 14, 1997)..................................
j.2 Fund Accounting Agreement (incorporated by reference to
Exhibit j.2 of the Registration Statement on Form N-2
(Registration Nos. 333-33651 and 866-5570, which was filed
August 14, 1997)............................................
k. Not applicable..............................................
1.1 Opinion and consent of Vedder, Price, Kaufman & Kammholz....
1.2 Opinion and consent of Dorsey & Whitney.....................
m. Not applicable..............................................
n. Consent of Ernst & Young....................................
</TABLE>
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<PAGE> 151
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
------- ------------
<S> <C> <C> <C>
o. Not applicable..............................................
p. Subscription Agreement of Nuveen Advisory Corp., dated July
12, 1988....................................................
q. Not applicable..............................................
r. Financial Data Schedule.....................................
s. Powers of Attorney (incorporated by reference to Exhibit s
of the Registration Statement on Form N-2 (Registration Nos.
333-33651 and 866-5570, which was filed August 14, 1997)....
</TABLE>
C-7
<PAGE> 1
Form as of: September 22, 1997
$25,000,000
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
(a Minnesota corporation)
MUNICIPAL AUCTION RATE CUMULATIVE
PREFERRED STOCK ("MuniPreferred(R)")
1,000 Shares Series [INSERT APPROPRIATE SERIES]
Liquidation Preference $25,000 Per Share
PURCHASE AGREEMENT
September __, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
BT Alex.Brown Incorporated
Goldman, Sachs & Co.
John Nuveen & Co. Incorporated
Lehman Brothers Inc.
PaineWebber Incorporated
Prudential Securities Incorporated
Smith Barney Inc.
c/o MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1305
Dear Sirs and Mesdames:
Nuveen Premium Income Municipal Fund, Inc., a Minnesota corporation (the
"Fund"), and Nuveen Advisory Corp., a Delaware corporation and investment
adviser to the Fund (the "Adviser"), each confirms its agreement with Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and
<PAGE> 2
each of the other Underwriters named in Schedule A hereto (collectively, the
"Underwriters", which term also shall include any underwriter substituted as
hereinafter provided in Section 11 hereof), with respect to the issue and sale
by the Fund and the purchase by the Underwriters, acting severally and not
jointly, of the respective numbers of shares of the Fund's MUNICIPAL AUCTION
(R) Registered trademark of John Nuveen & Co. Incorporated. RATE CUMULATIVE
PREFERRED STOCK, SERIES [INSERT APPROPRIATE SERIES], par value $.01 per share,
with a liquidation preference of $25,000 per share, set forth opposite the
names of such Underwriters in said Schedule A. The aforesaid 1,000 shares of
preferred stock to be purchased by the Underwriters are hereinafter called,
collectively, the "Shares".
The Fund has filed with the Securities and Exchange Commission (the
"Commission") a notification on Form N-8A ("Notification") of registration of
the Fund as a closed-end, diversified management investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
a registration statement on Form N-2 (No. 333-33651), including the related
preliminary prospectus and statement of additional information, covering the
registration of the Shares under the Securities Act of 1933, as amended (the
"Securities Act"), the Investment Company Act and the rules and regulations of
the Commission under the Securities Act and the Investment Company Act
(together, the "Rules and Regulations"), and has filed such amendments to such
registration statement on Form N-2, and such amended preliminary prospectuses
and statements of additional information, as may have been required to the date
hereof. The Fund will prepare and file such additional amendments thereto and
such amended prospectuses and statements of additional information as hereafter
may be required. Such registration statement (as amended at the time it became
effective) and the prospectus and statement of additional information
constituting a part thereof (including in each case the information, if any,
deemed to be a part thereof pursuant to Rule 430A(b) or Rule 434 of the Rules
and Regulations), as from time to time amended or supplemented pursuant to the
Securities Act (or otherwise), are referred to hereinafter as the "Registration
Statement" and the "Prospectus", respectively; except that if any revised
prospectus and statement of additional information shall be provided to the
Underwriters by the Fund for use in connection with
2
<PAGE> 3
the offering of the Shares which differs from the Prospectus on file at the
Commission at the time the Registration Statement became effective (whether
such revised prospectus and statement of additional information are required to
be filed by the Fund pursuant to Rule 497(c) or Rule 497(h) of the Rules and
Regulations), the term "Prospectus" shall refer to each such revised prospectus
and statement of additional information from and after the time it is first
provided to the Underwriters for such use. If the Fund elects to rely on Rule
434 under the Rules and Regulations, all references to the Prospectus shall be
deemed to include, without limitation, the form of preliminary prospectus or
prospectus, the form of preliminary statement of additional information or
statement of additional information and the term sheet, taken together,
provided to the Underwriters by the Fund in reliance on Rule 434 under the
Securities Act (the "Rule 434 Prospectus"). If the Fund files a registration
statement to register a portion of the Shares and relies on Rule 462(b) for
such registration statement to become effective upon filing with the Commission
(the "Rule 462 Registration Statement"), then any reference to "Registration
Statement" herein shall be deemed to include both the registration statement
referred to above (No. 333-33651) and the Rule 462 Registration Statement, as
each such registration statement may be amended pursuant to the Securities Act.
For purposes of this Agreement, all references to any registration statement,
any preliminary prospectus or statement of additional information, any
Prospectus or any amendment or supplement to any of the foregoing shall be
deemed to include the copy, if any, filed with the Commission pursuant to its
Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
The Fund understands that the Underwriters propose to make a public offering
of the Shares as soon as the Underwriters deem advisable.
SECTION 1. Representations and Warranties. (a) Each of the Fund and the
Adviser severally represents and warrants to each Underwriter as of the date
hereof (such date hereinafter being referred to as the "Representation Date"),
and severally agrees with each Underwriter, as follows:
(i) At the time the Registration Statement became effective and
at the Representation Date, the Registration Statement complied and
complies in all material respects with
3
<PAGE> 4
the requirements of the Securities Act, the Investment Company Act and
the Rules and Regulations and did not contain and does not contain an
untrue statement of a material fact, nor did it omit or does it omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading. At the time the
Registration Statement became effective, at the Representation Date
and at Closing Time referred to in Section 2 hereof, the Prospectus
(unless the term "Prospectus" refers to a prospectus and statement of
additional information which have been provided to the Underwriters by
the Fund for use in connection with the offering of the Shares which
differs from the Prospectus on file at the Commission at the time the
Registration Statement becomes effective, in which case at the time
such prospectus and statement of additional information are first
provided to the Underwriters for such use) did not contain, does not
contain and will not contain an untrue statement of a material fact,
nor did it omit, does it omit or will it omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection
shall not apply to statements in or omissions from the Registration
Statement or the Prospectus made in reliance upon and in conformity
with information furnished to the Fund in writing by any Underwriter
through Merrill Lynch expressly for use in the Registration Statement
or in the Prospectus.
Each preliminary prospectus and statement of additional
information and each Prospectus delivered to the Underwriters for use
in connection with this offering has been or will be, as the case may
be, identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(ii) The accountants who certified the financial statements and
supporting schedules included in the Registration Statement are
independent public accountants as required by the Securities Act and
the Rules and Regulations.
(iii) The financial statements included in the Registration
Statements and in the Prospectus, together with the related schedules
and notes, present fairly the financial
4
<PAGE> 5
position of the Fund at the dates indicated and the results of its
operations for the periods specified; such financial statements have
been prepared in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the
periods involved; and the information in the Prospectus under the
headings "Financial Highlights" and "Capitalization" presents fairly
the information shown therein and has been compiled on a basis
consistent with that of the audited financial statements included in
the Registration Statement. The supporting schedules, if any,
included in the Registration Statement present fairly in accordance
with GAAP the information required to be stated therein.
(iv) Since the respective dates as of which information is
given in the Registration Statement and in the Prospectus, except as
otherwise stated therein, (A) there has been no material adverse
change in the condition, financial or otherwise, of the Fund, or in
the earnings, business affairs or business prospects of the Fund,
whether or not arising in the ordinary course of business (a "Material
Adverse Effect" in respect of the Fund), (B) there have been no
transactions entered into by the Fund which are material to the Fund
other than those in the ordinary course of business and (C) except for
(i) regular quarterly dividends on the outstanding shares of common
stock, par value $.01 per share, of the Fund (the "Common Stock"), in
amounts per share that are consistent with past practice, and (ii)
dividends paid on the Fund's outstanding shares of Municipal Auction
Rate Cumulative Preferred Stock ("MuniPreferred") in accordance with
the terms thereof, there has been no dividend or distribution of any
kind declared, paid or made by the Fund on any class of its capital
stock.
(v) The Fund has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Minnesota. The Fund has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Registration Statement and in the Prospectus and to
enter into and perform its obligations under this Agreement. The Fund
is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which such
5
<PAGE> 6
qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect in respect of the Fund. The Fund has no
subsidiaries.
