<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
KEMPER MUNICIPAL INCOME TRUST
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
KEMPER MUNICIPAL INCOME TRUST
222 South Riverside Plaza Chicago, Illinois 60606
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
September 15, 1999 AND PROXY STATEMENT
August , 1999
To the Shareholders:
You are invited to attend an annual meeting of the shareholders of Kemper
Municipal Income Trust. The meeting will be held in the offices of the Scudder
Kemper Investments, Inc., 13th Floor, Two International Place, Boston,
Massachusetts 02110, on September 15, 1999 at 2:00 p.m. Eastern time, for the
following purposes and to transact such other business, if any, as may properly
come before the meeting:
1. To elect seven Trustees to the Board of the Fund with five Trustees to be
elected by the holders of Preferred and Common Shares voting together and two
Trustees to be elected by holders of the Preferred Shares only.
2. To ratify or reject the selection of Ernst &Young LLP as independent auditors
of the Fund for the current fiscal year (Common and Preferred Shares, voting
together as a single class).
3. To approve an Amended and Restated Certificate of Designation for Preferred
Shares (Preferred Shares only, each series voting as a separate class).
The Board has fixed the close of business on July 15, 1999 as the record date
for determining the shareholders of the Fund entitled to notice of and to vote
at the meeting. Shareholders are entitled to one vote for each share held.
THE BOARD RECOMMENDS THAT YOU VOTE FOR ALL ITEMS
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PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD. SIGN, DATE
AND RETURN YOUR PROXY CARD IN THE ENVELOPE PROVIDED. TO SAVE YOUR FUND THE COST
OF ADDITIONAL SOLICITATIONS, PLEASE MAIL YOUR PROXY CARD PROMPTLY.
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<PAGE> 3
The accompanying proxy is solicited by the Board of the Fund for voting at the
annual meeting of shareholders to be held on September 15, 1999, and at any and
all adjournments thereof (the "Meeting"). This proxy statement was first mailed
to shareholders on or about August , 1999.
The Board recommends shareholders vote FOR ITEMS 1, 2 AND 3. The vote required
to approve each item is described under "Miscellaneous."
The Board has fixed the close of business on July 15, 1999 as the record date
for the determination of shareholders entitled to notice of and to vote at the
Meeting. As of July 15, 1999, shares of the Fund were issued and outstanding as
follows:
<TABLE>
<CAPTION>
SHARE TYPE NUMBER OF SHARES
---------- ----------------------
<S> <C>
Common................
Preferred.............
</TABLE>
Pursuant to the Amended and Restated Agreement and Declaration of Trust of the
Fund, the Board may authorize separate classes of shares of beneficial interest.
The Board has authorized, and the Fund has issued, common shares of beneficial
interest (the "Common Shares") and preferred shares of beneficial interest,
Series A through D (the "Preferred Shares"). The Common Shares and the Preferred
Shares have different powers, rights, preferences and privileges,
qualifications, limitations and restrictions with respect to, among other
things, dividends, liquidation, redemption and voting as more fully set forth in
the Certificate of Designation for Preferred Shares that established the
Preferred Shares. The Common Shares were first issued on October 20, 1988 and
the Preferred Shares were first issued on July 24, 1989. At the Meeting, the
holders of the Preferred Shares, voting as a separate class, are entitled to
elect two members of the Board and the holders of the Common Shares and the
Preferred Shares, voting together as a single class, are entitled to elect the
five remaining members of the Board. On Item 2, the holders of the Common Shares
and the Preferred Shares will vote together as a single class. On Item 3, only
the holders of the Preferred Shares will vote, each series voting as a separate
class.
ITEM 1. ELECTION OF TRUSTEES TO THE BOARD
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE NOMINEES NAMED BELOW.
It is intended that the proxies will be voted for the election as Trustees of
the nominees described below. Each Trustee so elected will serve as a Trustee of
the Fund until the next meeting of shareholders, if any, called for the purpose
of electing Trustees and until the election and qualification of a successor or
until such Trustee sooner dies, resigns or is removed as provided in the
organizational documents of the Fund. All the
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<PAGE> 4
nominees, except James R. Edgar, were last elected to the Board at the 1998
annual meeting of the shareholders. Mr. Edgar was appointed to the Board on May
27, 1999 and will be standing for election by shareholders for the first time.
As indicated above, holders of the Preferred Shares are entitled to elect two
Trustees. Messrs. Kelsey and Littauer are nominees for election by holders of
the Preferred Shares. In addition, five other Trustees are to be elected by
holders of the Common Shares and the Preferred Shares, voting together as a
single class. Messrs. Akins, Edgar, Gottschalk, Renwick, and Weithers are
nominees for election by all shareholders.
All the nominees listed below have consented to serve as Trustees of the Fund,
if elected. In case any nominee shall be unable or shall fail to act as a
Trustee by virtue of an unexpected occurrence, the proxies may be voted for such
other person(s) as shall be determined by the persons acting under the proxies
in their discretion.
<TABLE>
<CAPTION>
COMMON SHARES
NAME (DATE OF BIRTH), PRINCIPAL YEAR FIRST BECAME BENEFICIALLY OWNED
OCCUPATION AND AFFILIATIONS A TRUSTEE AS OF APRIL 30, 1999**
- ------------------------------- ----------------- ----------------------
<S> <C> <C>
James E. Akins (10/15/26) 1995 0
Consultant on International,
Political, and Economic
Affairs; formerly a career
United States Foreign Service
Officer; Energy Adviser for the
White House; United States
Ambassador to Saudi Arabia.
James R. Edgar (7/22/46) 1999 0
Distinguished Fellow,
University of Illinois
Institute of Government and
Public Affairs; Director,
Kemper Insurance Companies (not
affiliated with the Kemper
Funds); formerly, Governor,
State of Illinois.
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
COMMON SHARES
NAME (DATE OF BIRTH), PRINCIPAL YEAR FIRST BECAME BENEFICIALLY OWNED
OCCUPATION AND AFFILIATIONS A TRUSTEE AS OF APRIL 30, 1999**
- ------------------------------- ----------------- ----------------------
<S> <C> <C>
Arthur R. Gottschalk (2/13/25) 1988 800
Retired; formerly, President,
Illinois Manufacturers
Association; Trustee, Illinois
Masonic Medical Center;
formerly, Illinois State
Senator; formerly, Vice
President, The Reuben H.
Donnelley Corp.; formerly,
attorney.
Frederick T. Kelsey (4/25/27) 1988 500
Retired; formerly, consultant
to Goldman, Sachs & Co.;
formerly, President, Treasurer
and Trustee of Institutional
Liquid Assets and its
affiliated mutual funds;
Trustee of the Northern
Institutional Funds; formerly,
Trustee of the Pilot Funds.
Thomas W. Littauer (4/26/55)* 1998 0
Managing Director, Scudder
Kemper Investments, Inc.;
formerly, Head of Broker Dealer
Division of Putnam Investment
Management; formerly, President
of Client Management Services
for Fidelity Investments.
</TABLE>
4
<PAGE> 6
<TABLE>
<CAPTION>
COMMON SHARES
NAME (DATE OF BIRTH), PRINCIPAL YEAR FIRST BECAME BENEFICIALLY OWNED
OCCUPATION AND AFFILIATIONS A TRUSTEE AS OF APRIL 30, 1999**
- ------------------------------- ----------------- ----------------------
<S> <C> <C>
Fred B. Renwick (2/1/30) 1995 0
Professor of Finance, New York
University, Stern School of
Business; Director, the
Wartburg Home Foundation;
Chairman, Investment Committee
of Morehouse College Board of
Trustees; Director, American
Bible Society Investment
Committee; previously member of
the Investment Committee of
Atlanta University Board of
Trustees; formerly, Director of
Board of Pensions Evangelical
Lutheran Church in America.
John G. Weithers (8/8/33) 1993 400
Retired; formerly, Chairman of
the Board and Chief Executive
Officer, Chicago Stock
Exchange; Director, Federal
Life Insurance Company;
President of the Members of the
Corporation and Trustee, DePaul
University.
</TABLE>
- ---------------
* Interested person of the Fund as defined in the Investment Company Act of
1940 ("1940 Act").
** From time to time, the Trustees have been, and may in the future be,
restricted from buying and/or selling shares of the Fund.
All the nominees, except Mr. Littauer, serve as board members of 16 investment
companies, with 56 portfolios managed by Scudder Kemper Investments, Inc. (the
"Adviser"). Mr. Littauer serves as a board member of various investment
companies managed by the Adviser.
The Board has an audit and governance committee that is composed of Messrs.
Akins, Edgar, Gottschalk, Kelsey, Renwick, and Weithers. The committee met six
times during its 1998 fiscal year (November 30, 1998). The committee makes
recommendations regarding the selection of independent auditors for the Fund,
confers with the independent auditors regarding the Fund's financial statements,
the results of audits and related matters, seeks and reviews nominees for Board
membership and performs such other tasks as the Board assigns. The committee
also
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<PAGE> 7
proposes the nominees for election by the shareholders. Shareholders wishing to
submit the name of a candidate for consideration by the committee should submit
their recommendations to the secretary of the Fund.
The Fund pays Trustees who are not "interested persons" of the Fund an annual
retainer plus expenses, and an attendance fee for each Board meeting and
committee meeting attended. As reflected above, the Trustees currently serve as
board members of various investment companies for which the Adviser serves as
investment manager. Trustees or officers of the Fund who are "interested
persons" receive no compensation from such Fund. The Board of the Fund met six
times during its 1998 fiscal year. Each then current Trustee attended 75% or
more of the meetings of the Board and the audit and governance committee (if
then a member thereof) held during its 1998 fiscal year.
The table shows, for each Trustee entitled to receive compensation from the
Fund, the aggregate compensation paid or accrued during the Fund's 1998 fiscal
year and the total compensation that the Kemper funds paid or accrued during
calendar year 1998.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
AGGREGATE COMPENSATION FROM FUNDS AND OTHERS
NAME OF TRUSTEE FROM THE FUND KEMPER FUNDS(3)
--------------- ---------------------- ----------------------
<S> <C> <C>
James E. Akins........... 5,800 140,800
James R. Edgar(1)........ N/A N/A
Arthur R.
Gottschalk(2).......... 5,300 146,300
Frederick T. Kelsey...... 5,800 141,300
Fred B. Renwick.......... 5,900 141,300
John G. Weithers......... 5,900 146,300
</TABLE>
- ---------------
(1) Appointed to the Board on May 27, 1999.
(2) Includes deferred fees. Pursuant to deferred compensation agreements with
the Fund, deferred amounts accrue interest monthly at a rate equal to the
yield of Zurich Money Funds--Zurich Money Market Fund. Total deferred fees
(including interest thereon) payable from the Fund is $ .
(3) Includes compensation for service on the boards of 15 Kemper Funds with 50
fund portfolios. Each Trustee currently serves as a board member of 16
Kemper Funds with 56 fund portfolios.
FUND OFFICERS. Information about the executive officers of the Fund, with their
respective dates of birth, terms as Fund officers indicated and principal
occupation for the past five years, is set forth below.
Mark S. Casady (9/21/60), president of the Fund since 1/21/98, is managing
director of the Adviser.
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<PAGE> 8
Philip J. Collora (11/15/45), vice president of the Fund since 2/1/90 and
secretary of the Fund since 3/2/95. Mr. Collora is senior vice president of the
Adviser.
John R. Hebble (6/27/59), treasurer of the Fund since 5/20/98, is senior vice
president of the Adviser.
Ann M. McCreary (11/6/56), vice president of the Fund since 1/21/98, is managing
director of the Adviser.
Caroline Pearson (4/1/62), has been an assistant secretary of the Fund since
1/21/98. Ms. Pearson is a senior vice president of the Adviser; formerly,
Associate, Dechert Price & Rhodes (law firm) 1989 to 1997.
Robert C. Peck, Jr. (10/1/46), vice president of the Fund since 1/21/98, is
managing director of the Adviser; prior to 8/2/97, he was executive vice
president and chief investment officer with an unaffiliated investment
management firm.
Kathryn L. Quirk (12/3/52), vice president of the Fund since 1/21/98, is
managing director of the Adviser.
The officers of the Fund are elected by the Board of the Fund on an annual basis
to serve until their successors are elected and qualified.
SHAREHOLDERS. As of April 30, 1999, the Trustees and officers of the Fund as a
group owned beneficially shares, which is less than 1% of the
outstanding shares of each Fund. As of April 30, 1999, no person is known to the
Fund to have owned beneficially more than 5 percent of the shares of the Fund.
SECTION 16 REPORTING COMPLIANCE. Section 30(h) of the 1940 Act and Section 16(a)
of the Securities Exchange Act of 1934 require the Fund's officers and Trustees,
the Adviser, affiliated persons of the Adviser and persons who own more than ten
percent of a registered class of the Fund's equity securities to file forms
reporting their affiliation with that Fund and reports of ownership and changes
in ownership of that Fund's shares with the Securities and Exchange Commission
(the "SEC") and the New York Stock Exchange (the "NYSE"). These persons and
entities are required by SEC regulation to furnish the Fund with copies of all
Section 16(a) forms they file. Based solely upon its review of the copies of
each form received by it, and written representations from certain reporting
persons that no year-end reports were required for those persons, the Fund
believes that during the fiscal year ended November 30, 1998, such reporting
persons complied with all applicable filing requirements.
INVESTMENT MANAGER. Scudder Kemper Investments, Inc. (the "Adviser"), 345 Park
Avenue, New York, NY 10154, serves as the Fund's investment adviser and manager
pursuant to an investment management agreement.
7
<PAGE> 9
ITEM 2. SELECTION OF INDEPENDENT AUDITORS
THE BOARD OF EACH FUND RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF ERNST &
YOUNG LLP AS INDEPENDENT AUDITORS FOR EACH FUND.
A majority of the Trustees who are "non-interested" persons of the Fund has
selected Ernst & Young LLP, independent auditors, to audit the books and records
of the Fund for the current fiscal year. This firm has served the Fund in this
capacity since the Fund was organized and has no direct or indirect financial
interest in the Fund except as independent auditors. The selection of Ernst &
Young LLP as independent auditors of the Fund is being submitted to the
shareholders for ratification. A representative of Ernst & Young LLP is expected
to be present at the Meeting and will be available to respond to any appropriate
questions raised at the Meeting and may make a statement.
ITEM 3. AMENDED AND RESTATED CERTIFICATE OF DESIGNATION FOR PREFERRED SHARES
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE AMENDED AND RESTATED CERTIFICATE OF
DESIGNATION FOR PREFERRED SHARES
The proposed Amended and Restated Certificate of Designation for Preferred
Shares (the "Amended and Restated Certificate of Designation") would make
certain changes to the terms of the Certificate of Designation for Preferred
Shares (the "Certificate of Designation") in order to provide greater
flexibility, to refine the terms and conditions in light of subsequent positions
taken by the Internal Revenue Service ("IRS") and to update certain terms to
bring them into conformity with recent developments in the marketplace for
closed-end fund preferred shares, including the current standards for rating
such shares.
The Amended and Restated Certificate of Designation would (1) allow the Board of
Trustees, without shareholder approval, to issue additional series of preferred
shares, subject to compliance with the applicable 1940 Act asset coverage
requirements and rating agency approval and (2) amend various sections of the
Certificate of Designation as described below. The following summary of the
Amended and Restated Certificate of Designation set forth below is qualified in
its entirety by reference to the Amended and Restated Certificate of Designation
for Preferred Shares, a copy of which, marked to show changes from the
Certificate of Designation adopted on July 25, 1989, is attached as Annex A.