(vi) The Fund is registered with the Commission under the
Investment Company Act as a closed-end, diversified management
investment company; the provisions of the Charter and the By-Laws of
the Fund do not violate or conflict with the requirements of the
Investment Company Act and the rules and regulations thereunder in any
material respect; the provisions of the Charter and the By-Laws of the
Fund and the investment policies and restrictions described in the
Prospectus under the captions "Investment Objective and Policies" and
"Certain Trading Strategies of the Fund" do not violate or conflict
with the requirements of the Investment Company Act and the rules and
regulations thereunder in any material respect; and no order of
suspension or revocation of such registration under the Investment
Company Act has been issued or proceedings therefor initiated or
threatened by the Commission.
(vii) The authorized, issued and outstanding shares of capital
stock of the Fund as of the Representation Date are as set forth in
the Prospectus in the column entitled "Actual" under the caption
"Capitalization" (except for subsequent issuances, if any pursuant to
this Agreement and shares of Common Stock issued in connection with
the Fund's dividend reinvestment plan); the outstanding shares of
MuniPreferred and the outstanding shares of Common Stock have been
duly authorized and validly issued and are fully paid and
nonassessable (it being understood that the shares of Common Stock
issued in connection with the rights offering as described in the
Prospectus under the caption "The Fund" and as described in the Final
Judgment Order entered on June 3, 1997 in the case of In Re Nuveen
Fund Litigation filed in the United States District Court for the
Northern District of Illinois (the "Order"), have been duly authorized
and validly issued and are fully paid and nonassessable by virtue of
the Order); none of the outstanding shares of capital stock of the
Fund were issued in violation of preemptive or other similar rights of
any security holder of the Fund; the Shares
6
<PAGE> 7
have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the Fund
pursuant to this Agreement against payment of the consideration set
forth in this Agreement, will be validly issued and fully paid and
nonassessable, with no personal liability attaching to the ownership
thereof; the shares of Common Stock and the Shares conform in all
material respects to all statements relating thereto contained in the
Registration Statement and in the Prospectus, and such description
conforms to the rights set forth in the instruments defining the same;
and the issuance of the Shares to be purchased by the Underwriters is
not subject to preemptive or other similar rights of any security
holder of the Fund.
(viii) The Fund is not in violation of its articles of
incorporation, as amended (the "Charter"), or its by-laws, as amended
(the "By-Laws"), or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any material
contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or other material agreement or instrument to
which the Fund is a party or by which it may be bound, or to which any
of the property or assets of the Fund is subject, except for any such
violation of default (other than a violation or default of the Charter
or By-Laws) which, singly or in the aggregate, would not result in a
Material Adverse Effect in respect of the Fund; the execution and
delivery of this Agreement, the Investment Management Agreement, the
Exchange Traded Custody Agreement and the Auction Agency Agreement
referred to in the Registration Statement, and the letter of
representation of the Fund delivered by the Fund to The Depository
Trust Company ("DTC") in connection with DTC's agreement to act as
securities depository with respect to the Shares (as used herein, the
"Management Agreement," the "Auction Agreement," the "Custody
Agreement" and the "Letter of Representation", respectively), and the
consummation of the transactions contemplated herein and therein
(including the issuance and sale of the Shares and the use of the
proceeds from the sale of the Shares as described in the Prospectus
under the caption "Use of Proceeds" and compliance by the Fund with
its obligations hereunder), do not and will not, whether with or
without the giving of notice or the lapse of time, or both,
7
<PAGE> 8
conflict with or constitute a breach of, or a default under, or result
in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Fund pursuant to, any material contract,
indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or other material agreement or instrument to which the Fund is a
party or by which it may be bound, or to which any of the property or
assets of the Fund is subject; none of the foregoing actions will
result in any violation of the provisions of the Charter or the
By-Laws of the Fund, or any law, rule, regulation, administrative
order or court decree applicable to the Fund of any jurisdiction,
court, Federal or state regulatory body, administrative agency or
other governmental body, stock exchange or securities association
having jurisdiction over the Fund or its properties or operations; and
no consent, approval, authorization, order, registration or
qualification of or with any court or governmental or self-regulatory
authority, agency or body is required in connection with the issue and
sale of the Shares to the Underwriters or for the consummation by the
Fund of the other transactions contemplated by this Agreement, the
Management Agreement, the Custody Agreement, the Auction Agreement or
the Letter of Representation, except such as has been obtained under
the Investment Company Act and the Securities Act and the Rules and
Regulations or such as may be required under state securities or Blue
Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters.
(ix) The Fund owns or possesses or has obtained all material
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to lease or own, as the case may be, and to
operate its properties and to conduct its businesses as contemplated
in the Registration Statement and in the Prospectus, and the Fund has
not received any notice of proceedings relating to the revocation or
modification of any such licenses, permits, consents, orders,
approvals or authorizations.
(x) There is no action, suit, proceeding, inquiry or
investigation before or brought by any court or governmental
authority, agency or body, domestic or foreign, now pending, or, to
the knowledge of the Fund or the Adviser, threatened, against or
affecting the Fund, which is required to be
8
<PAGE> 9
disclosed in the Registration Statement (other than as disclosed
therein), or which might result in a Material Adverse Effect in
respect of the Fund, or which might materially and adversely affect
the properties or assets of the Fund or the consummation of the
transactions contemplated by this Agreement or the performance by the
Fund of its obligations hereunder.
(xi) There are no contracts, indentures, mortgages, deeds of
trust, loan or credit agreements, notes, leases or other agreements or
instruments of the Fund required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto under the
Securities Act, the Investment Company Act or the Rules and
Regulations other than those described or referred to therein or filed
as exhibits thereto or incorporated therein by reference as permitted
by the Rules and Regulations; the descriptions thereof are correct in
all material respects; the references thereto are correct in all
material respects; and no default exists in the due performance or
observance of any obligation, agreement, covenant or condition
contained in any material contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or other agreement or
instrument so described, referred to or filed.
(xii) The Fund owns or possesses, or can acquire on reasonable
terms, adequate trademarks, service marks and trade names necessary to
conduct its business as described in the Registration Statement and in
the Prospectus, and the Fund has not received any notice, and is not
otherwise aware, of any infringement of or conflict with asserted
rights of others with respect to any trademarks, service marks or
trade names which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse
Effect in respect of the Fund.
(xiii) The Fund intends to, and will, direct the investment of
the proceeds of the offering described in the Registration Statement
and in the Prospectus in such a manner as to comply with the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended ("Subchapter M of the Code"), and the Fund qualifies as a
regulated investment company under Subchapter M of the Code.
9
<PAGE> 10
(xiv) Each of this Agreement, the Management Agreement and the
Custody Agreement has been duly authorized, executed and delivered by
the Fund and complies with all applicable provisions of the Investment
Company Act and the Investment Advisers Act and the rules and
regulations under such acts; and each constitutes a valid and binding
obligation of the Fund, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization
and other laws of general applicability relating to or affecting
creditors' rights and to general equitable principles.
(xv) Each of the Auction Agreement and the Letter of
Representation has been duly authorized for execution and delivery by
the Fund and, when executed and delivered by the Fund, will not
violate or conflict with the applicable provisions of the Investment
Company Act and the Investment Advisers Act and the rules and
regulations under such acts in any material respect and will
constitute a valid and binding obligation of the Fund, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equitable
principles.
(b) The Adviser represents and warrants to each Underwriter as
of the Representation Date as follows:
(i) The Adviser has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware.
(ii) The Adviser has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Registration Statement and in the Prospectus and to
enter into and perform its obligations under this Agreement.
(iii) The Adviser is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure to so
10
<PAGE> 11
qualify or to be in good standing would not result in a Material
Adverse Effect in respect of the Adviser.
(iv) The Adviser is duly registered and in good standing with
the Commission under the Investment Advisers Act of 1940, as amended
(the "Investment Advisers Act"), as an investment adviser, and is not
prohibited by the Investment Advisers Act or the Investment Company
Act, or the rules and regulations under such acts or any other
applicable laws or regulations, from acting under the Management
Agreement for the Fund as contemplated by the Prospectus.
(v) There is no action, suit, proceeding, inquiry or
investigation before or brought by any court or governmental
authority, agency or body, domestic or foreign, now pending, or, to
the knowledge of the Adviser, threatened, against or affecting the
Adviser, which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which might result in
any material adverse change in the condition, financial or otherwise,
of the Adviser, or in the business affairs or business prospects of
the Adviser, whether or not arising in the ordinary course of business
(a "Material Adverse Effect" in respect of the Adviser), or which
might materially and adversely affect the properties or assets of the
Adviser or the consummation of the transactions contemplated by this
Agreement or the performance by the Adviser of its obligations
hereunder.
(vi) The Adviser is not in violation of its corporate charter
or by-laws, or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any material
contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or other material agreement or instrument to
which the Adviser is a party or by which it may be bound, or to which
any of the property or assets of the Adviser is subject, nor in breach
or violation of any judgment, decree, order, rule or regulation of any
court or governmental or self-regulatory agency or body, except in
each case for any such breach, violation or default which, singly or
in the aggregate, would not result in a Material Adverse Effect in
respect of the Adviser.