Capitalized terms not defined will have the same meaning as these terms are used
in the Amended and Restated Certificate of Designation.
8
<PAGE> 10
(1) ELIMINATION OF "SUNSET" PROVISIONS.
The Certificate of Designation requires the mandatory redemption by the
Fund of each series of Preferred Shares beginning in 2020 for Series A and at
two-year intervals thereafter for each successive series. The Amended and
Restated Certificate of Designation would eliminate these provisions. Subsequent
IRS pronouncements have made such provisions inadvisable for preferred shares.
(2) AMENDMENT TO VOTING REQUIREMENTS.
(A) SERIES BY SERIES VOTING.
The Certificate of Designation currently provides that preferred
shareholders have the right to vote together as a class on certain matters as
required by the 1940 Act. The current Certificate of Designation, however, does
not provide for series by series voting of the Preferred Shares on matters that
affect only that series. The Amended and Restated Certificate of Designation
would provide that series by series voting is required only on those matters
that affect that series in a manner different from that of other series or
classes of the Fund's shares.
(B) ABILITY TO ISSUE ADDITIONAL PREFERRED SHARES OF A NEWLY CREATED SERIES
WITHOUT SHAREHOLDER APPROVAL.
The current Certificate of Designation requires approval of preferred
shareholders to increase or decrease the number of Preferred Shares authorized
to be issued. The Amended and Restated Certificate of Designation would continue
to provide that preferred shareholder approval is required to increase or
decrease the number of Preferred Shares of a previously designated series
authorized to be issued. However, the Amended and Restated Certificate of
Designation would give the Board of Trustees the ability to establish and
designate additional series of Preferred Shares, without shareholder approval,
provided that (1) if the Preferred Shares are rated by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's, a division of the McGraw Hill
Companies ("S&P"), the Fund obtains written confirmation from Moody's or S&P
that the issuance of such additional shares or other class or series of shares
would not impair the rating then assigned by such rating agency to any series of
the Preferred Shares outstanding or (2) if Moody's or S&P is not then rating the
Preferred Shares, the aggregate liquidation preference of all Preferred Shares
of the Fund outstanding after any such issuance, exclusive of accumulated and
unpaid dividends, may not exceed $ .
The Amended and Restated Certificate of Designation, by giving the Board
the authority to issue additional shares of newly created series, enables the
Fund to manage its capital structure more efficiently in
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<PAGE> 11
response to changing market conditions. Issuing additional Preferred
Shares, however, would decrease the amount of asset coverage for existing
Preferred Shares.
On [May 19, 1999], the Board approved the issuance of an additional $50
million of Preferred Shares of a newly created Series E, contingent upon
shareholders approving the Amended and Restated Certificate of Designation. The
Amendment provides for the establishment and designation of Series E. The Fund
believes that the ceiling amount of $ (the amount of both the
Preferred Shares currently outstanding and the proposed additional Preferred
Shares of Series E) will adequately protect existing holders of Preferred Shares
in the event the Fund issues additional Preferred Shares at a time when neither
Moody's nor S&P is rating the Fund's Preferred Shares. In addition, so long as
either Moody's or S&P is rating the Preferred Shares and the Fund is
required--as a precondition for issuing additional Preferred Shares--to obtain
written confirmation for each rating agency then rating the Preferred Shares so
that any such additional issuance would not impair the rating then assigned to
the Preferred Shares by such rating agency, the Fund believes that holders of
Preferred Shares will be adequately assured that any such additional issuance
will not result in any significant diminution of the Fund's overall
creditworthiness.
(3) CHANGE IN ALLOCATION OF TAXABLE INCOME AND "GROSS UP PAYMENTS"
The IRS currently requires that a regulated investment company that has two
or more classes of shares must designate to each such class proportionate
amounts of each type of its income for each tax year based upon the percentage
of total dividends distributed to each class for such year. Under a special
"grandfather" provision contained in Revenue Ruling 89-81, certain regulated
investment companies with Preferred Shares outstanding prior to June 13, 1989,
can make non-proportionate designations. The Fund has designated exempt-interest
dividends disproportionately to Preferred Shares and designated capital gains
and any ordinary income to its common shares pursuant to this "grandfather"
provision. The issuance of additional Preferred Shares of newly created Series E
approved by the Board may result in the Fund not being allowed to rely on the
"grandfather" provision.
Therefore, the Amended and Restated Certificate of Designation provides
that the Fund would be obligated to provide advance notice of any potentially
taxable portion of any dividend distributions to preferred shareholders to the
remarketing agent prior to the setting of the dividend rate for a particular
dividend period to permit the remarketing process to consider this potentially
taxable amount payable during the next dividend period in setting the return on
the Preferred Shares for that period. If the Fund fails to provide such advance
notice, the Fund
10
<PAGE> 12
would be obligated (under certain conditions) to make a "gross up
payment" to preferred shareholders in respect of the tax payable on taxable
income received.
Under the "gross up" provisions of the Amended and Restated Certificate of
Designation, the Fund would make "gross up" payments to offset any such
allocation of taxable income and capital gains to preferred shareholders if, in
the case of any Dividend Period of 28 days or fewer, the Fund allocates any net
capital gains or other income taxable for Federal income tax purposes to a
dividend paid on the Preferred Shares without having given advance notice
thereof to the Remarketing Agent ("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 Preferred Shares or the liquidation of the
Fund. If, in the case of any Dividend Period of more than 28 days, the Fund
makes a Taxable Allocation to a dividend paid on the Preferred Shares, the Fund
shall, prior to the end of the calendar year in which each dividend was paid,
provide notice thereof to the Remarketing Agent and direct the Funds' dividend
disbursing agent for the Preferred Shares to send such notice with a "gross up
payment" to each holder of shares that was entitled to such dividend payment
during such calendar year at such holder's address as the same appears or last
appeared on the record books of the Fund. A "gross up payment" means payment to
a holder of preferred shares of an amount that, 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 dividend 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 that
would have been received by such holder if the amount of the aggregate Taxable
Allocations were not subject to regular Federal income tax.
(4) AUTHORITY OF THE BOARD TO INTERPRET THE CERTIFICATE OF DESIGNATION.
From time to time, issues may arise with respect to the preferred shares
that require interpretation or adjustment of certain provisions of the
Certificate of Designation. These issues may range from ambiguities in terms
used to formal defects. In order to facilitate any future interpretations of the
Certificate of Designation, the Amended and Restated Certificate of Designation
would explicitly recognize the Board's authority, to the extent permitted by
applicable law, to interpret such matters and, if necessary, adjust the language
of the Amended and Restated Certificate of Designation. In addition, the Amended
and Restated Certificate of Designation would explicitly give the Board the
authority to amend the Certificate of Designation with respect to any series of
Preferred Shares prior to the issuance of shares of such series.
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<PAGE> 13
(5) MISCELLANEOUS PROVISIONS TO COMPLY WITH S&P AND MOODY'S RATING CRITERIA
Because it is expected that any future issuance of Preferred Shares,
including the proposed shares of Series E discussed above, would be rated by S&P
and/or Moody's, the Amended and Restated Certificate of Designation for
Preferred Shares contains various changes designed to conform the Amended and
Restated Certificate of Designation to current ratings criteria and drafting
conventions. The primary thrust of these changes is to identify specifically the
"Rating Agency Required Asset Coverage," in accordance with current rating
agency guidelines. This language reflects the rating agency requirement that
certain eligible Fund assets must have a discounted value at least equal to the
liquidation value of the outstanding preferred shares plus unpaid dividends and
certain other Fund liabilities.
MISCELLANEOUS
GENERAL. The cost of preparing, printing and mailing the enclosed proxy,
accompanying notice and proxy statement and all other costs in connection with
solicitation of proxies will be paid by the Fund, including any additional
solicitation made by letter, telephone or facsimile. In addition to solicitation
by mail, certain officers and representatives of the Fund, officers and
employees of the Adviser and certain financial services firms and their
representatives, who will receive no extra compensation for their services, may
solicit proxies by telephone, telegram or personally. The Fund has engaged
Shareholder Communications Corporation to assist in the solicitation of proxies
at a total estimated cost of $3,500 (plus expenses). Failure of a quorum to be
present at the Meeting for the Fund will necessitate adjournment for the Fund
and will subject the Fund to additional expense. A COPY OF THE FUND'S ANNUAL
REPORT IS AVAILABLE WITHOUT CHARGE UPON REQUEST BY WRITING TO THE FUND, 222
SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606 OR BY CALLING 1-800-294-4366.
PROPOSALS OF SHAREHOLDERS. The Fund delayed its 1999 annual meeting of
shareholders from May to September. It is currently anticipated that the 2000
annual meeting will be held in May. A shareholder wishing to submit a proposal
for inclusion in the Fund's proxy statement for the 2000 annual meeting of
shareholders pursuant to Rule 14a-8 under the Securities Exchange Act of 1934
should send such written proposal to the Secretary of the Fund within a
reasonable time before the solicitation of proxies for such meeting. The Fund
will treat any such proposal received no later than December 17, 1999 as timely.
A shareholder wishing to provide notice in the manner prescribed by Rule
14a-4(c)(1) to the Fund of a proposal submitted outside of the process of Rule
14a-8 must submit such written notice to the Secretary of the Fund within a
reasonable time before the solicitation of proxies for such meeting. The Fund
will treat any such notice
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<PAGE> 14
received no later than February 25, 2000 as timely. The timely submission of a
proposal under either rule, however, does not guarantee its inclusion.
OTHER MATTERS TO COME BEFORE THE MEETING. The Board is not aware of any matters
that will be presented for action at the Meeting other than those set forth
herein. Should any other matters requiring a vote of shareholders arise, the
proxy in the accompanying form will confer upon the person or persons entitled
to vote the shares represented by such proxy the discretionary authority to vote
the shares with respect to any such other matters in accordance with their best
judgment in the interest of the Fund.
VOTING, QUORUM. Each valid proxy will be voted in accordance with the
instructions on the proxy and as the persons named in the proxy determine on
such other business as may come before the Meeting. If no instructions are
given, the proxy will be voted for the election as Trustees of the persons who
have been nominated for the Fund and as recommended by the Board on each other
item. Shareholders who execute proxies may revoke them at any time before they
are voted, either by writing to the Fund or in person at the time of the
Meeting. Proxies given by telephone or electronically transmitted instruments
may be counted if obtained pursuant to procedures designed to verify that such
instructions have been authorized. Item 1, election of Trustees, requires a
plurality vote of the shares of the Fund. As noted previously, the holders of
the Preferred Shares, voting as a separate class, are entitled to elect two
Members of the Board and the holders of the Common Shares and the Preferred
Shares, voting together as a single class, are entitled to elect the five
remaining Members of the Board. With regard to Item 2, ratification of the
selection of independent auditors for the Fund, the holders of the Common Shares
and the Preferred Shares of the Fund will vote together as a single class, and
requires the affirmative vote of a majority of the shares of the Fund voting on
the matter. Item 3, approval of the Amended and Restated Certificate of
Designation, requires the affirmative vote of a majority of the outstanding
Preferred Shares, each series voting as a separate class. Preferred Shares held
in "street name" for which voting instructions have not been received as of one
business day before the meeting, or if adjourned, one business day before the
day to which the meeting is adjourned, and that would otherwise be treated as
"broker non-votes" may, pursuant to Rule 452 of the NYSE, be voted by the broker
on Item 3 in the same proportion as the votes cast by all Preferred Shares who
voted on the item. Rule 452 permits proportionate voting for Preferred Shares
with respect to a particular item if, among other things, (i) a minimum of 30%
of the Preferred Shares outstanding has been voted by the holders of such shares
with respect to the item and (ii) less than 10% of the Preferred Shares
outstanding has been voted by the holders of such shares against the item. For
the purpose of meeting the 30% test, abstentions will be treated as shares
"voted" and, for the purpose of meeting the 10% test, abstentions will not be
treated as shares "voted" against the item. On Item 1, abstentions and broker
non-votes will have no effect; the persons
13
<PAGE> 15
receiving the largest number of votes will be elected. On Item 2, abstentions
and broker non-votes will not be counted as votes cast and will have no effect
on the result of the vote.
At least 50% of the shares of the Fund must be present, in person or by proxy,
in order to constitute a quorum for that Fund. Thus, the meeting for the Fund
could not take place on its schedule date if less than 50% of the shares of the
Fund were represented.
THE BOARD OF THE FUND RECOMMENDS AN AFFIRMATIVE VOTE ON ALL ITEMS.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
By order of the Board,
Philip J. Collora
Secretary
14
<PAGE> 16
ANNEX A
KEMPER MUNICIPAL INCOME TRUST
AMENDED AND RESTATED FORM OF CERTIFICATE OF DESIGNATION
FOR PREFERRED SHARES*
KEMPER MUNICIPAL INCOME TRUST, a Massachusetts business trust (the "Fund"),
hereby certifies that, pursuant to the authority contained in Article III of its
Amended and Restated Agreement and Declaration of Trust, its Board of Trustees
has adopted the following resolution restating the designations and powers,
rights, preferences and privileges of its previously issued class and various
series of preferred shares of beneficial interest and creating a an additional
class and various series of the class of its preferred shares of beneficial
interest as follows:
RESOLVED, That, pursuant to authority expressly granted to and vested in the
Board of Trustees by the provisions of the Amended and Restated Agreement and
Declaration of Trust of Kemper Municipal Income Trust (the "Fund") the Fund, the
Board of Trustees hereby authorizes restates the issuance by the Fund of 43,000
preferred shares of beneficial interest, $.01 par value, and hereby fixes the
designations and the powers, rights, preferences and privileges and the
qualifications, limitations and restrictions of the shares of such class and
series below as Series A, B, C and D; and authorizes the issuance by the Fund of
[ ] preferred shares of beneficial interest, $.01 par value, and
hereby fixes the designations and the powers, rights, preferences and privileges
and the qualifications, limitations and restrictions of the shares of such class
and series as Series E, as follows:
PREFERRED SHARES
1. The designation of the preferred shares of beneficial interest, $.01 par
value, of the Fund is Preferred Shares of Beneficial Interest (the "Preferred
Shares"), consisting of [ ] Preferred Shares that the
- ---------------
* This Form of Amended and Restated Certificate of Designation for Preferred
Shares has been marked to show changes from the current Certificate of
Designation for Preferred Shares. Underlined language has been added and
stricken language has been deleted.
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<PAGE> 17
Fund has authority to issue. The Preferred Shares shall be designated and
issuable in series as follows:
SERIES DESIGNATION
SERIES A: A series of 10,800 Preferred Shares is hereby designated "Preferred
Shares, Series A." Each share of Preferred Shares, Series A shall be issued on
July 27, 1989; have an initial Dividend Payment Date (as herein defined) of
August 22, 1989; be redeemed by the Fund on the first Dividend Payment Date in
June of 2020, unless such date is extended as provided in paragraph 4(b), at a
redemption price of $5,000 per share plus accumulated dividends through the date
fixed for redemption (whether or not declared); and have such other preferences,
limitations and relative voting rights, in addition to those required by
applicable law, as are set forth in this resolution. The Preferred Shares,
Series A shall constitute a separate series of Preferred Shares of the Fund, and
each share of Preferred Shares, Series A shall be identical.