11
<PAGE> 12
(vii) Each of this Agreement and the Management Agreement has
been duly authorized, executed and delivered by the Adviser and does
not violate or conflict with the applicable provisions of the
Investment Company Act and the Investment Advisers Act and the rules
and regulations under such acts in any material respect; each
constitutes a valid and binding obligation of the Adviser, enforceable
in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to
general equitable principles; neither the execution and delivery of
this Agreement or the Management Agreement by the Adviser, nor the
performance by the Adviser of its obligations hereunder or thereunder,
does or will, whether with or without the giving of notice or the
lapse of time, or both, conflict with or constitute a breach of, or a
default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Adviser
pursuant to, any material contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease, or other material
agreement or instrument to which the Adviser is a party or by which
the Adviser is bound, or to which any of the property or assets of the
Adviser is subject; none of the foregoing actions will result in any
violation of the provisions of the corporate charter or by-laws of the
Adviser, or any law, rule, regulation, administrative order or court
decree applicable to the Adviser of any jurisdiction, court, Federal
or state regulatory body, administrative agency or other governmental
body, stock exchange or securities association having jurisdiction
over the Adviser or its properties or operations; and no consent,
approval, authorization, order, registration or qualification of or
with any court or governmental or self-regulatory authority, agency or
body is required in connection with the execution, delivery and
performance of this Agreement and the Management Agreement by the
Adviser, except such as has been obtained under the Investment
Advisers Act or such as may be required under the Securities Act or
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters.
(viii) The description of the Adviser in the Registration
Statement and in the Prospectus does not contain
12
<PAGE> 13
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading.
(ix) The Adviser has the financial resources available to it
necessary for the performance of its services and obligations as
contemplated in the Prospectus.
(c) Any certificate signed by any officer of the Fund or the Adviser
and delivered to the Underwriters or to counsel to the Underwriters shall be
deemed a representation and warranty by the Fund or the Adviser, as the case
may be, to each Underwriter, as to the matters covered thereby.
SECTION 2. Sale and Delivery to the Underwriters; Closing.
(a) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, the Fund
agrees to sell to each Underwriter, severally and not jointly, and each
Underwriter, severally and not jointly, agrees to purchase from the Fund, at
the price per share set forth below, the number of Shares set forth in Schedule
A opposite the name of such Underwriter, plus any additional number of Shares
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 11 hereof.
(i) The initial public offering price per share for the Shares
shall be $25,000 plus accumulated dividends, if any, from the date of
original issue.
(ii) The purchase price per share to be paid by the several
Underwriters for the Shares shall be $24,718.75, being an amount equal
to the initial public offering price per share set forth above less
$281.25 per share.
(iii) The dividend rate on the Shares for the initial Rate
Period thereof will be equal to the dividend rate for existing
shares of MuniPreferred of the same series established in the auction
for shares of such series first preceding the date of issuance of the
Shares.
(b) Payment of the purchase price for, and delivery of the
certificate for, the Shares shall be made at the offices of Vedder,
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<PAGE> 14
Price, Kaufman & Kammholz, 222 North LaSalle Street, Chicago, Illinois 60601,
or at such other place as shall be agreed upon by Merrill Lynch and the Fund,
at 9:00 A.M.(Central time) on the first business day after execution of this
Agreement, unless postponed in accordance with the provisions of Section 11, or
such other time not later than ten business days after such date as shall be
agreed upon by Merrill Lynch and the Fund (such time and date of payment and
delivery herein being referred to as "Closing Time"). Payment shall be made to
the Fund by a Federal Funds wire transfer or similar same-day funds, against
delivery to the Underwriters of the certificate for the Shares to be purchased
by the Underwriters. The Shares shall be represented by a certificate
registered in the name of Cede & Co., as nominee for The Depository Trust
Company. The certificate for the Shares will be made available for examination
by the Underwriters not later than 10:00 A.M. on the last business day prior to
Closing Time. It is understood that each Underwriter has authorized Merrill
Lynch, for such Underwriter's account, to accept delivery of, receipt for, and
make payment of the purchase price for, the Shares which such Underwriter has
agreed to purchase. An Underwriter may (but shall not be obligated to) make
payment of the purchase price for the Shares to be purchased by any other
Underwriter whose funds have not been received by the Closing Time, but such
payment shall not relieve such other Underwriter from its obligations
hereunder.
SECTION 3. Covenants of the Fund. The Fund covenants with each
Underwriter as follows:
(a) The Fund will use its best efforts (i) to cause the
Registration Statement to be kept effective under the Securities Act, and will
advise the Underwriters promptly as to the time at which any post-effective
amendment thereto becomes so effective and (ii) if required, to cause the
issuance of any orders exempting the Fund from any provisions of the Investment
Company Act, and the Fund will advise the Underwriters promptly as to the time
at which any such orders are granted.
(b) The Fund will notify the Underwriters immediately, and will
confirm the notice in writing, (i) of the effectiveness of any post-effective
amendments to the Registration Statement, (ii) when the Prospectus has been
timely filed pursuant to Rule 497(c) or Rule 497(h) of the Rules and
Regulations, whichever is applicable under the Rules and Regulations, (iii) of
the receipt of any
14
<PAGE> 15
comments from the Commission, (iv) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information, (v) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose, and (vi) of the issuance by
the Commission of an order of suspension or revocation of the Notification of
registration of the Fund as an investment company under the Investment Company
Act or the initiation of any proceeding for that purpose at any time during the
period when Prospectuses are required to be delivered under the Securities Act
or the Investment Company Act or the Rules and Regulations in connection with
the offer and sale of the Shares. The Fund will make every reasonable effort
to prevent the issuance of any stop order described in subsection (v) hereunder
or any order of suspension or revocation described in subsection (vi) hereunder
and, if any such stop order or order of suspension or revocation is issued, to
obtain the lifting thereof at the earliest possible moment. If the Fund elects
to rely on Rule 434 under the Rules and Regulations, the Fund will prepare a
term sheet that complies with the requirements of Rule 434 under the Rules and
Regulations and the Fund will provide each Underwriter with copies of the form
of Rule 434 Prospectus, in such number as such Underwriter may reasonably
request by the close of business in New York on the first business day
preceding the Closing Time.
(c) The Fund will give the Underwriters notice of its intention to
file any post-effective amendment to the Registration Statement or any
amendment or supplement to the Prospectus (including any revised prospectus and
statement of additional information which the Fund proposes for use by the
Underwriters in connection with the offering of the Shares, which differs from
the Prospectus on file at the Commission at the time the Registration Statement
became effective, whether such revised prospectus and statement of additional
information are required to be filed by the Fund pursuant to Rule 497(c) or
Rule 497(h) of the Rules and Regulations or any term sheet prepared in reliance
on Rule 434 of the Rules and Regulations), whether pursuant to the Investment
Company Act, the Securities Act, or otherwise, and will furnish the
Underwriters with copies of any such amendment or supplement a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file any such amendment or supplement
15
<PAGE> 16
to which the Underwriters or counsel to the Underwriters reasonably shall
object.
(d) The Fund will deliver to the Underwriters, as soon as
practicable, eight copies of the Notification and eight signed copies of the
registration statement as originally filed and of each amendment thereto, in
each case with eight sets of the exhibits filed therewith, and also will
deliver to the Underwriters eight conformed copies of the registration
statement as originally filed and of each amendment thereto (but without
exhibits to the registration statement or any such amendment).
(e) The Fund will furnish to each Underwriter, from time to time
during the period when the Prospectus is required to be delivered under the
Securities Act, such number of copies of the Prospectus (as amended or
supplemented) as such Underwriter reasonably may request for the purposes
contemplated by the Securities Act, the Investment Company Act or the Rules and
Regulations.
(f) If any event shall occur as a result of which it is necessary,
in the opinion of counsel to the Underwriters, to amend or supplement the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, the Fund
forthwith will amend or supplement the Prospectus by preparing and furnishing
to the Underwriters a reasonable number of copies of an amendment or amendments
of, or a supplement or supplements to, the Prospectus (in form and substance
satisfactory to counsel to the Underwriters), so that, as so amended or
supplemented, the Prospectus will not contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading.
(g) The Fund will endeavor, in cooperation with the Underwriters,
to qualify the Shares for offering and sale under the applicable securities
laws of such states and other jurisdictions of the United States as the
Underwriters may designate, and will maintain such qualifications in effect for
a period of not less than one year after the date hereof. The Fund will file
such statements and reports as may be required by the laws of each
16
<PAGE> 17
jurisdiction in which the Shares have been qualified as above provided;
provided, however, that the Fund shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction where it is not now so qualified or required to file such a
consent.
(h) The Fund will make generally available to its security holders
as soon as practicable, but no later than 60 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions
of Rule 158 of the Rules and Regulations) covering a twelve-month period
beginning not later than the first day of the Fund's fiscal quarter next
following the "effective" date (as defined in said Rule 158) of the
Registration Statement.
(i) During a period of sixty days from the date of the Prospectus,
the Fund will not, without the prior written consent of Merrill Lynch, (i)
directly or indirectly, offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of any
share of preferred stock of the Fund or any securities convertible into or
exercisable or exchangeable for shares of preferred stock of the Fund or file
any registration statement under the Securities Act with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of preferred stock of the Fund, whether any such swap
or transaction described in clause (i) or (ii) above is to be settled by
delivery of preferred stock of the Fund or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to the Shares to be sold
hereunder.
(j) If, at the time that the Registration Statement became
effective, any information shall have been omitted therefrom in reliance upon
Rule 430A of the Rules and Regulations, then immediately following the
execution of this Agreement, the Fund will prepare, and file or transmit for
filing with the Commission in accordance with such Rule 430A and Rule 497(h) of
the Rules and Regulations, copies of the amended Prospectus, or, if required by
such Rule 430A, a post-effective amendment to the Registration Statement
(including an amended Prospectus), containing all information so omitted.
17
<PAGE> 18
(k) The Fund will use its best efforts to maintain its
qualification as a regulated investment company under Subchapter M of the Code.
SECTION 4. Covenants of the Underwriters. Each Underwriter covenants
and agrees with the Fund that no later than the second business day succeeding
Closing Time, it will provide the Fund and the Auction Agent (as defined in the
Prospectus) with a list of Existing Holders (as defined in the Prospectus) of
Shares, the number of Shares held by each such Existing Holder and the number
of Shares it is holding as Underwriter as of the date of such notice.
SECTION 5. Payment of Expenses. The Fund will pay all expenses
incident to the performance of its obligations under this Agreement, including,
but not limited to, expenses relating to (i) the printing and filing of the
registration statement as originally filed and of each amendment thereto, (ii)
the printing of this Agreement, (iii) the preparation, issuance and delivery of
the certificate for the Shares to the Underwriters, (iv) the fees and
disbursements of the Fund's counsel and accountants, (v) the qualification of
the Shares under securities laws in accordance with the provisions of Section
3(g) of this Agreement, including filing fees and any fees or disbursements of
counsel to the Underwriters in connection therewith and in connection with the
preparation of the Blue Sky Survey, (vi) the printing and delivery to the
Underwriters of copies of the registration statement as originally filed and of
each amendment thereto, of each preliminary prospectus and statement of
additional information, and each Prospectus and any amendments or supplements
thereto, (vii) the printing and delivery to the Underwriters of copies of the
Blue Sky Survey and (viii) the fees charged by rating agencies for the rating
of the Shares.
If this Agreement is terminated by the Underwriters in accordance with
the provisions of Section 6 or Section 10(a)(i) hereof, the Fund or the Adviser
shall reimburse the Underwriters for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel to the Underwriters.
In the event the transactions contemplated hereunder are not consummated, the
Adviser agrees to pay all of the costs and expenses set forth in the first
paragraph of this Section 5 which the Fund would have paid if such transactions
had been consummated.
18
<PAGE> 19
SECTION 6. Conditions of Underwriters' Obligations. The obligations
of the Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Fund and the Adviser herein contained, to
the performance by the Fund and the Adviser of their respective obligations
hereunder, and to the following further conditions:
(a) At Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the Securities Act, and
no order of suspension or revocation of the Fund's Notification of registration
shall have been issued under the Investment Company Act, and no proceedings for
either such purpose shall have been initiated or threatened by the Commission.
If the Fund has elected to rely upon Rule 430A of the Rules and Regulations,
the price of the Shares and any price-related information previously omitted
from the effective Registration Statement pursuant to such Rule 430A shall have
been transmitted to the Commission for filing pursuant to Rule 497(h) of the
Rules and Regulations within the prescribed time period, and prior to Closing
Time the Fund shall have provided evidence satisfactory to the Underwriters of
such timely filing, or a post-effective amendment providing such information
shall have been filed promptly and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) At Closing Time, the Underwriters shall have received:
(1) The favorable opinion, dated as of Closing Time,
of Vedder, Price, Kaufman & Kammholz, counsel to the Fund, in form and
substance satisfactory to counsel to the Underwriters, to the effect
that:
(i) The Fund has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
the State of Minnesota.
(ii) The Fund has corporate power and authority to own,
lease and operate its properties and to conduct its business
as described in the Registration Statement and in the
Prospectus and to enter into and perform its obligations
under this Agreement.
19
<PAGE> 20
(iii) The Fund is duly qualified as a foreign
corporation to transact business and is in good standing in
each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a
Material Adverse Effect in respect of the Fund.
(iv) The Fund is registered with the Commission under
the Investment Company Act as a closed-end, diversified
management investment company; the provisions of the Charter
and the By-Laws of the Fund do not violate or conflict with
the requirements of the Investment Company Act and the rules
and regulations thereunder in any material respect; the
provisions of the Charter and the By-Laws of the Fund and the
investment policies and restrictions described in the
Prospectus under the captions "Investment Objective and
Policies", and "Certain Trading Strategies of the Fund" do not
in any material respect violate or conflict with the
requirements of the Investment Company Act and the rules and
regulations thereunder; and, to their Actual Knowledge, no
order of suspension or revocation of such registration under
the Investment Company Act has been issued or proceedings
therefor initiated or threatened by the Commission.
(v) The authorized, issued and outstanding shares
of capital stock of the Fund are as set forth in the
Prospectus in the column entitled "Actual" under the caption
"Capitalization" (except for subsequent issuances, if any,
pursuant to this Agreement and shares of Common Stock issued
in connection with the Fund's dividend reinvestment plan); the
outstanding shares of MuniPreferred and the outstanding shares
of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable (it being understood that
the shares of Common Stock issued in connection with the
rights offering as described in the Prospectus under the
caption "The Fund" and as described in the Final Judgment
Order entered on June 3, 1997 in the case of In Re Nuveen Fund
Litigation filed in the United States District Court
20
<PAGE> 21
for the Northern District of Illinois (the "Order"), have been
duly authorized and validly issued and are fully paid and
nonassessable by virtue of the Order); and none of the
outstanding shares of capital stock of the Fund were issued in
violation of preemptive or other similar rights of any
security holder of the Fund.
(vi) The Shares have been duly authorized by the
requisite corporate action on the part of the Fund for
issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Fund pursuant
to this Agreement against payment of the consideration set
forth in this Agreement, will be validly issued and fully paid
and nonassessable, with no personal liability attaching to the
ownership thereof; the shares of Common Stock and the Shares
conform in all material respects to all statements relating
thereto contained in the Registration Statement and in the
Prospectus, and such description conforms in all material
respects to the rights set forth in the Charter and the
By-Laws; the issuance of the Shares is not subject to
preemptive or other similar rights of any security holder of
the Fund arising by operation of law or under the Charter or
By-Laws; and the form of certificate evidencing the Shares
complies with all requirements of Minnesota law.
(vii) Each of this Agreement, the Auction Agreement and
the Letter of Representation has been duly authorized,
executed and delivered by the Fund and does not violate or
conflict with the applicable provisions of the Investment
Company Act and the Investment Advisers Act and the rules and
regulations under such acts in any material respect; each
constitutes a valid and binding obligation of the Fund,
enforceable against the Fund in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general
equitable principles; the execution and delivery of this
Agreement, the Auction Agreement and the Letter of
Representation, and the performance by the Fund of its
obligations herein and therein (including the issuance and
sale of the Shares and the use of the
21
<PAGE> 22
proceeds from the sale of the Shares as described in the
Prospectus under the caption "Use of Proceeds"), do not and
will not, whether with or without the giving of notice or the
lapse of time, or both, conflict with or constitute a breach
of, or a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any
property or assets of the Fund pursuant to, any material
contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or other material agreement or
instrument, in each case of which such counsel has Actual
Knowledge, to which the Fund is a party or by which it may be
bound, or to which any of the property or assets of the Fund
is subject; none of the foregoing actions will result in any
violation of the provisions of the Charter or the By-Laws of
the Fund, or any law, rule or regulation (or, to such
counsel's Actual Knowledge, administrative order or court
decree) applicable to the Fund of any jurisdiction, court,
Federal or state regulatory body, administrative agency or
other governmental body, stock exchange or securities
association having jurisdiction over the Fund or its
properties or operations; and no consent, approval,
authorization, order, registration or qualification of or with
any court or governmental or self-regulatory authority, agency
or body is required in connection with the issue and sale of
the Shares to the Underwriters or for the consummation by the
Fund of the other transactions contemplated by this Agreement,
the Auction Agreement or the Letter of Representation, except
such as has been obtained under the Investment Company Act and
the Securities Act and the Rules and Regulations or such as
may be required under the state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by
the Underwriters.
(viii) The Registration Statement has been declared
effective under the Securities Act and the Investment Company
Act; to the Actual Knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has
been issued under the Securities Act, nor to the Actual
Knowledge of such counsel have any proceedings therefor been
initiated or are threatened by the Commission; the
Notification is
22
<PAGE> 23
effective under the Investment Company Act; and to the Actual
Knowledge of such counsel, no order has been issued in respect
of the Fund pursuant to Section 8(e) of the Investment Company
Act, nor to the Actual Knowledge of such counsel have any
proceedings therefor have been initiated or are being
threatened by the Commission.