SERIES B: A series of 10,700 Preferred Shares is hereby designated "Preferred
Shares, Series B." Each share of Preferred Shares, Series B shall be issued on
July 27, 1989; have an initial Dividend Payment Date of August 29, 1989; be
redeemed by the Fund on the first Dividend Payment Date in June of 2022, unless
such date is extended as provided in paragraph 4(b), at a redemption price of
$5,000 per share plus accumulated dividends through the date fixed for
redemption (whether or not declared); and have such other preferences,
limitations and relative voting rights, in addition to those required by
applicable law, as are set forth in this resolution. The Preferred Shares,
Series B shall constitute a separate series of Preferred Shares of the Fund, and
each share of Preferred Shares, Series B shall be identical.
SERIES C: A series of l0,800 Preferred Shares is hereby designated "Preferred
Shares, Series C." Each share of Preferred Shares, Series C shall be issued on
July 27, 1989; have an initial Dividend Payment Date of September 5, 1989; be
redeemed by the Fund on the first Dividend Payment Date in June of 2024, unless
such date is extended as provided in paragraph 4(b), at a redemption price of
$5,000 per share plus accumulated dividends through the date fixed for
redemption (whether or not declared); and have such other preferences,
limitations and relative voting rights, in addition to those required by
applicable law, as are set forth in this resolution. The Preferred Shares,
Series C shall constitute a separate series of Preferred Shares of the Fund, and
each share of Preferred Shares, Series C shall be identical.
SERIES D: A series of 10,700 Preferred Shares is hereby designated "Preferred
Shares, Series D." Each share of Preferred Shares, Series D shall be issued on
July 27, 1989; have an initial Dividend Payment Date
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<PAGE> 18
of September 12, 1989; be redeemed by the Fund on the first Dividend Payment
Date in June of 2026, unless such date is extended as provided in paragraph
4(b), at a redemption price of $5,000 per share plus accumulated dividends
through the date fixed for redemption (whether or not declared); and have such
other preferences, limitations and relative voting rights, in addition to those
required by applicable law, as are set forth in this resolution. The Preferred
Shares, Series D shall constitute a separate series of Preferred Shares of the
Fund, and each share of Preferred Shares, Series D shall be identical.
SERIES E: A series of [ ] Preferred Shares is hereby designated "Preferred
Shares, Series E." Each share of Preferred Shares, Series E shall be issued on
[ ], 1999; have an initial Dividend Payment Date of [ ], 1999;
and have such other preferences, limitations and relative voting rights, in
addition to those required by applicable law, as are set forth in this
resolution. The Preferred Shares, Series E shall constitute a separate series of
Preferred Shares of the Fund, and each share of Preferred Shares, Series E shall
be identical.
Each Preferred Share within a particular series shall have the identical
Dividend Period and Dividend Rate as each other share within such series.
2. The following terms shall have the following meanings:
Adjusted Value shall have the meaning described in paragraph 7.
Agent Member shall mean a designated member of the Depository who will maintain
records for a beneficial owner of the Preferred Shares.
Agreement and Declaration shall mean the Amended and Restated Agreement and
Declaration of Trust of the Fund dated October 7, 1988.
Allocation Notice Date shall have the meaning set forth in paragraph 3.
Business Day shall mean a day on which banks located in The City of New York are
not required or authorized by law or regulation to be closed and on which The
New York Stock Exchange is open.
Certificates of Deposit shall mean certificates of deposit which, at the time of
the Fund's investment therein, or contractual commitment providing for such
investment, (i) have remaining terms to maturity of one year or less, (ii) are
rated at least "P-1" by Moody's and "A-l+" by Standard & Poor's, and (iii) are
issued by an obligor whose long term unsecured debt obligations (other than such
obligation the ratings of which are based on the credit of a person or entity
other than such obligor) are rated at least "Aa3" by Moody's and "AA-" by
Standard & Poor's.
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<PAGE> 19
Certificate of Designation shall mean the Fund's Amended and Restated
Certificate of Designation executed on the date set forth herein.
Certificate of Determination shall mean a certificate in substantially the
following form completed to the extent applicable:
Certificate of Determination
Certificate No. ________ Date ______________
The Dividend Periods for the Preferred Shares listed on the attachment hereto
shall be as specified thereon and shall commence on and end on the date or dates
specified thereon. The Dividend Rate (expressed as a percentage per annum) for
each such Dividend Period shall be as specified on the attachment hereto.
The undersigned, being a duly elected or appointed __________ of the Fund,
hereby certifies that this Certificate of Determination was duly approved by the
Board of Trustees of the Fund, a committee thereof or an officer designated by
the Board of Trustees.
------------------------
Certificate of Rating Agency Required Asset Coverage shall mean a certificate
delivered to the Paying Agent setting forth, among other things, the Fund's
Compliance with Rating Agency Required Asset Coverage. have the meaning set
forth in paragraph 6.
Code shall mean the Internal Revenue Code of 1986, as amended from time to time.
Commercial Paper Dealer shall mean Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Goldman, Sachs & Co. and such other dealers as the Fund may
from time to time appoint, or in lieu of any thereof, their respective
affiliates or successors.
Commercial Paper Rate on any date shall mean (i) the interest equivalent of the
rate on 60-day commercial paper placed on behalf of issuers whose corporate
bonds are rated "AA" by Standard & Poor's and "Aa" by Moody's, or the equivalent
of such rating by another rating agency, as such rate is made available by the
Federal Reserve Bank of New York on a discount basis or otherwise for the
Business Day immediately preceding such date, or (ii) if the Federal Reserve
Bank of New York does not make available such a rate, then the arithmetic
average of the interest equivalent of such rates on commercial paper placed on
behalf of such issuers, as quoted on a discount basis or otherwise by the
Commercial Paper Dealers to the Remarketing Agent for the close of business on
the Business Day immediately preceding such date. If any Commercial Paper Dealer
does not quote a rate required to determine the Commercial Paper Rate, the
Commercial Paper Rate shall be determined on the basis of the quotation or
quotations furnished by the
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<PAGE> 20
remaining Commercial Paper Dealer or Dealers or, if none of the Commercial Paper
Dealers quotes such a rate, by any substitute Commercial Paper Dealer or Dealers
selected by the Fund to provide such rate or rates not being supplied by any
Commercial Paper Dealer.
Common Shares shall mean the common shares of beneficial interest, $.01 par
value, of the Fund.
Cure Date shall have the meaning set forth in paragraph 4.
CMOs shall mean debt obligations which may be issued by GNMA, FNMA or FHLMC or
real-estate mortgage investment conduits, any of which may be comprised of one
or more classes, each with a fixed latest stated maturity and bearing interest
at either a fixed or floating rate, if such CMOs (i) have a current rating by
Standard & Poor's of "AAA" and by Moody's of "Aaa" or, if specifically advised
in writing by Moody's and Standard & Poor's that the rating of the Preferred
Shares will not be adversely affected thereby, are in the highest rating
category of a nationally recognized statistical rating agency, (ii) are payable
in U. S. currency (iii) are directly secured by GNMA Certificates, FNMA
Certificates or FHLMC Certificates; (iv) were issued as part of an issue of
collateralized mortgage obligations which were originally offered to the public
in an aggregate principal amount at least equal to $100,000,000; (v) are not
included in a class or tranche of an issue of collateralized mortgage
obligations which class or tranche (a) constitutes a planned amortization class
bond, (b) has a coupon that floats inversely against or as a multiple of an
index, or (c) consists of an interest-only or principal-only stripped
obligation; (vi) are not part of a "Z" class or tranche of in issue; (vii) have
a weighted average life of not more than ten years unless Standard & Poor's
shall have advised the Fund in writing that the inclusion of a CMO with a
weighted average life of greater than ten years will not affect its rating on
the Preferred Shares; and (viii) satisfy such other criteria as may be
established by Moody's and Standard & Poor's.
Date of Original Issue shall mean the date on which the Fund originally issues
the Preferred Shares.
Depository shall mean the organization appointed by the Fund to perform
depository functions with respect to the Preferred Shares.
Dividend Payment Date shall mean with respect to any Dividend Period the day
next succeeding the last day thereof.
Dividend Period shall mean, as to each Preferred Share of a series, the period
commencing on the Date of Original Issue and ending on the date specified for
such series on the Date of Original Issue and thereafter, as to such series, the
period commencing on the day following each Divi-
A-5
<PAGE> 21
dend Period for such series and ending on the 28th day thereafter, except as
provided in paragraph 3(b).
Dividend Rate shall mean each rate at which a dividend shall be payable on each
series of Preferred Shares as described in paragraph 3.
Eligible Municipal Securities shall mean, if rated by S&P, municipalsecurities
which are both Standard & Poor's Eligible Municipal Securities and, if rated by
Moody's, securities which are Moody's Eligible Municipal Securities. Municipal
securities included as Eligible Securities shall be bonds that are issued by any
of the 50 states; the territories and their subdivisions, counties cities,
towns, villages, and school districts; agencies such as authorities and special
districts created by the states; and certain federally sponsored agencies such
as local housing authorities. Payments made on such bonds are exempt from
federal income taxes and are generally exempt from state and local sales taxes
in the state of issuance.
Evaluation Date shall mean each Business Day.
Escrowed Bonds shall mean municipal securities that (i) have been determined to
be legally defeased in accordance with Standard & Poor's legal defeasance
criteria, (ii) have been determined to be economically defeased in accordance
with Standard & Poor's economic defeasance criteria and assigned a rating of
"AAA" by Standard & Poor's, (iii) are not rated by Standard & Poor's 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 "AAA" by Standard & Poor's rating.
FHLMC shall mean the Federal Home Loan Mortgage Corporation created by Title III
of the Emergency Home Finance Act of 1970, and shall include any successor
thereto.
FHLMC Certificate shall mean a mortgage participation certificate in
certificated or book-entry form, the timely payment of interest at the
applicable certificate rate and the ultimate collection or timely payment of
principal of which is guaranteed by FHLMC, and which evidences a proportional
undivided interest in or participation interest in, a specified pool of fixed,
variable or adjustable rate, fully amortizing level-payment mortgage loans
secured by first liens on one- to four-family residences or, in the case of
Multi-family Plan B FHLMC Certificates, a specified pool of fixed,
level-payments fully amortizing mortgage loans secured by first liens on
properties containing five or more units and designed primarily for residential
use; provided, however, that such term shall not include interest-only or
principal-only securities issued or guaranteed by FHLMC.
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<PAGE> 22
FNMA shall mean the Federal National Mortgage Association, a United States
Government-sponsored private corporation established pursuant to Title VIII of
the Housing and Urban Development Act of 1968, and shall include any successor
thereto.
FNMA Certificate shall mean a mortgage pass-through certificate in certificated
or book-entry form, the full and timely payment of interest at the applicable
certificate rate and principal of which is guaranteed by FNMA, and which
evidences a proportional undivided interest in a pool of level-payment, fixed,
variable or adjustable rate, fully amortizing mortgage loans secured by first
liens on one- to four-family residences; provided, however, that such term shall
not include interest-only or principal-only securities issued or guaranteed by
FNMA.
GNMA shall mean the Government National Mortgage Association, and shall include
any successor thereto.
GNMA Certificate shall mean a fully modified pass-through certificate in
certificated or book-entry form, the fully and timely payment of principal and
interest of which is guaranteed by GNMA, which obligation is backed by the full
faith and credit of the United States and which evidences a fractional undivided
interest in a pool of graduated payment (if past the graduated payment period)
or level-payment, fixed, variable or adjustable rate, mortgage loans which are
secured by first liens on one- to four-family residences; provided, however,
that such term shall not include interest-only or principal-only securities
guaranteed by GNMA.
Gross-up Payment shall mean, in respect of any dividend, a payment to a holder
of Preferred Shares of an amount which, giving effect to any Taxable Allocation
made with respect to such dividend, would cause such holder's after-tax returns
(taking into account both any Taxable Allocation and the Gross-up Payment) to be
equal to the after-tax return the holder would have received if no such Taxable
Allocation had occurred. Such Gross-up Payment shall be calculated: (i) without
consideration being given to the time value of money; (ii) assuming that no
holder of Preferred Shares is subject to the Federal alternative minimum tax
with respect to dividends received from the Fund; and (iii) assuming that each
holder of Preferred Shares is taxable at the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or net capital gain, as
applicable, or the maximum marginal regular Federal corporate income tax rate
applicable to ordinary income or net capital gain, as applicable, whichever is
greater, in effect at the time such Gross-up Payment is made.
Inverse Floater shall mean trust certificates or other instruments evidencing
interests in one or more municipal securities that qualify as Standard & Poor's
Eligible Securities (and satisfy the issuer and size
A-7
<PAGE> 23
requirements of the definition of Standard & Poor's Eligible Securities) the
interest rates on which are adjusted at short term intervals on a basis that is
inverse to the simultaneous readjustment of the interest rates on corresponding
floating rate trust certificates or other instruments issued by the same issuer,
provided that the ratio of the aggregate dollar amount of floating rate
instruments to inverse floating rate instruments issued by the same issuer does
not exceed one to one at their time of original issuance unless the floating
rate instrument has only one reset remaining until maturity.
Mandatory Redemption Date shall have the meaning set forth in paragraph 4(b)
below.
Market Value shall have the meaning described in paragraph 7 of any asset of the
Fund shall mean the market value thereof determined by the valuation methods,
including the Pricing Service adopted by the Fund's Board of Trustees. Market
Value of any asset shall include any interest accrued thereon. Securities for
which quotations are not readily available shall be valued at fair value as
determined by the pricing service using methods which include consideration of:
yields or prices of municipal bonds of comparable quality, type of issue,
coupon, maturity and rating; indications as to value from dealers; and general
market conditions. A Pricing Service may employ electronic data processing
techniques or a matrix system, or both, to determine valuations. In the event
the Pricing Service is unable to value a security, the security shall be valued
at the lower of two dealer bids obtained by the Fund from dealers who are
members of the National Association of Securities Dealers, Inc. and make a
market in the security, at least one of which shall be in writing.
Maximum Rate shall mean on any date on which a Dividend Rate is determined,
110%, increasing on the seventh day after such Dividend Rate is determined to be
a Maximum Rate to 125% of the Commercial Paper Rate and decreasing to 110% of
the Commercial Paper Rate on the day such Dividend Rate is determined to no
longer be the Maximum Rate. The Remarketing Agent shall round each applicable
Maximum Rate to the nearest one-thousandth (0.001) of one percent per annum,
with any such number ending in five ten-thousandths (0.0005) of one percent or
more being rounded upwards to the nearest one-thousandth (0.001) of one percent.
Moody's shall mean Moody's Investors Service, Inc.
Moody's Adjusted Value shall have the meaning set forth in paragraph 7.
Moody's Eligible Municipal Securities shall have the meaning set forth in
paragraph 7. mean each security eligible for consideration under
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<PAGE> 24
Moody's guidelines in effect as of the date of this Certificate of Designation.
Moody's Municipal Security Discount Factors shall have the meaning set forth in
paragraph 7.
1940 Act shall mean the Investment Company Act of 1940, as amended from time to
time.
1940 Act Cure Date, with respect to the failure by the Fund to maintain the 1940
Act Asset Coverage as of the last day of each month, means the last Business Day
of the following such month.
1940 Act Asset Coverage means asset coverage, as defined in section 18(h) of the
1940 Act, of at least 200% of the aggregate liquidation preference with respect
to all outstanding senior securities of the Fund which are stock, including all
outstanding Preferred Shares and other preferred shares of beneficial interest
of the Fund (or such other asset coverage as may 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 paying dividends on its common
stock).
Non-Payment Period with respect to all of the outstanding Preferred Shares of a
series shall mean (i) the period commencing on a Dividend Payment Date for such
series of Preferred Shares, if the Fund fails to declare on the Business Day
preceding such Dividend Payment Date for payment on such Dividend Payment Date
the full amount of dividends payable on such series of Preferred Shares, and
ending on and including the day next preceding the Dividend Payment Date next
succeeding the Business Day on which the full amount of all unpaid dividends
with respect to such series of Preferred Shares shall have been so declared or
(ii) the period commencing on a Dividend Payment Date for such series of
Preferred Shares, if the Fund fails to deposit for payment on such Dividend
Payment Date the full amount of such dividends payable on such series of
Preferred Shares and ending on and including the day next preceding the Dividend
Payment Date next succeeding the Business Day on which the full amount of such
dividends have been so deposited.
Non-Payment Rate shall mean on any date during a Non-Payment Period on which a
Dividend Rate is determined, 200% of the Commercial Paper Rate.
Other Securities shall mean other securities or obligations, including mortgage
loans and other mortgage related securities not otherwise included in the
definition of Eligible Securities, if (i) the inclusion of such securities or
obligations is deemed by the Board of Trustees to be in the interests of the
Trust, (ii) Moody's and Standard & Poor's or if both such Rating Agencies are
not then rating the Preferred Shares, the one
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<PAGE> 25
which is, has advised in writing that the inclusion of such other securities in
Rating Agency Required Assets will not adversely affect their then-current
ratings of the Preferred Shares, and (iii) such securities are eligible for
investment by the Fund under applicable laws and regulations.
Owner shall mean, with respect to each Preferred Share, the owner of record
thereof as shown from time to time on the Stock Register.
Paying Agent shall mean, at any time, the agent appointed by the Fund to pay
dividends and other amounts due on the Preferred Shares and to perform such
other duties as are provided herein.
Pricing Service shall mean S&P J.J. Kenny Evaluation Services, Muller Data
Corp., or any other pricing service approved by S&P or Moody's, or both, if
appropriate.
Qualifying Mortgage Pass-Through Certificates shall mean certificates which are
publicly registered securities and which represent undivided interests in
specified pools, which may include real estate mortgage investment conduits, of
mortgage loans (which pools consist primarily of fixed or adjustable rate, first
lien whole one- to four-family mortgage loans) issued by one or more trusts
established for that purpose and that, at the time of the Fund's investment
therein or contractual commitment providing for such investment, if rated by
Standard & Poor's, have a public rating of at least "AA" by Standard & Poor's,
and are publicly rated at least "Aa2" by Moody's; provided that any such
certificate will cease to be a Qualifying Mortgage Pass-Through Certificate on
the 30th day after such certificate's credit rating by Standard & Poor's is
decreased to below "AA" and immediately after such certificate's credit rating
by Moody's is decreased to below "Aa2."
Rating Agency shall mean Moody's or Standard & Poor's or if Moody's or Standard
& Poor's shall no longer engage in the business of issuing ratings for
securities comparable to the Preferred Shares, such other entity so engaged as
shall be selected by the Fund.
Rating Agency Dividend Coverage shall have the meaning described in paragraph 6.
Rating Agency Dividend Coverage Assets shall mean cash and short-term Eligible
Municipal Securities rated at least "A-l+" or "SP-l+" by Standard & Poor's,
Short-Term Money Market Instruments rated at least "A-l+" by Standard & Poor's
and other assets which the Board of Trustees may from time to time include in
Rating Agency Dividend Coverage Assets, provided that each of Moody's and
Standard & Poor's, or, if both such Rating Agencies are not then rating the
Preferred Shares, the one which is, shall have advised the Fund in writing that
its then-current rating of the Preferred Shares would not be adversely affected
if such assets were included in Rating Agency Dividend Coverage Assets,
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<PAGE> 26
with maturities or tender dates on or before the next succeeding Dividend
Payment Date.
Rating Agency Required Assets shall mean Eligible Securities and Other
Securities, both as defined herein. have the meaning set forth in paragraph 6.
Rating Agency Required Asset Coverage shall have the meaning described in
paragraph 6. as of any Valuation Date, shall mean the dollar amount equal to the
sum of (i) (A) the product of the number of Preferred Shares outstanding on such
date multiplied by $5,000 (plus the product of the number of shares of any other
Series of Preferred Shares outstanding on such date multiplied by the
liquidation preference of such Preferred Shares), plus any redemption premium
applicable to any Preferred Shares then subject to redemption, (B) the aggregate
amount of dividends that will have accumulated at the respective Dividend Rates
(whether or not earned or declared) to (but not including) the first respective
Dividend Payment Dates for any Preferred Shares outstanding that follow such
Valuation Date, (C) the aggregate amount of dividends that would accumulate on
shares of each series of Preferred Shares outstanding from such first respective
Dividend Payment Date therefor through the 49th day after such Valuation Date,
at the Maximum Rate (calculated as if such Valuation Date were the seventh day
of the Dividend Period commencing on such Dividend Payment Date) for a Seven-
Day Dividend Period of shares of such series to commence on such Dividend
Payment Date, assuming solely for purposes of the foregoing, that if by such
Valuation Date the Remarketing Agent adjusts the Dividend Period pursuant to
paragraph 3(b) of this Certificate of Designation, with respect to shares of
such series, such Maximum Rate shall be the higher of (a) the Maximum Rate for
the seventh day of a Seven-Day Dividend Period of shares of such series to
commence on such Dividend Payment Date, and (b) the Maximum Rate for the first
day of a Seven-Day Dividend Period of shares of such series to commence on such
Dividend Payment Date, multiplied by the Volatility Factor applicable to the
first day of a Seven-Day Dividend Period, or, in the event the Remarketing
Agent, pursuant to paragraph 3(b) of this Certificate of Designation, with
respect to shares of such series, adjusts a Dividend Period as to be more than
49 days, the Volatility Factor applicable to a Dividend Period of that length
(plus the aggregate amount of dividends that would accumulate at the Maximum
Rate or rates on any other Preferred Shares outstanding from such respective
Dividend Payment Dates through the 49th day after such Valuation Date) (except
that (1) if such Valuation Date occurs at a time when, pursuant to paragraph
3(g), the Fund did not deposit sufficient funds for the payment of declared
dividends and such failure has not been cured, the dividend for purposes of
calculation would accumulate at the current Dividend Rate then
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<PAGE> 27
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 Dividend Rate in effect immediately prior to such
Dividend Payment Date will remain in effect, the dividend for purposes of
calculation would accumulate at such applicable Dividend Rate in respect of
those days), (D) the amount of anticipated expenses of the Fund for the 90 days
subsequent to such Valuation Date, (E) the amount of any Gross-up Payment in
respect of any Preferred Shares 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 clearing
securities transactions) less (ii) the value (I.E., for purposes of current
Moody's guides, the face value of cash, short-term municipal securities 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 Adjusted Value, or for purposes of current
Standard & Poor's guides, the face value of cash, short-term municipal
securities rated "A-l+" or "SP-l+" and that mature or have a demand feature
exercisable in 30 days or less, and short-term securities that are the direct
obligation of the U.S. government, provided in each case that such securities
mature on or prior to the date upon which any of (i)(A) through (i)(F) become
payable, otherwise the Standard & Poor's Adjusted Value) of any of the Fund's
assets irrevocably deposited by the Fund for the payment of any of (i)(A)
through (i)(F).
Remarketing Agent shall mean at any time, the entity or entities appointed by
the Fund to act on its behalf in establishing Dividend Rates and Dividend
Periods for Preferred Shares and to act on behalf of beneficial owners in
remarketing such Preferred Shares.
Remarketing Conditions shall mean the factors listed in paragraph 3(d) below.
Securitized Receivables shall mean securities secured by, or which represent
undivided interests in, pools of retail automotive installment sales contracts
or accounts receivable arising from credit card purchases, if such securities
have a credit rating from Moody's of at least "Aa3" and from Standard & Poor's
of at least "AAA"; provided that such securities are part of an issue with an
outstanding aggregate balance at least equal to $250,000,000 and such securities
have a weighted average life of less than or equal to ten years.
Seven-Day Dividend Period shall mean a Dividend Period of seven days; provided
that if the seventh day of such period shall not be a day immediately preceding
a Business Day, such Seven-Day Dividend Period
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<PAGE> 28
shall end on the next day which immediately precedes a Business Day, and the
subsequent Dividend Period (if a Seven-Day Dividend Period) shall be decreased
by the number of days by which such Seven-Day Dividend Period was increased,
subject to the requirement that such subsequent Seven-Day Dividend Period must
end on a day immediately preceding a Business Day.
Short-Term Money Market Instruments shall mean the following types of financial
instruments, provided that such instruments, on the date of purchase or other
acquisition by the Fund, have remaining terms to maturity not in excess of 90
days from such date:
(a) commercial paper that is rated at the time of the Fund's
investment therein, or contractual commitment providing for such
investment, at least "P-1" by Moody's and "A-l+" by Standard & Poor's, and
is issued by an issuer whose long-term unsecured debt obligations are rated
at least "Aa3" by Moody's;
(b) demand or time deposits in certificates of deposits of, or
bankers' acceptances issued by, (i) a depository institution or trust
company incorporated under the laws of the United States or any state
thereof or the District of Columbia, or (ii) a United States branch office
or agency of a foreign depository institution or trust company (provided
that such branch office or agency is subject to banking regulation under
the laws of the United States, any state thereof or the District of
Columbia) if, in each case, the commercial paper, if any, and the long term
unsecured debt obligations (other than such obligations the rating of which
is based on the credit of or a person or entity other than such depository
institution or trust company) of such depository institution or trust
company at the time of the Fund's investment therein, or contractual
commitment providing for such investment, have (i) credit ratings from
Moody's of at least "P-1" and Standard & Poor's of at least "A-1+", in the
case of commercial paper, and (ii) a credit rating from Moody's of at least
"Aa3" and from Standard & Poor's of at least "AA-", in the case of long
term, unsecured debt obligations; provided, however, that in the case of
any such investment that matures in no more than one Business Day from the
date of purchase or other acquisition by the Fund, all of the foregoing
requirements will be applicable, except that the required long term
unsecured debt credit rating of such depository institution or trust
company from Moody's need only be at least "A2"; and provided, further,
however, that the foregoing credit rating requirements will be deemed to be
met with respect to a depository institution or trust company if (x) such
depository institution or trust company is the principal depository
institution in a holding company system, (y) the commercial paper, if any,
of such depository institution or trust company is not rated
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<PAGE> 29
below "P-1" by Moody's or "A-1+" by Standard & Poor's and (z) the
commercial paper, if any, and the long term, unsecured debt obligations of
such holding company meet all of the foregoing credit rating requirements;
(c) repurchase obligations with respect to any U.S. Treasury Ssecurity
or any GNMA, FNMA or FHLMC Certificate entered into with a depository
institution, trust company or securities dealer (acting as principal) which
meets the credit rating requirements for long term unsecured debt
obligations and commercial paper described in clause (b) above;
(d) Eurodollar demand or time deposits in, or certificates of deposit
of, the head office or a branch office of a depository institution or trust
company, the commercial paper, if any, and the long term, unsecured debt
obligations of such which meet all of the credit rating requirements
specified in clause (b) above; provided that the interest receivable by the
Fund on such investment is not subject to withholding or similar taxes.
Standard & Poor's shall mean Standard & Poor's Rating Services, Inc., a division
of the McGraw-Hill Companies, Inc.
Standard & Poor's Adjusted Value shall have the meaning set forth in paragraph 7
the Market Value of a Standard & Poor's Eligible Security divided by the
Standard & Poor's Eligible Security Discount Factors.
Standard & Poor's Eligible Municipal Securities shall have the meaning set forth
in paragraph 7.
Standard & Poor's Municipal Security Discount Factors shall have the meaning set
forth in paragraph 7.
Stock Register shall mean the register of the Fund identifying the Owners of the
Preferred Shares, which may be maintained by the Paying Agent.
Taxable Allocation shall have the meaning set forth in paragraph 3.
Unit shall mean 20 or more Preferred Shares.
U.S. Treasury Securities shall mean interest bearing obligations issued and
fully guaranteed as to principal and interest by the United States (but not its
agencies or instrumentalities).
Valuation Date shall mean the date on which the Rating Agency Required Asset
Coverage must be calculated, i.e. each Business Day.
Value shall have the meaning described in paragraph 7.
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<PAGE> 30
Volatility Factor shall mean, as of any Valuation Date, a multiplicative factor
equal to 228% for Dividend Periods of lengths as described in paragraph 3.
3. Dividends. Dividends on each Preferred Share shall be cumulative from the
Date of Original Issue and shall be payable in arrears, when, as and if declared
by the Board of Trustees out of funds available therefor, at the rates, on the
dates, for the periods and otherwise in the manner provided in this paragraph 3.
(a) Initial Dividend Periods and Dividend Rates. The initial Dividend
Period and the Dividend Rate and Dividend Payment Date therefor for each
series of Preferred Shares shall be as set forth in a Certificate of
Determination. The initial Dividend Period for each Preferred Share shall
commence on the Date of Original Issue.
(b) Subsequent Dividend Periods. Except as provided above with respect
to the initial Dividend Period for each series of Preferred Shares and
except as provided below with respect to a Seven-Day Dividend Period,
Preferred Shares of a series shall have a 28-day Dividend Period subject to
the following adjustments: (i) if a Dividend Period ends on a day which is
not immediately preceding a Business Day, such Dividend Period shall end on
the next day which immediately precedes a Business Day and the subsequent
Dividend Period shall be decreased by the number of days by which such
preceding Dividend Period was increased; (ii) with respect to a Dividend
Period which is not a Seven-Day Dividend Period and which was immediately
preceded by one or more Seven-Day Dividend Periods, such Dividend Period
shall be decreased or increased by the smallest number of days, if any,
necessary for such Dividend Period to end on the day such Dividend Period
would have ended if it had not been preceded by one or more Seven-Day
Dividend Periods; and (iii) the Remarketing Agent, in its discretion, may
from time to time, subject to the requirements of (i) and (ii) above,
adjust the normal 28-day Dividend Period for a series of Preferred Shares
to a period not less than seven days nor more than 30 days to assist in the
remarketing process and such Dividend Period shall, as soon as possible
within the limits set forth herein, thereafter be adjusted so as to return
to the normal 28-day Dividend Period ending on the day it would have ended
had no adjustment been made.
Each Dividend Period for each series of Preferred Shares during a
Non-Payment Period in respect of a series of Preferred Shares shall be,
automatically, a Seven-Day Period. If, for any reason, (i) the Remarketing
Agent fails to establish a Dividend Rate for any series of Preferred
Shares, (ii) there is no Remarketing Agent for the Preferred Shares, or
(iii) a Preferred Share of a series is not
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<PAGE> 31
remarketed at $5,000 on the day of its tender, all Preferred Shares of that
series will have successive Seven-Day Dividend Periods until the next
Dividend Period on the first day of which all Preferred Shares of that
series tendered for remarketing have been remarketed. Upon giving of notice
of redemption of any Preferred Share, each subsequent Dividend Period for
such Preferred Share shall end on or prior to the day next preceding the
redemption date therefor.