(ix) At the time the Registration Statement became
effective and at the Closing Time, the Notification, the
Registration Statement and the Prospectus (other than the
financial statements included therein, as to which no opinion
need be rendered) complied and comply as to form in all
material respects with the requirements of the Securities Act
and the Investment Company Act and the Rules and Regulations.
If applicable, the Rule 434 Prospectus conforms to the
requirements of Rule 434 under the Rules and Regulations in
all material respects.
(x) The statements made in the Prospectus under the
captions "The Auction" and "Description of MuniPreferred",
insofar as they purport to summarize the provisions of the
Charter or other documents or agreements specifically referred
to therein, constitute fair summaries of the terms of such
documents in all material respects.
(xi) The statements made in the Prospectus under the
caption "Tax Matters -- Federal Income Tax Matters," insofar
as they constitute descriptions of statutes (or rules or
regulations) or legal conclusions, have been reviewed by such
counsel and constitute fair summaries of the matters purported
to be summarized, and fairly present the information called
for with respect thereto by Form N-2.
(xii) To such counsel's Actual Knowledge, there is not
any litigation or proceeding pending against the Fund or of
which the business or property of the Fund is the subject (or,
to the Actual Knowledge of such counsel, any threatened
litigation or proceeding against the Fund or any threatened
litigation or proceeding of which the business or property of
the Fund is threatened to be the
23
<PAGE> 24
subject), which could affect the subject matter of this
Agreement, the Management Agreement, the Custody Agreement,
the Auction Agreement or the Letter of Representation or the
registration or good standing of the Fund with the Commission,
or is required to be disclosed in the Registration Statement
and in the Prospectus but which is not disclosed and correctly
summarized therein.
(xiii) To such counsel's Actual Knowledge, there are
no contracts, indentures, mortgages, deeds of trust, loan or
credit agreements, notes, leases or other agreements or
instruments of the Fund required to be described or referred
to in the Registration Statement or to be filed as exhibits
thereto under the Securities Act, the Investment Company Act
or the Rules and Regulations other than those described or
referred to therein or filed as exhibits thereto or
incorporated therein by reference as permitted by the Rules
and Regulations; the descriptions thereof are correct in all
material respects; references thereto are correct in all
material respects; and to such counsel's Actual Knowledge, no
default exists in the due performance or observance of any
obligation, agreement, covenant or condition contained in any
material contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other material agreement or
instrument so described, referred to or filed.
(xiv) To such counsel's Actual Knowledge, the Fund is
not in violation of its Charter or By-Laws, or in default in
the performance or observance of any obligation, agreement,
covenant or condition contained in any material contract,
indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or other material agreement or instrument to which
the Fund is a party or by which it may be bound, or to which
any of the property or assets of the Fund is subject, nor in
breach or violation of any judgment, decree, order, rule or
regulation of any court or governmental or self-regulatory
agency or body.
24
<PAGE> 25
(2) The favorable opinion, dated as of Closing Time,
of [INSERT NAME], [INSERT TITLE] of and General Counsel to the Adviser, in form
and substance satisfactory to counsel to the Underwriters, to the effect that:
(i) The Adviser has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware.
(ii) The Adviser has corporate power and authority to
own, lease and operate its properties and to conduct its
business as described in the Registration Statement and in
the Prospectus and to enter into and perform its obligations
under this Agreement.
(iii) The Adviser is duly qualified as a foreign
corporation to transact business and is in good standing in
each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a
material adverse effect on the Adviser.
(iv) The Adviser is duly registered and in good
standing with the Commission under the Investment Advisers Act
as an investment adviser and is not prohibited by the
Investment Advisers Act or the Investment Company Act, or the
rules and regulations under such acts or any other applicable
laws or regulations, from acting under the Management
Agreement for the Fund as contemplated by the Prospectus.
(v) There is not any litigation or proceeding pending
against the Fund or the Adviser or of which the business or
property of the Fund or the Adviser is the subject (or, to the
Actual Knowledge of such counsel, any threatened litigation or
proceeding against the Fund or the Adviser or any threatened
litigation or proceeding of which the business or property of
the Fund or the Adviser is threatened to be the subject),
which could affect the subject matter of this Agreement or the
Management Agreement or the registration or good standing
25
<PAGE> 26
of the Adviser with the Commission, or is required to be
disclosed in the Registration Statement and in the Prospectus
but which is not disclosed and correctly summarized therein.
(vi) To such counsel's Actual Knowledge, totherhe
Adviser is not in violation of its corporate charter or
by-laws, or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any
material contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other material agreement or
instrument to which the Adviser is a party or by which it may
be bound, or to which any of the property or assets of the
Adviser is subject, nor in breach or violation of any
judgment, decree, order, rule or regulation of any court or
governmental or self-regulatory agency or body.
(vii) Each of this Agreement and the Management
Agreement has been duly authorized, executed and delivered by
the Adviser, and does not violate or conflict with the
applicable provisions of the Investment Company Act and the
Investment Advisers Act and the rules and regulations under
such acts in any material respect; each constitutes a valid
and binding obligation of the Adviser, enforceable in
accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors'
rights and to general equitable principles; to such counsel's
Actual Knowledge, neither the execution and delivery of this
Agreement or the Management Agreement by the Adviser, nor the
performance by the Adviser of its obligations hereunder or
thereunder, does or will, whether with or without the giving
of notice or the lapse of time, or both, conflict with or
constitute a breach of, or a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Adviser pursuant to, any
material contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other material agreement or
instrument to which the Adviser is a party or by which the
Adviser is bound, or to which any of the property or assets of
the Adviser
26
<PAGE> 27
is subject; none of the foregoing actions will result in any
violation of the corporate charter or by-laws of the Adviser
or any law, rule or regulation (or, to such counsel's Actual
Knowledge, administrative order or court decree) applicable to
the Adviser of any jurisdiction, court, Federal or state
regulatory body, administrative agency or other governmental
body, stock exchange or securities association having
jurisdiction over the Adviser or its properties or operations;
and no consent, approval, authorization, order, registration
or qualification of or with any court or governmental or
self-regulatory authority, agency or body is required in
connection with the execution, delivery and performance of
this Agreement and the Management Agreement by the Adviser,
except such as has been obtained under the Investment Advisers
Act or such as may be required under the Securities Act or
state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters.
(viii) The description of the Adviser in the
Registration Statement and in the Prospectus does not contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading.
(3) In giving their opinion required by subsection (b)(1)
of this Section 6, Vedder, Price, Kaufman & Kammholz additionally
shall state that they have endeavored to see that the Registration
Statement and Prospectus comply with the requirements of the
Securities Act, the Investment Company Act, and the Rules and
Regulations, but cannot, of course, make any representation as to the
accuracy or completeness of statements of fact contained in the
Registration Statement or the Prospectus. Nothing, however, has come
to their attention that would lead them to believe that the
Registration Statement (other than the financial statements and other
financial information included therein, as to which no opinion need be
rendered), at the time it became effective or at the Representation
Date, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to
make the statements therein
27
<PAGE> 28
not misleading or that the Prospectus (other than the financial
statements and other financial information included therein, as to
which no opinion need be rendered), at the Representation Date (unless
the term "Prospectus" refers to a prospectus which has been provided
to the Underwriters by the Fund for use in connection with the
offering of the Shares which differs from the Prospectus on file at
the Commission at the time the Registration Statement becomes
effective, in which case at the time it first is provided to the
Underwriters for such use) or at Closing Time, contained any untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Such opinion
shall also contain a statement that such counsel has no reason to
believe that the Notification contains any untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein
not misleading. In rendering such opinions such counsel may state that
(a) the law covered by the opinions expressed herein is limited to the
federal law of the United States and the law of the State of Illinois,
Minnesota and New York; and (b) they have relied, as to all matters of
Minnesota law, solely on the opinion of Dorsey & Whitney, provided
that (i) such opinion of Dorsey & Whitney, in addition to covering all
matters involving Minnesota law that are covered in the opinion of
Vedder, Price, Kaufman & Kammholz, shall state that (A) the Fund has
been duly incorporated under the laws of the State of Minnesota and
(B) the outstanding shares of MuniPreferred and the outstanding shares
of Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable (it being understood that the shares of
Common Stock issued in connection with the rights offering as
described in the Prospectus under the caption "The Fund" and as
described in the Order have been duly authorized and validly issued
and are fully paid and nonassessable by virtue of the Order; and (ii)
Vedder, Price, Kaufman & Kammholz shall furnish a copy thereof to the
Underwriters and state that such opinion is satisfactory in substance
and form and that the Underwriters and counsel to the Underwriters are
entitled to rely thereon. Vedder, Price, Kaufman & Kammholz and
Dorsey & Whitney may rely, as to matters of fact, upon certificates
and written statements of officers, employees of accountants
28
<PAGE> 29
and the Transfer Agent for, the Fund and of the Adviser and of public
officials. Without limiting the generality of the foregoing, their
opinions with respect to the numbers of issued and outstanding shares
of the Fund may be based solely upon a certificate of the Transfer
Agent for the Fund.