(c) Subsequent Dividend Rates. Subsequent to its initial Dividend
Period, (A) the Dividend Rate for each Preferred Share of a series during
each Dividend Period in respect of such series which is not a Seven-Day
Dividend Period shall be the Dividend Rate, which shall not exceed the
Maximum Rate, established for such Dividend Period for such Preferred Share
by the Remarketing Agent in the manner provided herein and (B) the Dividend
Rate for each Preferred Share of a series during a Seven-Day Dividend
Period which is not during a Non-Payment Period shall be the Maximum Rate
and the Dividend Rate for each Preferred Share of a series during a
Seven-Day Dividend Period which is during a Non-Payment Period shall be the
Non-Payment Rate.
(d) Determination of Dividend Periods and Rates for Remarketed
Preferred Shares. Subject to clauses (a), (b) and (c) of this paragraph 3,
the Remarketing Agent for each Preferred Share shall establish (i) a
Dividend Period for Preferred Shares, Series A; Preferred Shares, Series B;
Preferred Shares, Series C; Preferred Shares, Series D and Preferred
Shares, Series E of 28 days, and (ii) that Dividend Rate (which shall not
exceed the Maximum Rate) for each Dividend Period for each such series
which it shall determine would be the rate, but no higher than the rate,
which would permit all of the Preferred Shares of such series to be
remarketed at $5,000 per Preferred Share. In establishing each Dividend
Rate, the Remarketing Agent shall take into account the following factors
("Remarketing Conditions"): (i) short-term and long-term market rates and
indices of such short-term and long-term rates, (ii) market supply and
demand for short-term and long-term securities, (iii) yield curves for
short-term and long-term securities comparable to the Preferred Shares,
(iv) industry and financial conditions which may affect the Preferred
Shares, (v) the number of Preferred Shares to be remarketed, (vi) the
number of potential purchasers, (vii) if the Fund has notified the
Remarketing Agent of its intent to allocate income taxable for Federal
income tax purposes to the Preferred Shares prior to the determination of
the Dividend Rate for that Dividend Period, the effect of any Federal
income tax on the allocated income at the highest rate applicable to
corporations or
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<PAGE> 32
individuals, whichever is greater, and (viii) the Dividend Rate at which
current and potential Owners would remain or become Owners.
(e) Certificate of Determination. On each day on which any series of
Preferred Shares shall begin a new Dividend Period, the Board of Trustees
or its delegate shall approve the Dividend Period and the Dividend Rate
therefor and a Certificate of Determination setting forth such Dividend
Period and Dividend Rate shall be prepared and executed by a trustee, the
president, any vice president, the treasurer, any assistant treasurer, the
secretary or any assistant secretary of the Fund. In preparing a
Certificate of Determination, the Dividend Period and the Dividend Rate of
Preferred Shares of a series shall be as established by the Remarketing
Agent.
(f) Computation of Dividends. Each Dividend Rate shall be expressed as
a percentage per annum. Dividends in respect of each series of Preferred
Shares shall be payable on each Dividend Payment Date for such series of
Preferred Shares, for the Dividend Period commencing on the Dividend
Payment Date immediately preceding such Dividend Payment Date and ending on
the day immediately preceding such Dividend Payment Date, in an amount
equal to $5,000 multiplied by the Dividend Rate applicable to such Dividend
Period for such series of Preferred Shares. Dividends shall be calculated
on the basis of a year of 365/366 days for the actual number of days
elapsed.
(g) Payment of Dividends. (i) Current Dividends. Not later than 12:00
noon, New York City time on the Business Day immediately preceding each
Dividend Payment Date for each series of Preferred Shares, the Fund, to the
extent it shall have funds available therefor out of income earned on the
Fund's investments, shall deposit with the Paying Agent sufficient funds
for the payment of the dividend, if declared, on such series of Preferred
Shares payable on such Dividend Payment Date, together with irrevocable
instructions to the Paying Agent to apply such funds and the proceeds
therefrom to the payment of such dividend on such Dividend Payment Date
and, if the Stock Register shall not be maintained by the Paying Agent,
together with instructions relating to the manner of payment and the
addresses of the Owners to whom payment is to be made. Each such dividend
shall be paid to the Owner of each Preferred Share of such series as of the
close of business on the record date therefor, which shall be the fifth day
preceding such Dividend Payment Date. Nevertheless, no dividends shall be
declared or paid on any Dividend Payment Date for any series of Preferred
Shares, unless full cumulative dividends on all Preferred Shares payable on
all Dividend Payment Dates prior to or
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<PAGE> 33
concurrent with such Dividend Payment Date shall have been or
contemporaneously shall be declared and paid or funds for the payment
thereof set apart with the Paying Agent. In addition, dividends on
Preferred Shares will be designated as exempt-interest dividends up to the
amount of tax-exempt income of the Fund for purposes of section 852 of the
Code; provided, however, that to the extent required under the Code, the
Fund shall designate such dividends as exempt-interest and capital gain
dividends (with the amount not so designated to be treated as taxable
income) in the amounts required under the Code. In addition, dividends on
Preferred Shares will be designated as exempt-interest dividends up to the
proportionate amount of tax-exempt income of the Fund allocable to the
Preferred Shares for purposes of Section 852 of the Code; provided,
however, that to the extent required under the Code, the Fund shall
designate such dividends as exempt-interest and capital gain dividends
(with the amount not so designated to be treated as taxable income) in the
amounts required under the Code.
(ii) Dividends in Arrears. Dividends in arrears for any past Dividend
Period may be declared by the Board of Trustees and paid on any date fixed
by the Board of Trustees, whether or not a regular Dividend Payment Date,
to the Owners of Preferred Shares on the record date therefor, which shall
not be more than 15 days before such Dividend Payment Date, as may be fixed
by the Board of Trustees. If all dividends in arrears on all Preferred
Shares have not been declared and paid, or funds for the payment thereof
set apart, payment of dividends in arrears shall be made in order of
Dividend Payment Dates, commencing with the earliest as provided below. If
the amount of any such payment does not fully provide for all dividends in
arrears, any such payment shall be applied in the manner described in the
preceding sentence, and with respect to any Dividend Payment Date as to
which all dividends in arrears are not to be paid, any partial payment
shall be made pro rata with respect to all Preferred Shares entitled to a
dividend payment as of such Dividend Payment Date in proportion to the
aggregate amounts remaining due in respect of such Preferred Shares as of
such Dividend Payment Date. No interest or sum of money in lieu of interest
shall be payable in respect of any dividend payment which may be in
arrears.
(iii) Method of Payment. Dividends on the Preferred Shares will be
paid to the Depository which will credit such dividends to the accounts of
the Agent Members of the beneficial owners as of the Business Day
immediately preceding the Dividend Payment Date. Payments will be made in
accordance with the Depository's normal procedures.
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<PAGE> 34
(h) Limitations. So long as any of the Preferred Shares shall remain
outstanding, the Fund shall not declare, pay or set aside for payment any
dividend or other distribution in respect of any of the Common Shares or
purchase or otherwise acquire for consideration any Common Shares, unless
full cumulative dividends on all Preferred Shares for all past Dividend
Periods ended on or prior to the date of such action shall have been
declared and paid or sufficient funds set aside for the payment thereof.
Owners of Preferred Shares shall not be entitled to any dividends in excess
of full cumulative dividends as provided in this paragraph 3 except as the
Board may declare in order to preserve the Fund's status as a regulated
investment company under the Code.
(i) Gross-up Payments Holders of the Preferred Shares shall be
entitled to receive, when, as and if declared by the Board of Trustees, out
of funds legally available therefor in accordance with the Agreement and
Declaration and applicable law, dividends in an amount equal to the
aggregate Gross-up Payments as follows:
(i) Periods of 28 Days or Less. If, in the case of any period
less than 28 days, the Fund allocates any net capital gains or other
income taxable for Federal income tax purposes to a dividend paid on
Preferred Shares (a "Taxable Allocation") without having given advance
notice thereof to the Remarketing Agent, as provided below, 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
Preferred Shares 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 Remarketing Agent and direct the Fund's
dividend disbursing agent for the Preferred Shares to send such notice
with a Gross-up Payment to each holder of such shares that was
entitled to such dividend payment during such calendar year at such
holder's address as the same appears or last appeared on the record
books of the Fund.
(ii) Periods Greater Than 28 Days. If, in the case of any period
of more than 28 days, the Fund makes a Taxable Allocation to a
dividend paid on Preferred Shares, the Fund shall, prior to the end of
the calendar year in which such dividend was paid, provide notice
thereof to the Remarketing Agent and direct the Fund's dividend
disbursing agent for the Preferred Shares to send such notice with a
Gross-up Payment to each holder of shares that was entitled to such
dividend payment during such calendar year at such holder's address as
the same appears or last appeared on the record books of the Fund.
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<PAGE> 35
(iii) Internal Revenue Service Determination of Allocations 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.
(iv) Notification of Allocations. Whenever the Fund intends to
include any net capital gain or other income taxable for Federal
income tax purposes in any dividend on Preferred Shares, the Fund
shall, in the case of a period of 28 days or less, and may, in the
case of any other period greater than 28 days, notify the Remarketing
Agent of the amount to be so included not later than the Dividend
Payment Date next preceding the last day of the Dividend Period on
which the Dividend Rate for such dividend is to be established
("Allocation Notice Date"). Whenever the Remarketing Agent receives
such notice from the Fund, it will be required in turn to notify each
broker-dealer that is participating in the remarketing process
pursuant to a Broker-Dealer Agreement, who, on or prior to such
Allocation Notice Date, in accordance with its Broker-Dealer
Agreement, will be required to notify its beneficial owners and
potential beneficial owners of Preferred Shares believed by it to be
interested in purchasing Preferred Shares in the remarketing process.
4. Redemption.
(a) Optional Redemption. To the extent permitted under the 1940 Act
and Massachusetts law, any Preferred Share of a series may be redeemed with
funds available therefor, at the option of the Fund, upon notice mailed by
first class mail to its Owner no more than 60 and no less than 10 days
prior to the date fixed for redemption. Such redemption may be made on the
day following the last day of any Dividend Period for that series, at a
price of $5,000 per share, plus an amount equal to accumulated dividends,
whether or not such dividends have been declared. (i) Subject to the
provisions of subparagraph (iv) of this paragraph (a), to the extent
permitted under the 1940 Act and Massachusetts law and upon notice mailed
by first class mail to its Owners no more than 60 and no less than 10 days
prior to the date fixed for redemption, Preferred Shares 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 $5,000 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
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<PAGE> 36
(1) shares of a series may not be redeemed in part if after such partial
redemption fewer than 2500 shares of such series remain outstanding; and
(2) unless otherwise provided herein, Preferred Shares of a series are
redeemable by the Fund during the Dividend Period thereof only on the
second Business Day next preceding the last Dividend Payment Date for such
Dividend Period.
(ii) If fewer than all of the outstanding Preferred Shares are to be
redeemed pursuant to subparagraph (i) of this paragraph (a), the number of
Preferred Shares of such series to be redeemed shall be determined by the
Board of Trustees, and such shares shall be redeemed pro rata from holders
of shares of such series in proportion to the number of shares of such
series held by such holders.
(iii) Subject to the provisions of subparagraph (iv) of this paragraph
(a), shares of any series of Preferred Shares 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
at a redemption price per share equal to the sum of $5,000 plus an amount
equal to accumulated but unpaid dividends thereon (whether or not earned or
declared) to (but not including) to the date fixed for redemption.
(iv) The Fund may not on any date mail a notice of redemption pursuant
to paragraph (c)(i) of this paragraph 4 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 Preferred Shared by reason of the redemption of such
shares on such redemption date and (b) the Adjusted Value of Eligible
Securities at least equal the Rating Agency Required Asset Coverage, and
would at least equal the Rating Agency Required Asset Coverage immediately
subsequent to such redemption if such redemption were to occur on such
date.
(b) Mandatory Redemption. If the Preferred Shares, Series A; Preferred
Shares, Series B; Preferred Shares, Series C; Preferred Shares, Series D;
and Preferred Shares, Series D are outstanding on the respective redemption
dates set forth in paragraph 1 for each such series, then the Preferred
Shares of such series shall be redeemed on such respective dates at a
redemption price of $5,000 per share, in each case plus an amount equal to
accumulated dividends, whether or not such dividends have been declared
unless such date is extended for a series by vote of the Preferred Shares
of such series. If the Rating Agency Required Asset Coverage is not
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<PAGE> 37
met for eight consecutive Business Days or if the Fund fails to
maintain the 1940 Act Asset Coverage and such failure is not cured in
accordance with paragraph 6 on or before the 1940 Act Cure Date (each of
such eighth consecutive Business Day and the 1940 Act Cure Date is herein
referred to as a "Cure Date"), then the Fund shall (i) mail a notice of
redemption to the Owners of the Preferred Shares and the Paying Agent on a
date which is at least 10 days prior to the redemption date for the
Preferred Shares, such redemption date being not later than the 30th day
following such Cure Date (the "Mandatory Redemption Date"), and (ii) redeem
on the Mandatory Redemption Date fixed in such notice, out of funds
available therefor, at a redemption price equal to $5,000 per share, plus
in each case an amount equal to accumulated dividends on such Preferred
Shares (whether or not declared) to the Mandatory Redemption Date, the
number of Preferred Shares equal to the lesser of (A) the minimum number of
Preferred Shares the redemption of which, if deemed to have occurred
immediately prior to the opening of business on such Cure Date would,
together with all other preferred shares of beneficial interest of the Fund
subject to redemption, have caused the Rating Agency Required Asset
Coverage or 1940 Act Asset Coverage, as the case may be, to have been met
on such Cure Date and (B) the maximum number of Preferred Shares, together
with any other preferred shares of beneficial interest of the Fund subject
to redemption, that can be redeemed out of funds expected to be available
therefor on such Mandatory Redemption Date. In determining the number of
Preferred Shares of a series required to be redeemed in accordance with
this paragraph 4(b), the Fund shall allocate the number of Preferred Shares
required to be redeemed in order to meet the Rating Agency Required Asset
Coverage or 1940 Act Asset Coverage pro rata among each series of Preferred
Shares. Funds for the redemption of the number of Preferred Shares required
to be redeemed pursuant to this paragraph 4(b) shall be deposited with
Paying Agent by noon, New York City Time, on the Business Day immediately
following the Cure Date. If the Fund does not have funds available for the
redemption on the Mandatory Redemption Date of all the Preferred Shares to
be redeemed pursuant to paragraph 4(b)(ii)(A) or if the Fund is otherwise
unable to effect such redemption on or prior to 30 days after such Cure
Date, the Fund shall redeem those Preferred Shares which it was unable to
redeem on the earliest practicable date next following the day on which the
Fund shall first have funds available for the redemption of such Preferred
Shares as shall be specified on like notice of redemption delivered to the
Owners and the Paying Agent. Notwithstanding the fact that the Fund shall
not have redeemed the full number of Preferred Shares required to restore
the Rating Agency Required Asset Coverage or the 1940 Act
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<PAGE> 38
Asset Coverage as contemplated above, dividends shall be declared and paid
on the outstanding Preferred Shares.
(c) Restrictions on Redemption of Preferred Shares. Notwithstanding
the provisions of this paragraph 4, Preferred Shares may not be redeemed,
other than in whole, unless, at the redemption date all accumulated
dividends on the outstanding Preferred Shares for all Dividend Periods
ending on or prior to such redemption date, shall have been or,
contemporaneously are being paid, or sufficient funds for the payment
thereof shall have been or, contemporaneously are being deposited with the
Paying Agent.
(d) Redemption Procedure. (i) Notice. Notice of redemption of
Preferred Shares shall be addressed to the Owners thereof at their
addresses appearing on the Stock Register and mailed within the time
periods specified in paragraph 4(a) and 4(b) above by first class mail,
postage prepaid. The Fund shall provide the Paying Agent with written
notice of the redemption and the information contained in the notice of
redemption at least one day prior to the date the notice of redemption is
mailed to the Owners of the Preferred Shares. For purposes of the
calculation of the date of redemption and the dates on which notices are
given pursuant to this paragraph 4(d), a notice of redemption shall be
deemed to be given on the day such notice is first so mailed. Each such
notice shall set forth (A) the redemption date, (B) the number quantity,
series designation and CUSIP number identity of the Preferred Shares to be
redeemed, (C) the redemption price (specifying the amount of accumulated
dividends to be included therein), (D) that dividends on the Preferred
Shares to be redeemed will cease to accumulate on such redemption date, (E)
the provision of this resolution under which redemption shall be made, and
(F) the place or places where Owners may surrender their Preferred Shares
and obtain payment of the redemption price. No defect in any notice of
redemption or in the mailing thereof shall affect the validity of the
redemption proceedings of Preferred Shares as to which no defect shall have
occurred. In the event the Fund obtains appropriate exemptive or no-action
relief from the staff of the Securities and Exchange Commission, the number
of days notice required for a mandatory redemption may be reduced to such
number of days as the Board of Trustees shall determine if Standard &
Poor's and Moody's each has agreed or if both such Rating Agencies are not
then rating the Preferred Shares, the one which has agreed, that the
revised notice provision would not adversely affect its then current rating
of the Preferred Shares.
(ii) Selection of Preferred Shares. If fewer than all of the
outstanding Preferred Shares are to be redeemed on any date, the Preferred
Shares to be redeemed shall be selected by the Fund or its
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<PAGE> 39
agents by lot or such other method as the Board shall determine to be fair
and equitable, subject to paragraph (c)(ii) above and, in the case of a
Mandatory Redemption, the requirement that Preferred Shares must be
redeemed pro rata among all series. In the case of a redemption under
paragraph 4(a) above, the Fund may apply the aforementioned procedures to
one series of Preferred Shares rather than across the entire class of
Preferred Shares.
(iii) Deposit of Funds. Not later than 12:00 noon, New York City time,
on the date on which notice is given pursuant to paragraph 4(a) above (or
an such date as may be required pursuant to mandatory redemption as set
forth in paragraph 4(b) above), the Fund shall deposit with the Paying
Agent funds sufficient to redeem the Preferred Shares to be redeemed on
such date and shall give to the Paying Agent irrevocable instructions and
authority to apply such funds and the proceeds therefrom to the payment of
the redemption price, plus accumulated dividends, whether or not earned or
declared, upon surrender of such Preferred Shares. Not later than 12:00
noon, New York City time, on the 30th day prior to the date on which the
Preferred Shares of a series are scheduled for redemption under paragraph 1
the Fund shall deposit with the Paying Agent (i) cash or (ii) municipal
securities which are rated at least "A-1+" by Standard & Poor's and which
mature on or before the date such Preferred Shares are to be redeemed in an
amount which is sufficient to redeem the Preferred Shares to be redeemed on
such date and shall give the Paying Agent irrevocable instructions and
authority to apply such funds and the proceeds therefrom to the payment of
the redemption price, plus accumulated dividends, whether or not declared,
upon surrender of such Preferred Shares. Upon the failure of the Fund to
deposit such funds cash or securities, the Fund will immediately liquidate
portfolio securities in an amount which will enable it to make such
deposits and will deposit the proceeds of such sales in accordance with
this paragraph. Neither the Preferred Shares to be redeemed nor the funds
so deposited with the Paying Agent shall be included in or reflected in any
calculation of Rating Agency Required Asset Coverage as of an Evaluation
Valuation Date occurring on or subsequent to the date of such deposit.
(iv) Effect of Deposit. If notice of redemption shall have been given,
upon the irrevocable deposit of funds sufficient to effect such redemption,
all rights of the Owners of the Preferred Shares so called for redemption
shall cease, except the right of such Owners to receive the redemption
price, plus accumulated dividends, whether or not earned or declared, but
without interest, and such Preferred Shares shall no longer be deemed to be
outstanding for
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<PAGE> 40
any purpose. The Fund shall be entitled to receive, from time to time from
the Paying Agent the interest, if any, earned on such funds deposited with
the Paying Agent; and the Owners of the Preferred Shares so redeemed shall
have no claim to any such interest. Any funds so deposited which shall be
unclaimed at the end of one year from such redemption date shall be paid by
the Paying Agent to the Fund upon its request. Thereupon, the Paying Agent
shall be relieved of all responsibility to the Owners of such Preferred
Shares; and such Owners shall look only to the Fund for payment.
(e) Purchase of the Preferred Shares. Nothing contained in this
resolution shall limit any ability which the Fund may otherwise have to
purchase or otherwise acquire any Preferred Shares at any price so long as,
at the time of any such purchase, there is no arrearage in the payment of
dividends on any Preferred Shares and the Rating Agency Required Asset
Coverage and 1940 Act Asset Coverage are met, after giving effect to such
purchase or acquisition, on the date thereof. Not later than the close of
business on the date of such acquisition, the Fund shall deliver to the
Paying Agent a Certificate of Rating Agency Required Asset Coverage
demonstrating compliance with this paragraph 4(e), with the mathematical
accuracy of any calculations set forth in such Certificate of Rating Agency
Required Asset Coverage confirmed in writing by the Fund's independent
certified public accountants.
(f) Status of Redeemed or Purchased Preferred Shares. Any Preferred
Shares at any time purchased, redeemed or otherwise acquired by the Fund
shall become treasury shares and may be reissued by the Fund.
5. Voting Rights.
(a) General. (i) In addition to any voting rights granted to the
Preferred Shares pursuant to the 1940 Act, Owners of the Preferred Shares
shall be entitled to one vote for each Preferred Share held on each matter
submitted to a vote of shareholders of the Fund and, except as otherwise
provided in the Agreement and Declaration or by law, the holders of
Preferred Shares, including any other preferred shares of beneficial
interest of the Fund, and of Common Shares shall vote together as a single
class; provided that (A)(i) at any meeting of the shareholders of the Fund
held for the election of trustees the holders of a plurality of the
outstanding Preferred Shares and any other preferred shares of beneficial
interest of the Fund, 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 beneficial interests of the Fund, to elect two
trustees of the Fund, each Preferred Share and any other preferred
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<PAGE> 41
shares of beneficial interest of the Fund entitling the holder thereof to
one vote (ii) at any meeting of the shareholders of the Fund held for the
extension of the stated mandatory redemption date for Preferred Shares,
Series A; Preferred Shares, Series B; Preferred Shares, Series C; Preferred
Shares, Series D or Preferred Shares, Series E, the holders of Preferred
Shares of the series affected by such extension, represented in person or
by proxy at said meeting, shall be entitled as a class, to the exclusion of
the holders of all other Preferred Shares and other shares of beneficial
interest of the Fund, to extend the stated mandatory redemption date for
such series to a later date, each Preferred Share of such series entitling
the holder thereof to one vote, (B)(ii) at any meeting of the shareholders
of the Fund held for the purpose of increasing or decreasing the number of
Preferred Shares of a previously designated series authorized to be issued,
the holders of Preferred Shares of the series affected by such increase or
decrease, represented in person or by proxy at such meeting, shall be
entitled as a class, to the exclusion of the holders of all other Preferred
Shares and other shares of beneficial interest of the Fund, to vote with
respect to such increase or decrease, each Preferred Share of such series
entitling the holder thereof to one vote, (C)(iii) at any meeting of the
shareholders of the Fund held to amend, alter or repeal any of the
preferences, rights or powers of the Preferred Shares, or any series
thereof or increase or decrease the number of Preferred Shares authorized
to be issued, the holders of the Preferred Shares, or series of shares, as
the case may be, represented in person or by proxy at said meeting shall be
entitled as a class, to the exclusion of the holders of all other shares of
beneficial interest of the Fund, to vote on such preferences, rights or
powers or increase or decrease in the number of the Preferred Shares or
series thereof authorized to be issued, and (D)(iv) at any meeting of the
shareholders of the Fund held to approve any plan of reorganization
affecting the Preferred Shares or any action requiring a vote of security
holders under Section 13(a) of the 1940 Act, the holders of the Preferred
Shares and any other preferred shares of beneficial interest of the Fund
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 beneficial interest of the Fund to vote on such plan of reorganization
or action requiring a vote of security holders under Section 13(a) of the
1940 Act, and (E) except as otherwise provided in the Agreement and
Declaration or by law, the holders of Preferred Shares of each individual
series, as a separate series, shall vote, to the exclusion of the holders
of all other series of Preferred Shares, as a single class on those matters
that materially affect that series in a manner different from that of other
series or classes of the Fund's shares. Nothing in this section shall be
interpreted to restrict the ability of the Trustees, without
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<PAGE> 42
shareholder approval, to establish and designate additional series of
preferred shares, consistent with the terms of the Agreement and
Declaration and applicable law provided however, that for so long as any
Preferred Shares are outstanding and Moody's or Standard & Poor's, or both,
are rating such shares, the Fund will not issue any additional shares of
any class or series of preferred shares ranking on a parity with the
Preferred Shares with respect to the payments of dividends and the
distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Fund, unless it has received written confirmation from
Moody's or Standard & Poor's, or both, as appropriate, that any such action
would not impair the ratings then assigned by such rating agency to the
Preferred Shares. If Moody's or Standard & Poor's is not then rating the
Preferred Shares, the Fund will not issue any additional shares of any
class or series of preferred shares ranking on a parity with the Preferred
Shares with respect to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up of the affairs of the
Fund, if the aggregate liquidation preference of all Preferred Shares of
the Fund outstanding after any such issuance, exclusive of accumulated and
unpaid dividends, exceeds [$ ]. Subject to paragraph 5(b)
hereof, the holders of a plurality of the outstanding Common Shares and
Preferred Shares and any other preferred shares of beneficial interest of
the Fund, voting together as a single class, shall elect the balance of the
trustees.
(ii) So long as any shares of Municipal Preferred are outstanding, the
Fund may not, without the affirmative vote of the holders of at least
66 2/3% of the shares of Municipal Preferred outstanding at the time, in
person or by proxy, 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.
(b) Right to Elect Majority of Board of Trustees. During any period in
which any one or more of the conditions described below shall exist (such
period being referred to herein as a "Voting Period"), the number of
trustees constituting the Board shall be automatically increased by the
smallest number that, when added to the two trustees elected exclusively by
the holders of Preferred Shares and any other preferred shares of
beneficial interest of the Fund, would constitute a majority of the Board
as so increased by such smallest number; and the holders of Preferred
Shares and any other preferred shares of beneficial interest of the Fund,
shall be entitled, voting as a class on a one-vote-per-share basis (to the
exclusion of
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<PAGE> 43
the holders of all other securities and classes of beneficial interest of
the Fund), to elect such additional trustees, together with the two
trustees that such holders are in any event entitled to elect. A Voting
Period shall commence:
(i) if at the close of business on any Dividend Payment Date
accumulated dividends (whether or not earned or declared, and whether
or not funds are then available in an amount sufficient therefor) on
any of the outstanding Preferred Shares 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 Paying
Agent for the payment of such accumulated dividends; or
(ii) if at any time holders of any other preferred shares of
beneficial interest of the Fund are entitled to elect a majority of
the trustees of the Trust.
Upon the termination of a Voting Period, which, in the case of
paragraph 5(b)(i), shall be the date on which all dividends in arrears
shall have been paid or deposited with the Paying Agent the voting
rights described in this paragraph 5(b) shall cease subject always,
however, to the revesting of such voting rights in the Owners upon the
further occurrence of any of the events described in this paragraph
5(b).
(c) Voting Procedures. (i) As soon as practicable after the accrual of
any right of the Owners of Preferred Shares to elect additional trustees as
described in paragraph 5(b) above, the Fund shall notify the Paying Agent
and the Paying Agent shall distribute the call of a special meeting of the
Owners, by mailing a notice of such special meeting to such Owners; 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 Paying
Agent or if the Paying Agent does not distribute such call of the special
meeting, it may be called by the Owners of 25% of the Preferred Shares and
any other preferred shares of beneficial interest of the Fund entitled to
vote on the matter on like notice. The record date for determining the
Owners 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 held
during a Voting Period, such Owners and the holders of any other preferred
shares of beneficial interest of the Fund, voting together as a class (to
the exclusion of the holders of all other securities and classes of
beneficial interests of the Fund), shall be entitled to elect the number of
trustees prescribed in paragraph 5(b) above on a one-vote-per-share
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<PAGE> 44
basis. At any such meeting or adjournment thereof in the absence of a
quorum, a majority of such Owners and the holders of any other preferred
shares of beneficial interest of the Fund, present in person or any proxy
shall have the power to adjourn the meeting without notices, other than an
announcement at the meeting, until a quorum is present.
(ii) For purposes of determining any rights of the Owners to vote on
any matter, whether such right is created by this resolution, by any other
provisions of the Agreement and Declaration, by the 1940 Act or another
statute or otherwise, no Owner shall be entitled to vote and no Preferred
Share shall be deemed to be "outstanding" for the purpose of voting or
determining the number of Preferred Shares required to constitute a quorum
if, prior to or concurrently with the time of determination of Preferred
Shares entitled to vote or Preferred Shares deemed outstanding for quorum
purposes, as the case may be sufficient funds for the redemption of such
Preferred Shares have been deposited in trust with the Paying Agent for
that purpose and the requisite notice of redemption with respect to such
Preferred Shares shall have been given as provided in paragraph 4(d)(i). No
Preferred Share held by the Fund shall have any voting rights or be deemed
to be outstanding for voting purposes.
(iii) The terms of office of all persons who are trustees of the Fund
at the time of a Special Meeting of Owners and holders of other preferred
shares of beneficial interest of the Fund to elect trustees shall continue,
notwithstanding the election at such meeting by the Owners and such other
holders of the number of trustees that they are entitled to elect, and the
persons so elected by such Owners and such other holders, together with the
two incumbent trustees elected by the Owners and such other holders of
preferred shares of beneficial interest of the Fund and the remaining
incumbent trustees elected by the holders of the Common Shares and the
Preferred Shares and other preferred shares of beneficial interest of the
Trust, shall constitute the duly elected trustees of the Trust.
(iv) Simultaneously with the expiration of a Voting Period, the terms
of office of the additional trustees elected by the Owners and holders of
other preferred shares of beneficial interest of the Fund pursuant to
paragraph 5(b) above shall terminate, the remaining trustees shall
constitute the trustees of the Fund and the voting rights of the Owners and
such other holders to elect additional trustees pursuant to paragraph 5(b)
above shall cease.