(4) The favorable opinion, dated as of Closing Time, of Sidley &
Austin, counsel to the Underwriters, in form and substance satisfactory to the
Underwriters, with respect to the matters set forth in clauses (i), (ii), (vi)
(but, insofar as clause (vi) relates to preemptive or other similar rights,
solely as to preemptive or other similar rights arising by operation of law or
under the Charter or By-Laws of the Fund), (vii) (but only insofar as clause
(vii) relates to the authorization, execution and delivery of this Agreement by
the Fund), (viii)-(ix)(except with respect to the last sentence of clause
(ix)), and (x) - (xi), inclusive, of subparagraph (b)(1) of this Section 6, and
the first sentence of subparagraph (b)(3) of this Section 6. In giving such
opinion such counsel may rely, as to all matters governed by jurisdictions
other than the law of the State of Illinois, upon the opinions of counsel
satisfactory to the Underwriters. Such counsel may rely, as to matters of
fact, upon certificates and written statements of officers and employees of the
Fund and the Adviser and of public officials.
(5) [INSERT DEFINITION OF "ACTUAL KNOWLEDGE."]
(c) At Closing Time, (i) the Registration Statement and the
Prospectus shall contain all statements which are required to be stated therein
in accordance with the Securities Act, the Investment Company Act and the Rules
and Regulations and shall conform to the requirements of the Securities Act,
the Investment Company Act and the Rules and Regulations in all material
respects, and neither the Registration Statement nor the Prospectus shall
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
and no action, suit or proceeding at law or in equity shall be pending or, to
the knowledge of the Fund or the Adviser, threatened against the Fund or the
Adviser which would be required to be set forth in the Prospectus other than as
set forth therein, (ii) there shall not
29
<PAGE> 30
have been, since the date hereof or since the respective dates as of which
information is given in the Registration Statement and in the Prospectus, any
Material Adverse Effect in respect of the Fund, (iii) no proceedings shall be
pending or, to the knowledge of the Fund, threatened against the Fund before or
by any Federal, state or other commission, board or administrative agency
wherein an unfavorable decision, ruling or finding would materially and
adversely affect the business, property, financial condition or income of the
Fund other than as set forth in the Registration Statement and in the
Prospectus, (iv) the Underwriters shall have received a certificate of the
President or a Vice President of the Fund and of the chief financial officer or
chief accounting officer of the Fund, dated as of the Closing Time, to the
effect that (A) there has been no material adverse change of the type
described in clause (ii) of this subparagraph (c), (B) the representations and
warranties in Section 1(a) hereof are true and correct with the same force and
effect as though expressly made at and as of Closing Time, (C) the Fund has
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time, and (D) no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been initiated or are pending or are
contemplated by the Commission.
(d) At Closing Time, (i) no action, suit or proceeding at law or
in equity shall be pending or, to the knowledge of the the Adviser, threatened
against the Fund or the Adviser which would be required to be set forth in the
Prospectus other than as set forth therein, (ii) there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Registration Statement and in the Prospectus, any Material Adverse
Effect in respect of the Adviser,(iii) the Adviser shall have the financial
resources available to it necessary for the performance of its services and
obligations as contemplated in the Registration Statement and the Prospectus,
(iv) no proceedings shall be pending or, to the knowledge of the Adviser,
threatened against the Fund or the Adviser before or by any Federal, state or
other commission, board or administrative agency wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, financial condition or income of either the Fund or the Adviser other
than as set forth in the Registration Statement and in the Prospectus, and (v)
the Underwriters shall have received a certificate, dated as of Closing Time,
of the
30
<PAGE> 31
President or a Vice President of the Adviser, to the effect that (A) there has
been no material change of the type described in clause (ii) of this
subparagraph (d), (B) the representations and warranties in Sections 1(a) and
(b) hereof are true and correct with the same force and effect as though
expressly made at and as of Closing Time and (C) each of the Fund and the
Adviser has complied with all agreements and satisfied all conditions on its
part to be performed or satisfied at or prior to Closing Time.
(e) At the time of execution of this Agreement, the Underwriters
shall have received from Ernst & Young LLP a letter, dated such date, in form
and substance satisfactory to the Underwriters, to the effect that:
(i) they are independent auditors with respect to the
Fund within the meaning of the Securities Act and the Rules and
Regulations;
(ii) in their opinion, the financial statements
included in the Registration Statement and audited by them comply as
to form in all material respects with the applicable accounting
requirements of the Securities Act and the Investment Company Act and
the Rules and Regulations;
(iii) they have performed specified procedures, not
constituting an audit, including a reading of the latest available
interim financial statements of the Fund, a reading of the minute
books of the Fund, inquiries of officials of the Fund responsible for
financial accounting matters and such other inquiries and procedures
as may be specified in such letter, and on the basis of such inquiries
and procedures nothing came to their attention that caused them to
believe that (A) the unaudited financial statements as of [INSERT DATE
OF INTERIM FINANCIALS], 1997 included in the Registration Statement do
not comply as to form in all material respects with the applicable
accounting requirements of the Securities Act and the Investment
Company Act and of the Rules and Regulations applicable to unaudited
interim financial statements included in registration statements or
are not in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
financial statements included in the Registration Statement, and (B)
during the period from [INSERT DATE OF
31
<PAGE> 32
INTERIM FINANCIALS], 1997 to a specified date not more than three days
prior to the date of this Agreement, there was any change in the
capital stock or net assets of the Fund (other than by reason of the
issuance of shares of Common Stock in connection with the Fund's
dividend reinvestment plan, as specified in such letter) or any
increase in the long-term debt of the Fund, as compared with amounts
shown on the unaudited financial statements included in the
Registration Statement, except for changes which the Registration
Statement discloses have occurred or may occur; and
(iv) in addition to the procedures referred to in
clause (iii) above, they have performed other specified procedures,
not constituting an audit, with respect to certain amounts,
percentages, numerical data, financial information and financial
statements appearing in the Registration Statement, which previously
have been specified by such accountants and which shall be specified
in such letter, and have compared certain of such items with, and have
found such items to be in agreement with, the accounting and financial
records of the Fund.
(f) At Closing Time, the Underwriters shall have received from
Ernst & Young LLP a letter, dated as of Closing Time, to the effect that they
reaffirm the statements made in the letter furnished pursuant to subsection (e)
of this Section 6, except that the "specified date" referred to shall be a date
not more than three days prior to Closing Time.
(g) At Closing Time, the Shares shall be rated at least "aaa" by
Moody's Investor's Service, Inc. and "AAA" by Standard & Poor's Ratings Group,
a division of McGraw-Hill, Inc., and the Fund shall have delivered to the
Underwriters a letter, dated the Closing Time, from each such rating agency, or
other evidence satisfactory to the Underwriters, confirming that the Shares
have such ratings; and since the date of this Agreement, there shall not have
occurred a downgrading in the rating assigned to any securities issued by the
Fund by any "nationally recognized statistical rating agency", as the term is
defined by the Commission for purposes of Rule 436(g)(2) under the Securities
Act, and no such organization shall have publicly announced that it has under
surveillance or review its rating of any outstanding securities issued by the
Fund.
32
<PAGE> 33
(h) At Closing Time, counsel to the Underwriters shall have been
furnished with such documents and opinions as they reasonably may require for
the purpose of enabling them to pass upon the issuance and sale of the Shares
as herein contemplated and to pass upon related proceedings, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Fund and the Adviser in connection with the organization and
registration of the Fund under the Investment Company Act and the issuance and
sale of the Shares as herein contemplated shall be satisfactory in form and
substance to the Underwriters and their counsel.
If any condition specified in this Section 6 shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Underwriters by notice to the Fund at any time at or prior to
Closing Time, and such termination shall be without liability of any party to
any other party, except as provided in Section 5 hereof and except that
Sections 1, 7, 8 and 9 hereof shall survive any such termination and remain in
full force and effect.
SECTION 7. Indemnification. (a) The Fund and the Adviser jointly
and severally agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Securities Exchange Act"), as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), including the
information deemed to be part of the Registration Statement pursuant
to Rule 430A or Rule 434 of the Rules and Regulations, if applicable,
or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any
preliminary prospectus or statement of additional information, or in
the Prospectus (or in any amendment or supplement thereto), or the
omission or alleged omission therefrom of a
33
<PAGE> 34
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue
statement or omission; provided that (subject to Section 7(d) below)
any such settlement is effected with the written consent of the
indemnifying party; and
(iii) against any and all expense whatsoever, as
incurred (including the fees and disbursements of counsel chosen by
Merrill Lynch), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, to the extent that any
such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Fund by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or in any amendment or supplement thereto), including the
information deemed to be a part of the Registration Statement pursuant to Rule
430A or Rule 434 of the Rules and Regulations, or in any preliminary prospectus
or statement of additional information or in the Prospectus (or in any
amendment or supplement thereto).