(d) Exclusive Remedy. Unless otherwise required by law, the Owners
shall not have any relative rights or preferences or other
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<PAGE> 45
special rights other than those specifically set forth herein. The Owners
of Preferred Shares shall have no preemptive rights or rights to cumulative
voting. In the event that the Fund fails to pay any dividends on the
Preferred Shares, the exclusive remedy of the Owners shall be the right to
vote for trustees pursuant to the provisions of this paragraph 5. In no
event shall the Owners have any right to sue for, or bring a proceeding
with respect to, such dividends or redemptions or damages for the failure
to receive the same.
6. Asset Coverage and Dividend Coverage.
(a) The Fund shall maintain, as of the last Business Day of each month
in which any Preferred Share is outstanding, assets at least equal to the
1940 Act Asset Coverage.
(b) To meet the Rating Agency Required Asset Coverage tThe Fund shall
maintain Rating Agency Required Assets assets with a Value (as calculated
under paragraph 7(c)) equal to the Rating Agency Required Asset Coverage.
that is sufficient to cover the aggregate liquidation preference of the
outstanding Preferred Shares ("Rating Agency Required Assets"). The Rating
Agency Required Asset Coverage must be calculated and met on each
Evaluation Valuation Date. It will be met if the Fund owns Rating Agency
Required Assets with a Rating Agency Value equal to or greater than the
product of (i) the total number of Preferred Shares then outstanding and
(ii) $5,000.
(c) On each Evaluation Valuation Date, the Fund shall calculate and
determine pursuant to the procedures set forth herein: (i) the Market Value
of each Rating Agency Required Asset owned by the Fund on that date, (ii)
the Adjusted Value of each such Rating Agency Required Asset, (iii) the
aggregate Adjusted Value of all such Rating Agency Required Assets, (iv)
the Value of all such Rating Agency Required Assets, and (v) whether the
Rating Agency Required Asset Coverage is met as of that date, (vi) the
Rating Agency Dividend Coverage Assets owned by the Fund on that date,
(vii) the Rating Agency Dividend Coverage amount on that date, and (viii)
whether the Rating Agency Dividend Coverage is met as of that date,. Each
such calculation shall be set forth in a certificate (the "Certificate of
Rating Agency Required Asset Coverage"), which must be delivered to the
Paying Agent not later than the close of business an the fifth Business Day
following the Date of Original Issue and not later than the close of
business on the third Business Day following (i)(A) any Evaluation
Valuation Date on which the Rating Agency Required Asset Coverage or Rating
Agency Dividend Coverage is not met, (ii)(B) any time the Fund's Standard &
Poor's Adjusted Value fails to exceed the Rating Agency Required
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<PAGE> 46
Asset Coverage by 5% or more, (iii)(C) the first Evaluation Valuation Date
succeeding any Evaluation Valuation Date referred to in clause (i)(A) above
on which the Rating Agency Required Asset Coverage and Rating Agency
Dividend Coverage are is met, and (iii)(D) the last Evaluation Valuation
Date of each month, (E) any redemption by the Fund of its Common Shares,
and (F) any request by Standard & Poor's. So long as Standard & Poor's or
Moody's is rating the Preferred Shares, a Certificate of Rating Agency
Required Asset Coverage shall be delivered to Standard & Poor's (if
Standard & Poor's is rating the Preferred Shares) and Moody's (if Moody's
is rating the Preferred Shares) not later than the close of business on the
fifth Business Day following the Date of Original Issue and the third
Business Day following an Evaluation Valuation Date specified in (A) (i) or
(B) (ii) above. Failure to deliver a Certificate of Rating Agency Required
Asset Coverage shall be deemed to be delivery of a Certificate of Rating
Agency Required Asset Coverage indicating that the Fund does not own assets
with a Value equal to the Rating Agency Required Asset Coverage.
The definitions of and methods of calculation of "Market Value,"
"Adjusted Value," "Value", "Rating Agency Required Assets", and "Rating
Agency Required Asset Coverage," "Rating Agency Dividend Coverage Assets"
and "Rating Agency Dividend Coverage" may be changed from time to time by
the Fund without shareholder approval, but only in the event the Fund
receives written confirmation from Standard & Poor's and Moody's, or if
both such Rating Agencies are not then rating the Preferred Shares, the one
which is, that any such change would not impair the ratings then assigned
to the Preferred Shares. To the extent these definitions and methods of
calculation are changed by Moody's or Standard & Poor's in a manner that
would impair the ratings then assigned to the Preferred Shares if the Fund
failed to take action to meet such revised definitions and methods of
calculation, the Fund will take such action as is necessary to comply with
such revised definitions and methods of calculation so as to maintain the
then current rating on the Preferred Shares or will redeem the then
outstanding Preferred Shares.
(d) In connection with the Certificates of Rating Agency Required
Asset Coverage to be given with respect to (A) the Date of Original Issue,
and(B) the last Evaluation Valuation Date of each fiscal quarter of the
Fund, and (C) a randomly selected date within each fiscal quarter, the
Fund's independent public accountants will deliver to the Paying Agent and
to Standard & Poor's (if Standard & Poor's is rating the Preferred Shares)
and Moody's (if Moody's is rating the Preferred Shares) a written
communication
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<PAGE> 47
("Ratings Agency Accountant's Confirmation") confirming (i) the
mathematical accuracy of the calculations reflected in such Certificate,
(ii) that the method used by the Fund in determining whether or not the
Rating Agency Required Asset Coverage and Rating Agency Dividend Coverage
were was met is in accordance with the applicable requirements of the
Certificate of Designation for Preferred Shares, (iii) that the price
quotations used by the Fund in such determination conform to the written
price quotations obtained by the Fund from the pricing services utilized by
the Fund, and (iv) that the assets listed as Rating Agency Required Assets
and Rating Agency Dividend Coverage Assets in such Certificate, including
Escrowed Bonds and any economic defeasance thereof, conform to the
description of Rating Agency Required Assets. or Rating Agency Dividend
Coverage Assets, as the case may be, herein (the "Rating Agency
Accountants' Conformation. The Fund will cause the Rating Agency
Accountants' Confirmation to be delivered to the Paying Agent by the close
of business on the fifth tenth Business Day following the Date of Original
Issue and by the close of business on the fifth tenth Business Day
following each such Evaluation Valuation Date of each fiscal quarter of the
Fund. If any Rating Agency Accountants' Confirmation differs from the
Fund's Certificate of Rating Agency Required Asset Coverage, the Rating
Agency Accountants' Confirmation will control and the Fund will notify
Standard & Poor's (if Standard & Poor's is rating the Preferred Shares) and
Moody's (if Moody's is rating the Preferred Shares) of such difference.
(e) If the Rating Agency Required Asset Coverage is not met as
required, the Fund may (i) purchase or otherwise acquire additional Rating
Agency Required Assets , (ii) sell all or a portion of its Rating Agency
Required Assets at a price which is higher than the Adjusted Value of such
Rating Agency Required Assets, (iii) liquidate all or a portion of its
municipal securities options or financial futures contracts or related
options contracts, if any, or (iv) purchase Preferred Shares, or effect any
combination of these transactions, so that the Rating Agency Required Asset
Coverage will be met.
(f) In addition, for so long as Standard & Poor's is rating the
Preferred Shares, the Rating Agency Dividend Coverage must be met as of
each Evaluation Date and will be met if the Fund owns Rating Agency
Dividend Coverage Assets with an aggregate Adjusted Value equal to or
greater than the full amount of dividends on the Preferred Shares which
will be due and payable on the next succeeding Dividend Payment Date. If
the Rating Agency Dividend Coverage is not met as of an Evaluation Date,
the Fund may
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<PAGE> 48
(i) liquidate Rating Agency Required Assets Rating Agency Required Assets
to purchase or acquire sufficient Rating Agency Dividend Coverage Assets,
(ii) liquidate all or a portion of its municipal securities options or
financial futures contracts or related options contracts, if any, or (iii)
otherwise acquire Rating Agency Dividend Coverage Assets, or effect any
combination of these transactions, so that the Rating Agency Dividend
Coverage will be met.
(f) (g) If a Rating Agency Accountants' Confirmation has been
delivered to the Paying Agent with respect to an Evaluation Valuation Date
on which the Rating Agency Required Asset Coverage or Rating Agency
Dividend Coverage was not met, the Fund shall cause a Rating Agency
Accountants' Confirmation, in respect of the next Evaluation Valuation Date
on which the Rating Agency Required Asset Coverage and the Rating Agency
Dividend Coverage are is met, to be delivered to the Paying Agent by the
fifth Business Day following such next Evaluation Valuation Date.
(g) The Fund may use cash or proceeds generated from sales of assets
owned by the Fund to purchase or redeem Preferred Shares.
7. Calculations of Coverage.
(a) Calculation I. (i) The Market Value of eEach Eligible Municipal
Security's Market Value shall be calculated on each Valuation Date. shall
be computed by using market quotations, or independent pricing services
that use prices provided by market makers or estimates of market values
obtained from yield data relating to instruments or securities with similar
characteristics; (ii) The Market Value of each Rating Agency Required Asset
other than Eligible Municipal Securities shall be computed as follows:
(A) cash shall be valued at face amount;
(B) demand and time deposits, next-day federal funds and next-day
repurchase agreements shall be valued at face amount plus accrued
interest, if any, to the date of valuation; and
(C) the aggregate outstanding principal balances of the mortgage
loans evidenced by each FNMA, FHLMC and GNMA Certificate and each
Qualifying Mortgage Pass-Through Certificate (as shown on the most
recent report related to such certificates received by the Fund prior
to the applicable date of valuation) and the principal amount of each
CMO, Securitized Receivable, Short-Term Money Market Instrument
(except for those described in clause (b) above), Certificate of
Deposit and U.S. Treasury Security will be multiplied by the lower of
the bid prices, as of the close of business on the Business Day next
preceding the applicable date of valuation,
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<PAGE> 49
as quoted in writing to the Fund by two nationally recognized
securities dealers selected by the Fund and making a market in such
securities at the time (provided that (1) if only one of such bid
prices is available, except in the case of Qualifying Mortgage
Pass-Through Certificates and CMOs, then the calculation shall be
based both on the one such bid price that is available and the price
for the Business Day next preceding the applicable date of valuation
published in either The Wall Street Journal or The New York Times,
provided that Moody's, if Moody's is then rating the Preferred Shares,
shall have advised the Fund in writing that its then-current rating of
the Preferred Shares would not be affected if the calculation were
based on such price published in either The Wall Street Journal or The
New York Times or (2) if no such bid price is available or in the case
of Qualifying Mortgage Pass-Through Certificates and CMOs, then the
calculations shall be based upon such price or prices as are obtained
from alternative sources as the Fund in good faith deems to be
reliable, provided that each of Moody's and Standard & Poor's or, if
both such Rating Agencies are not then rating the Preferred Shares the
one which is, shall have advised the Fund in writing that its
then-current rating of the Preferred Shares would not be adversely
affected if the calculation were based on such price or prices
obtained from such alternative sources), and accrued interest, if any,
on such security shall be added thereto; and
(C) the Market Value of any Other Securities constituting Rating
Agency Required Assets shall be calculated on each Valuation Date.
(D)if Other Securities become includible in Rating Agency Required
Assets, the calculation of Market Value of such Other Securities shall
be determined in accordance with such procedures as shall be
established by the Board of Trustees (and set forth in a certificate
signed by an officer of the Fund, filed with the records of the Fund
and available for inspection by the shareholders of the Fund),
provided that each of Moody's and Standard & Poor's, or, if both such
rating services are not then rating the Preferred Shares, the one
which is, shall have advised the Fund in writing that its then-current
rating of the Preferred Shares would not be adversely affected if such
procedures were established by the Board of Trustees.
The calculation of Market Value may be made on bases other than those set
forth herein above determined in accordance with procedures established by
the Board of Trustees (and set forth in a certificate signed by an officer
of the Fund, filed with the records of the
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<PAGE> 50
Fund and available for inspection by the shareholders of the Fund) if
Moody's and Standard & Poor's have advised or, if both of such Rating
Agencies are not then rating the Preferred Shares, the one which is, has
advised the Fund in writing that the alternative calculation of Market
Value would not, or that a failure to use the alternative calculation
would, adversely affect their respective then-current ratings of the
Preferred Shares.
(b) Calculation II. The Adjusted Value of Eligible Municipal
Securities shall be the lesser of the Standard & Poor's Adjusted Value and
the Moody's Adjusted Value, determined as follows.
(i) Standard & Poor's "AAA" Rating Guidelines ("Standard & Poor's
Adjusted Value"). The Standard & Poor's Adjusted Value of a Standard
and Poor's Eligible Security (a each municipal security eligible for
consideration under Standard & Poor's guidelines in effect as of the
date of this Certificate of Designation), for Preferred Shares
("Standard & Poor's Eligible Municipal Securities") shall be the
Market Value of such Standard & Poor's Eligible Municipal Security
divided by 155% for an "AAA" rated Standard & Poor's Eligible
Municipal Security, or for an Escrowed Bond that has been determined
to be legally or economically defeased in accordance with Standard &
Poor's defeasance criteria and is considered to be a Standard & Poor's
Eligible Security, 160% for an "AA" rated Standard & Poor's Eligible
Municipal Security, 175% for an "A" rated Standard & Poor's Eligible
Municipal Security, and 215% for a "BBB" rated Standard & Poor's
Eligible Municipal Security and 220% for an unrated Standard & Poor's
Eligible Security ("Standard & Poor's Municipal Security Discount
Factors").
Notwithstanding the foregoing, the Standard & Poor's Municipal
Security Discount Factor for short-term Standard & Poor's Eligible
Municipal Securities shall be 115%, so long as such Standard & Poor's
Eligible Municipal Securities are rated "A-l+" or "SP-l+" by Standard
& Poor's and mature or have a demand feature exercisable in 30 days or
less, or 120% so long as such Standard & Poor's Eligible Securities
are rated "A-1" or "SP-1" by Standard Poor's and mature or have a
demand feature exercisable in 30 days or less, or 125% if such
Standard & Poor's Municipal Securities are not rated by Standard &
Poor's but are rated "VMIG-l", "P-1" or "MIG-1" by Moody's; provided,
however, that if such Standard & Poor's Eligible Municipal Securities
are backed by any letter of credit, liquidity facility or guarantee
from a bank or other financial institution, such bank or institution
must have a short-term
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<PAGE> 51
rating of at least "A-l+" from Standard & Poor's; and further provided
that such Moody's-rated short-term Standard & Poor's Eligible
Municipal Securities may comprise no more than 50% of short-term
Standard & Poor's Eligible Municipal Securities.
For purposes of determining "Standard & Poor's Eligible
Securities", Tthe Standard & Poor's guidelines impose certain minimum
issue size, issuer, geographical diversification and other
requirements for purposes of determining Standard & Poor's Eligible
Municipal Securities (other than short-term Standard & Poor's Eligible
Municipal Securities):
(A) In order to be considered Standard & Poor's Eligible Municipal
Securities, municipal securities must:
(1) Be interest bearing and pay interest at least semiannually;
(2) Be payable in U.S. dollars;
(3) Be Publicly rated "BBB" or higher by Standard & Poor's or, if
not rated by Standard & Poor's but rated by another Nationally
Recognized Statistical Rating Organization ("NRSRO")Moody's, be rated
at least "A" by an NRSRO Moody's; provided that such NRSRO
Moody's-rated municipal securities will be included in Standard &
Poor's Eligible Municipal Securities only to the extent the fair
market value of such municipal securities does not, when aggregated
with any unrated securities, not exceed 50% of the aggregate fair
market value of all Standard & Poor's Eligible Municipal Securities.