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Fund and the Adviser, their respective directors, each of the
Fund's officers who signed the Registration Statement, and each person, if any,
who controls the Fund or the Adviser within the meaning of Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act, against any and
all loss, liability, claim, damage and expense described in the indemnity
contained in
34
<PAGE> 35
subsection (a) of this Section 7, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or in any amendment or supplement thereto), including
the information deemed to be a part of the Registration Statement pursuant to
Rule 430A or Rule 434 of the Rules and Regulations, or in any preliminary
prospectus or statement of additional information or in the Prospectus (or in
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Fund by such Underwriter through Merrill
Lynch expressly for use in the Registration Statement (or in any amendment or
supplement thereto), including the information deemed to be a part of the
Registration Statement pursuant to Rule 430A or Rule 434 of the Rules and
Regulations, or in any preliminary prospectus or statement of additional
information or in the Prospectus (or in any amendment or supplement thereto).
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve such indemnifying party
from any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in no event shall relieve it from any liability which it may
have otherwise than on account of this indemnity agreement. In the case of
parties indemnified pursuant to Section 7(a) above, counsel to the indemnified
parties shall be selected by Merrill Lynch, and, in the case of parties
indemnified pursuant to Section 7(b) above, counsel to the indemnified parties
shall be selected by the Fund. An indemnifying party may participate at its own
expense in the defense of any such action; provided, however, that counsel to
the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying parties be liable for the fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any
35
<PAGE> 36
claim whatsoever in respect of which indemnification or contribution could be
sought under this Section 7 or Section 8 hereof (whether or not the indemnified
parties are actual or potential parties thereto), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such litigation, investigation,
proceeding or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 7 (a)(ii) hereof effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
SECTION 8. Contribution. If the indemnification provided for in
Section 7 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Fund and the Adviser on the one hand and the Underwriters on the other hand
from the offering of the Shares pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Fund and the Adviser
on the one hand and of the Underwriters on the other hand in connection with
the statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
36
<PAGE> 37
The relative benefits received by the Fund and the Adviser on the one
hand and the Underwriters on the other hand in connection with the offering of
the Shares pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Shares pursuant to this Agreement (before deducting expenses) received by the
Fund and the total underwriting discount received by the Underwriters, in each
case as set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the term sheet, bear to the aggregate initial public
offering price of the Shares as set forth on such cover.
The relative fault of the Fund and the Adviser on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Fund and the Adviser or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Fund, the Adviser and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 8 were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 8 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of any such untrue or alleged
untrue statement or omission or alleged omission.
37
<PAGE> 38
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Securities Act or Section
20 of the Securities Exchange Act shall have the same rights to contribution as
such Underwriter, and each director of the Fund or of the Adviser,
respectively, each officer of the Fund who signed the Registration Statement,
and each person, if any, who controls the Fund and the Adviser within the
meaning of Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act shall have the same rights to contribution as the Fund and the
Adviser, respectively. The Underwriters' respective obligations to contribute
pursuant to this Section 8 are several in proportion to the number of Shares
set forth opposite their respective names in Schedule A hereto and not joint.
SECTION 9. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Fund or of the
Adviser submitted pursuant hereto or thereto, shall remain operative and in
full force and effect, regardless of any investigation made by or on behalf of
any Underwriter or controlling person, or by or on behalf of the Fund or the
Adviser, and shall survive delivery of the Shares to the Underwriters.
SECTION 10. Termination of Agreement. (a) The Underwriters
may terminate this Agreement, by notice to the Fund, at any time at or prior to
Closing Time (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in the
Prospectus, any Material Adverse Effect in respect of the Fund or the Adviser,
or (ii) if there has occurred any material adverse change in the financial
markets in the United States, any outbreak of hostilities or escalation thereof
or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or
economic conditions, in each case the effect of which is such as to make it, in
the judgment of the Underwriters, impracticable to market the Shares or to
enforce contracts for the sale of the Shares, or (iii) if trading in any
38
<PAGE> 39
securities issued by the Fund has been suspended or materially limited by the
Commission or the New York Stock Exchange, or if trading generally on either
the New York Stock Exchange or the American Stock Exchange or in the NASDAQ
National Market has been suspended or materially limited, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices for securities
have been required, by either of said exchanges or by such market or by order
of the Commission, the National Association of Securities Dealers, Inc. or any
other governmental authority, or (iv) if a banking moratorium has been declared
by Federal, Illinois, Minnesota or New York authorities.
(b) If this Agreement is terminated pursuant to this Section 10,
such termination shall be without liability of any party to any other party
except as provided in Section 5 hereof, and provided further that Sections 1,
7, 8 and 9 hereof shall survive such termination and remain in full force and
effect.
SECTION 11. Default by One or More of the Underwriters. If one or
more of the Underwriters shall fail at Closing Time to purchase the Shares
which it or they are obligated to purchase under this Agreement (the "Defaulted
Shares"), the Underwriters shall have the right, within 24 hours thereafter, to
make arrangements for one or more of the non-defaulting Underwriters, or any
other underwriters, to purchase all, but not less than all, of the Defaulted
Shares in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Underwriters shall not have completed such arrangements
within such 24-hour period, then:
(a) if the number of Defaulted Shares does not exceed 10% of the
Shares, each of the non-defaulting Underwriters shall be obligated, severally
and not jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Shares exceeds 10% of the Shares,
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of its default.
39
<PAGE> 40
In the event of any such default which does not result in a
termination of this Agreement, either the Underwriters or the Fund shall have
the right to postpone Closing Time for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 11.
SECTION 12. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of written telecommunication. Notices to the
Underwriters shall be directed to the Underwriters at North Tower, World
Financial Center, New York, New York 10281-1305, Attention:
_______________________; and notices to the Fund or to the Adviser shall be
directed to each of them at 333 West Wacker Drive, Chicago, Illinois 60606,
Attention: ______________, [TITLE].
SECTION 13. Parties. This Agreement shall inure to the benefit of
and be binding upon the Underwriters, the Fund, the Adviser and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the parties hereto and their respective successors and the controlling
persons and officers and directors referred to in Sections 7 and 8 hereof and
their heirs and legal Underwriters, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision herein or therein
contained. This Agreement and all conditions and provisions hereof and thereof
are intended to be for the sole and exclusive benefit of the parties hereto and
thereto and their respective successors, and said controlling persons and
officers and directors and their heirs and legal Underwriters, and for the
benefit of no other person, firm or corporation. No purchaser of Shares from
any Underwriter shall be deemed to be a successor merely by reason of such
purchase.
SECTION 14. Governing Law and Time. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed in said State. Except as
otherwise set forth herein, specified times of day refer to New York City time.
40
<PAGE> 41
SECTION 15. Effect of Headings. The Section headings herein are for
convenience only and shall not affect the construction hereof.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a single binding agreement
between the Underwriters and the Fund and the Adviser in accordance with its
terms.
Very truly yours,
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
By:
____________________________________
Authorized Officer
NUVEEN ADVISORY CORP.
By:
_____________________________________
Authorized Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BT Alex.Brown
Goldman, Sachs & Co.
John Nuveen & Co. Incorporated
Lehman Brothers
PaineWebber Incorporated
Prudential Securities Incorporated
Smith Barney Inc.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
41
<PAGE> 42
By: _________________________________
Authorized Signatory
42
<PAGE> 43
SCHEDULE A
Underwriter Series
<TABLE>
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated. . . . . . . . . . . . . . . . . . . . . . . . . . . .
*
BT Alex.Brown Incorporated . . . . . . . . . . . . . . . . . . . . *
Goldman, Sachs & Co. . . . . . . . . . . . . . . . . . . . . . . . *
John Nuveen & Co. Incorporated . . . . . . . . . . . . . . . . . . *
Lehman Brothers Inc. . . . . . . . . . . . . . . . . . . . . . . . *
PaineWebber Incorporated . . . . . . . . . . . . . . . . . . . . . *
Prudential Securities Incorporated . . . . . . . . . . . . . . . . *
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . . . . . *
-----
Total . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
=====
</TABLE>
43
<PAGE> 1
Exhibit 99.2L.1
Vedder, Price, Kaufman & Kammholz
222 N. Lasalle Street
Chicago, Illinois 60601
September __, 1997
Nuveen Premium Income Municipal Fund, Inc.
333 West Wacker Drive
Chicago, IL 60606
RE: NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
REGISTRATION STATEMENT ON FORM N-2
(REGISTRATION NOS. 333-33651 AND 811-5570)
-----------------------------------------
Ladies and Gentlemen:
We are acting as counsel for Nuveen Premium Income Municipal Fund, Inc.
(the "Fund"), in connection with the Fund's filing of a registration statement
on Form N-2 (the "Registration Statement") with the Securities and Exchange
Commission covering the registration of 1,000 authorized but unissued shares of
Municipal Auction Rate Cumulative Preferred Stock, of each Series M, T, W, TH &
F, $.01 par value per share, with a liquidation preference of $25,000 per
share, of the Fund (the "MuniPreferred"). In that capacity, we have examined
such corporate records, certificates and other documents, and have made such
other factual and legal investigations as we have deemed necessary and
appropriate for the purposes of this opinion. Insofar as this opinion pertains
to matters governed by the laws of the State of Minnesota, we are relying with
your consent, upon the opinion of Dorsey & Whitney dated September 18, 1997,
which opinion is satisfactory in substance and form to us.
Based upon the foregoing, it is our opinion that:
(1) The Fund is validly existing as a corporation in good standing
under the laws of the State of Minnesota.
(2) The MuniPreferred, when issued and delivered by the Fund
pursuant to and upon satisfaction of the conditions in, the
Purchase Agreement against payment of the consideration set
forth therein, will be legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as Exhibit 1.1 to the
Registration Statement and to the reference to us under the caption "Legal
Opinions" in the prospectus contained in the Registration Statement.
Very truly yours,
VEDDER, PRICE, KAUFMAN &KAMMHOLZ
DAS/RJM
<PAGE> 1
[DORSEY & WHITNEY LLP LETTERHEAD] EXHIBIT 99.2L.2
September 19, 1997
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601
Re: Nuveen Premium Income Municipal Fund, Inc.
Ladies and Gentlemen:
We have acted as special Minnesota counsel to Nuveen Premium
Income Municipal Fund, Inc., a Minnesota corporation (the "Fund"), in
connection with the Fund's authorization and proposed issuance of 1,000 shares
of its Municipal Auction Rate Cumulative Preferred Stock, Series M, 1,000
shares of its Municipal Auction Rate Cumulative Preferred Stock, Series T,
1,000 shares of its Municipal Auction Rate Cumulative Preferred Stock, Series
W, 1,000 shares of its Municipal Auction Rate Cumulative Preferred Stock,
Series TH, and 1,000 shares of its Municipal Auction Rate Cumulative Preferred
Stock, Series F, each with a par value of $.01 per share and a liquidation
preference of $25,000 per share (the "MuniPreferred(R)"). The shares and series
of MuniPreferred(R) referred to above are referred to herein collectively as the
"Shares."
The Shares will be issued pursuant to, and the rights and
preferences of the Shares will be as set forth in, the Fund's articles of
Incorporation as amended through August 11, 1997, as filed with the Secretary
of State of the State of Minnesota, including the Amendment and Restatement of
Statement Establishing and Fixing the Rights and Preferences of Municipal
Auction Rate Cumulative Preferred Stock as filed with the Secretary of State of
the State of Minnesota on August 11, 1997. the Fund has advised us that a
Registration Statement on Form N-2 (SEC File No. 333-33651), as amended by one
or more pre-effective amendments thereto, relating to the Shares has been filed
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended (such
registration statement, in the form most recently amended, being referred to
herein as the "Registration Statement"), and that the Shares will be sold to the
public pursuant to purchase
<PAGE> 2
DORSEY & WHITNEY LLP
Vedder, Price, Kaufman & Kammholz
September 19,1997
Page 2
agreements in the form filed as an exhibit to the Registration Statement (such
purchase agreements being referred to herein collectively as the "Purchase
Agreement"), among the Fund, Nuveen Advisory Corp., and the entities named as
underwriters therein (the "Underwriters").
In rendering the opinions hereinafter expressed, we have reviewed the
corporate proceedings taken by the Fund in connection with the authorization
and issuance of the Shares, and we have reviewed such questions of law and
examined copies of such corporate records of the Fund, certificates of public
officials and of responsible officers of the Fund, and other documents as we
have deemed necessary as a basis for such opinions. As to the various matters
of fact material to such opinions, we have, when such facts were not
independently established, relied to the extent we deem proper on certificates
of public officials and of responsible officers of the Fund. In connection
with such review and examination, we have assumed that all copies of documents
provided to us conform to the originals and that all signatures are genuine.
Based on the foregoing, it is our opinion that:
1. The Fund has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Minnesota.
2. The Shares, when issued and delivered by the Fund pursuant to, and
upon satisfaction of the conditions contained in, the Purchase Agreement
against payment of the consideration set forth in the Purchase Agreement, will
be legally issued and fully paid and non-assessable; and the issuance of the
Shares is not subject to preemptive rights.
In rendering the foregoing opinions, we express no opinion as to the
laws of any jurisdiction other than the State of Minnesota. You and the Fund
are hereby authorized to rely on the foregoing opinions in rendering your
opinion to the Fund to by filed as an exhibit to the Registration Statement.
Except as aforesaid, the foregoing opinions are not to be relied upon by any
other person without our prior written authorization.
<PAGE> 3
DORSEY & WHITNEY LLP
Vedder, Price, Kaufman & Kammholz
September 19, 1997
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Opinions" in the Fund's final Prospectus relating to the Shares
included in the Registration Statement.
Very truly yours,
Dorsey & Whittney LLP
JDA
<PAGE> 1
EX-99.2N
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Experts" and to the use of our report dated December 13, 1996
in the Registration Statement (Form N-2) and related Prospectus and Statement of
Additional Information of Nuveen Premium Income Municipal Fund, Inc. filed with
the Securities and Exchange Commission in this Pre-Effective Amendment No. 1 to
the Registration Statement under the Securities Act of 1933 (Registration No.
333-33651) and in this Amendment No. 16 to the Registration Statement under the
Investment Company Act of 1940 (Registration No. 811-5570).
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Chicago, Illinois
September 19, 1997
<PAGE> 1
EXHIBIT 99.2p
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
Subscription Agreement
This Agreement made this 12th day of July, 1988 by and between Nuveen
Premium Income Municipal Fund, Inc., a Minnesota corporation (the
"Corporation"), and Nuveen Advisory Corp., a Delaware corporation (the
"Subscriber");
WITNESSETH:
WHEREAS, the Corporation has been formed for the purposes of carrying on
business as a closed-end diversified management investment company; and
WHEREAS, the Subscriber has been selected by the Corporation's Board of
Directors to serve as investment adviser to the Corporation; and
WHEREAS, the Subscriber wishes to subscribe for and purchase, and the
Corporation wishes to sell to the Subscriber, 7,118 shares of common stock for a
purchase of $14.05 per share;
NOW THEREFORE, IT IS AGREED:
1. The Subscriber subscribes for and agrees to purchase from the
Corporation 7,118 shares of its common stock for a purchase price of $14.05 per
share. Subscriber agrees to make payment for these shares at such time as demand
for payment may be made by an officer of the Corporation.
2. The Corporation agrees to issue and sell said shares to Subscriber
promptly upon its receipt of the purchase price.
3. To induce the Corporation to accept its subscription and issue the
shares subscribed for, the Subscriber represents that it is informed as follows:
(a) That the shares being subscribed for have not been and will not be
registered under the Securities Act of 1933 ("Securities Act");
(b) That the shares will be sold by the Corporation in reliance on an
exemption from the registration requirements of the Securities Act;
(c) That the Corporation's reliance upon an exemption from the
registration requirements of the Securities Act is predicated in part on
the representations and agreements contained in this Subscription
Agreement;
(d) That when issued, the shares will be "restricted securities" as
defined in paragraph (a)(3) of Rule 144 of the General Rules and
Regulations under the Securities Act ("Rule 144") and cannot be sold or
transferred by Subscriber unless they are subsequently registered under the
Securities Act or unless an exemption from such registration is available;
<PAGE> 2
(e) That there do not appear to be any exemptions from the
registration provisions of the Securities Act available to the Subscriber
for resale of the shares. In the future, certain exemptions may possibly
become available, including an exemption for limited sales including an
exemption for limited sales in accordance with the conditions of Rule 144.
The Subscriber understands that a primary purpose of the information
acknowledged in subparagraphs (a) through (e) above is to put it on notice as to
restrictions on the transferability of the shares.
4. To further induce the Corporation to accept its subscription and issue
the shares subscribed for, the Subscriber:
(a) Represents and warrants that the shares subscribed for are being
and will be acquired for investment for its own account and not on behalf
of any other person or persons and not with a view to, or for sale in
connection with, any public distribution thereof; and
(b) Agrees that any certificates representing the shares subscribed
for may bear a legend substantially in the following form:
The shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act
of 1933 or any other federal or state securities law. These shares
may not be offered for sale, sold or otherwise transferred unless
registered under said securities laws or unless some exemption
from registration is available.
5. This Subscription Agreement and all of its provisions shall be binding
upon the legal representatives, heirs, successors and assigns of the parties
hereto.
IN WITNESS WHEREOF, this Subscription Agreement has been executed by the
parties hereto as of the day and date first above written.
NUVEEN PREMIUM INCOME MUNICIPAL FUND, INC.
By: /s/ James J. Wesolowski
----------------------------
NUVEEN ADVISORY CORP.
By: /s/ Paul R. Daniels
----------------------------
07861
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