For purposes of determining the Standard & Poor's Municipal Security
Discount Factors applicable to such NRSRO Moody's-rated municipal
securities, any such municipal security will be deemed to have a
Standard & Poor's rating which is one full rating category lower than
its NRSRO Moody's rating;
(4) Not have been issued in a private placement (excluding
Escrowed Bonds and Inverse Floaters); and
(5) Be part of an issue with an original issue size, of at least
$20 million or, if of an issue with an original issue size below $20
million but at least $10 million, be issued by an issuer with a total
of at least $50 million of municipal securities outstanding.
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<PAGE> 52
(B) Municipal securities, as that term is used 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, of any one issuer or guarantor (excluding bond insurers) shall be
considered Standard & Poor's Eligible Municipal Securities only to the
extent the Market Value of such municipal securities does not exceed 10% of
the aggregate Market Value of the Standard & Poor's Eligible Municipal
Securities (excluding short-term Standard & Poor's Eligible Municipal
Securities), provided that 2% is added to the applicable Standard & Poor's
Security Discount Factor for every 1% by which the Market Value of such
municipal securities exceed 5% of the aggregate Market Value of the
Standard & Poor's Eligible Municipal Securities (excluding short-term
Standard & Poor's Eligible Municipal Securities). In the case of securities
not so rated, any one issuer or guarantor (excluding bond insurers) shall
be considered Standard & Poor's Eligible Securities only to the extent the
Market Value of such securities does not exceed 5% of the aggregate market
value of the Standard & Poor's Eligible Securities (excluding short-term
Standard & Poor's Eligible Securities). The percentage limits stated above
do not apply to Escrowed Bonds.
(C) Municipal securities issued by issuers in any one state or
territory shall be considered Standard & Poor's Eligible
MunicipalSecurities only to the extent the Market Value of such municipal
securities does not exceed 2520% of the aggregate Market Value of the
Standard & Poor's Eligible Municipal Securities (excluding short-term
Standard & Poor's Eligible Municipal Securities). The percentage limits
stated above do not apply to Escrowed Bonds.
(D) Certain securities involved in hedging transactions as described
in subparagraph (d) of this paragraph 7 shall be considered Standard &
Poor's Eligible Securities.
(E) Inverse Floaters, as defined herein, shall be considered Standard
& Poor's Eligible Securities.
(ii) Moody's "aaa" Rating Guidelines. The Moody's Adjusted Value
of each municipal security eligible for consideration under Moody's
guidelines in effect as of the date of this Certificate of Designation
for Preferred Shares ("Moody's Eligible Municipal Securityies") shall
be the Market Value of such Moody's Eligible Municipal Security
divided by 151% for an "Aaa" rated Moody's Eligible Municipal
Security, 159% for an "Aa" rated Moody's Eligible Municipal Security,
168% for an "A" rated Moody's Eligible Municipal Security, 173% for a
"Baa" rated Moody's Eligible Municipal Security, and 187%
A-37
<PAGE> 53
for a municipal security not rated by Moody's but rated "BBB-
" by Standard & Poor's, and 225% for a municipal security not rated by
Moody's or by Standard & Poor's (Moody's Municipal Security Discount
Factors").
Notwithstanding the foregoing, the Moody's Municipal Security
Discount Factor for short-term Moody's Eligible Municipal Securities
shall be 115%, so long as such Moody's Eligible Municipal Securities
are rated at least "MIG-1", "VMIG-1" or "P-1" by Moody's or "A-1+/AA"
or "SP-1/AA" by Standard & Poor's and mature or have a demand feature
at par exercisable in 30 days or less.
The following limitations shall determine the maximum portion of
the Fund's Eligible Municipal Securities which may be Moody's Eligible
Municipal Securities:
<TABLE>
<CAPTION>
ELIGIBLE MAXIMUM % MAXIMUM %
MUNICIPAL WITH ANY ONE ISSUED BY OR
SECURITIES WITH UNDERLYING WITHIN ANY ONE
RATING OF: OBLIGOR STATE OR TERRITORY
--------------- ------------ ------------------
<S> <C> <C>
Aaa........................ 100 100
Aa......................... 20 60
A.......................... 10 40
Baa........................ 6 20
Other*..................... 4 12
</TABLE>
- ---------------
* Municipal Securities not rated by Moody's but rated "BBB-" or higher
by Standard & Poor's.
Municipal Securities constituting Moody's Eligible Municipal
Securities shall pay interest in cash, shall be publicly rated "Baa"
or higher by Moody's or, if not rated by Moody's but rated by Standard
& Poor's, shall be rated at least "BBB-" by Standard & Poor's, shall
not have suspended ratings and be part of an issue with an original
issue size of at least $10 million. For purposes of determining the
Moody's Security Discount Factors applicable to such Standard & Poor's
rated Moody's Eligible Municipal Securities, any such municipal
security (excluding short-term municipal securities) shall be deemed
to have a Moody's rating which is one full rating category lower than
its Standard & Poor's rating.
(iii) Other Rating Agency Required Assets . The Adjusted Value of
each Rating Agency Required Assets Coverage asset and each Rating
Agency Dividend Coverage Asset other than Eligible Municipal
Securities shall be the lesser of (A) the Market Value of such asset
divided by the applicable discount fac-
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<PAGE> 54
tor the ranges of which are listed below and (B) 100% of the
principal amount of such assets, including, in the case of Short-Term
Money Market Instruments, accrued interest to the extent not already
included.:
<TABLE>
<CAPTION>
TYPE OF RATING DISCOUNT
AGENCY REQUIRED ASSET FACTOR
--------------------- --------
<S> <C>
Cash, demand deposits, next-day Federal funds
and next-day repurchase agreements.......... 1.00
Certificates of Deposit....................... 1.15
GNMA Certificates with a fixed-rate coupon of:
13%......................................... 1.41
12%......................................... 1.42
11%......................................... 1.43
10%......................................... 1.43
9%......................................... 1.44
8%......................................... 1.47
7%......................................... 1.51
6%......................................... 1.55
5%......................................... 1.59
GNMA Certificates with an adjustable rate
coupon...................................... 1.61
FHLMC Certificates or FNMA Certificates with a
fixed-rate coupon of:
13%......................................... 1.44
12%......................................... 1.47
11%......................................... 1.49
10%......................................... 1.49
9%......................................... 1.52
8%......................................... 1.55
7%......................................... 1.58
6%......................................... 1.62
5%......................................... 1.65
FHLMC Certificates or FNMA Certificates with
an adjustable rate coupon................... 1.65
Qualified Mortgage Pass-Through Certificates
which are part of a publicly-offered issued
with a coupon rate of:
9% or higher................................ 1.50
8%.......................................... 1.53
7%.......................................... 1.56
6%.......................................... 1.60
</TABLE>
A-39
<PAGE> 55
<TABLE>
<CAPTION>
TYPE OF RATING DISCOUNT
AGENCY REQUIRED ASSET FACTOR
--------------------- --------
<S> <C>
5%.......................................... 1.64
Adjustable rate............................. 1.70
CMOs:
Tranche 1................................... 1.41
Tranche 2................................... 1.50
Tranche 3................................... 1.66
Tranche 4................................... 1.82
Securitized Receivables which are part of a
publicly-offered issue and have a weighted
average life of:
less than 5 years........................... 1.30
greater than or equal to 5 but less than 10
years.................................... 1.40
U.S. Treasury Securities with a remaining term
to maturity of:
less than 1 year............................ 1.07
greater than or equal to 1 year but less
than 4 years............................. 1.25
greater than or equal to 4 years but less
than 5 years............................. 1.29
greater than or equal to 5 years but less
than 7 years............................. 1.36
greater than or equal to 7 years but less
than 10 years............................ 1.43
greater than or equal to 10 years but less
than 15 years............................ 1.47
greater than or equal to 15 years but less
than 20 years............................ 1.55
greater than or equal to 30 years but less
than 30 years............................ 1.56
Short-Term Money Market Instruments issued by
the United States........................... 1.10
Other Short-Term Money Market Instruments..... 1.15
</TABLE>
(iii) (iv)Aggregate Adjusted Value. The total of the Adjusted
Values of all Eligible Municipal Securities and other Rating Agency
Required Assets is the aggregate Adjusted Value of the Rating Agency
Required Assets.
In accordance with procedures established by the Board (and set
forth in a certificate signed by an officer of the Fund,
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<PAGE> 56
filed with the records of the Fund and available for inspection
by the shareholders of the Fund), the discount factor applied to
determine the Adjusted Value of any Rating Agency Required Asset may
be changed from that set forth above if Moody's and Standard & Poor's
have advised or, if both of such Rating Agencies are not then rating
the Preferred Shares, the one which is rating the Preferred Shares has
advised the Fund in writing that the revised discount factor would
not, or that a failure to use the revised discount factor would,
adversely affect their respective then-current ratings of the
Preferred Shares. If Other Securities become includible in Rating
Agency Required Assets, the calculation of the Adjusted Value of such
Other Securities will be determined in accordance with procedures as
are established by the Board of Trustees (and set forth in a
certificate signed by an officer of the Fund, filed with the records
of the Fund and available for inspection by the shareholders of the
Fund) and as are acceptable to Moody's and Standard & Poor's if the
Preferred Shares are then rated by both such Rating Agencies, or, if
not rated by both, to the one, if any, such Rating Agency then rating
the Preferred Shares.
(c) Calculation III. For the purpose of determining whether the Rating
Agency Required Asset Coverage is met in accordance with paragraph 6(b),
the Value of the Rating Agency Required Assets shall be calculated by (i)
reducing the aggregate Adjusted Value of the Rating Agency Required Assets
by (A) the amount of all known liabilities (including, without limitation,
indebtedness, operating expenses payable and securities sold under
agreements to repurchase) which appear on the applicable Evaluation
Valuation Date on the Fund's balance sheet and the amount of operating
expenses projected by the Fund to be incurred by the Fund during the
succeeding three months, (B) so long as the Preferred Shares are rated by
Standard & Poor's, the amount described in paragraph 7(d) below, and (C) an
aggregate amount for all Preferred Shares calculated for each series of the
Preferred Shares, as of the Evaluation Valuation Date, as follows: the
amount of accumulated but unpaid dividends on such series (unless set aside
with the Paying Agent for payment) to the Evaluation Valuation Date plus
dividends projected to accumulate on such series from and including the
Evaluation Valuation Date to but excluding the first day of the next
Dividend Period for such series at the Dividend Rate for such series in
effect for such series on the Evaluation Valuation Date plus the amount of
dividends which would accumulate on the shares of such series from and
including the first day of the next Dividend Period for such series through
the [497th] day following the Evaluation Valuation Date at the Dividend
Rate in effect for such series on such
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<PAGE> 57
Evaluation Valuation Date for such series multiplied by the Volatility
Factor [2.28], and (D) the amount of any Gross-up Payment in respect
of any Preferred Shares as of such Valuation Date, and (ii) increasing the
aggregate Adjusted Value of Rating Agency Required Assets by (A) the amount
of receivables for portfolio securities sold as of the Evaluation Valuation
Date, (B) the amount of any interest receivable on portfolio securities as
of the Evaluation Valuation Date and (C) the value of any Fund assets
irrevocably deposited by the Fund for the payment of any of (i)(A) through
(i)(C) above.
(d) Hedging Transactions. (i) For so long as any shares of Preferred
Shares are rated by Standard & Poor's, the Fund will not purchase or sell
futures contracts, write, purchase or sell options on futures contracts or
write put options (except covered put options) or call options (except
covered call options) on portfolio securities unless it receives written
confirmation from Standard & Poor's that engaging in such transactions will
not impair the ratings then assigned to the Preferred Shares by Standard &
Poor's, except that the Fund may purchase or sell futures contracts based
on the Bond Buyer Municipal Bond Index (the "Municipal Index") or United
States Treasury Bonds or Notes ("Treasury Bonds") and write, purchase or
sell put and call options on such contracts (collectively, "Standard &
Poor's Hedging Transactions"), subject to the following limitations.
(A) the Fund will not engage in any Standard & Poor's Hedging
Transaction based on the Municipal Index (other than transactions
which terminate a futures contract or option held by the Fund by
taking an opposite position thereto ("Closing Transactions")), which
would cause the Fund at the time of such transaction to own or have
sold the least of (i) more than 1,000 outstanding futures contracts
based on the Municipal Index, (ii) outstanding futures contracts based
on the Municipal Index exceeding in number 25% of the quotient of the
Market Value of the Fund's total assets divided by $1,000 or (iii)
outstanding futures contracts based on the Municipal Index exceeding
in number 10% of the average number of daily traded futures contracts
based on the Municipal Index in the 30 days preceding the time of
effecting such transactions as reported by The Wall Street Journal;
(B) the Fund will not engage in any Standard & Poor's Hedging
Transaction based on Treasury Bonds (other than Closing Transactions)
which would cause the Fund at the time of such transaction to own or
have sold the lesser of (i) outstanding futures contracts based on
Treasury Bonds exceeding in number 50% of the quotient of the Market
Value of
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<PAGE> 58
the Fund's total assets divided by $100,000 ($200,000 in the
case of the two-year United States Treasury Note) or (ii) outstanding
futures contracts based on Treasury Bonds exceeding in number 10% of
the average number of daily traded futures contracts based on Treasury
Bonds in the 30 days preceding the time of effecting such transaction
as reported by The Wall Street Journal;
(C) the Fund will engage in Closing Transactions to close out any
outstanding futures contract which the Fund owns or has sold or any
outstanding option thereon owned by the Fund in the event (i) the Fund
does not have Standard & Poor's Eligible Assets with an aggregate
Discounted Value equal to or grater than the Rating Agency Required
Asset Coverage on two consecutive Valuation Dates and (ii) the Fund is
required to pay additional margin due to fluctuation in contract price
("Variation Margin") on the second such Valuation Date;
(D) the Fund will engage in a Closing Transaction to close out
any outstanding futures contract or option thereon in the month prior
to the delivery month under the terms of such futures contract or
option thereon unless the Fund holds the securities deliverable under
such terms; and
(E) when the Fund writes a futures contract or option thereon, it
will either maintain an amount of cash, cash equivalents or high grade
(rated "A" or better by Standard & Poor's), fixed-income securities in
a segregated account with the Fund's custodian, so that the amount so
segregated plus the amount of margin paid on such contract ("Initial
Margin") and any Variation Margin held in the amount of or on behalf
of the Fund's broker with respect to such futures contract or option
equals the Market Value of the futures contract or option, or, in the
event the Fund writes a futures contract or option thereon which
requires delivery of an underlying security, it shall hold such
underlying security in its portfolio.
For purposes of determining whether the Fund has Standard & Poor's Eligible
Securities with a Discounted Value that equals or exceeds the Rating Agency
Required Asset Coverage, the Discounted Value of cash or securities held for the
payment of Initial Margin or Variation margin shall be zero and the aggregate
Discounted Value of Standard & Poor's Eligible Assets shall be reduced by an
amount equal to (i) 30% of the aggregate settlement value, as marked to market,
of any outstanding futures contracts based on the Municipal Index which are
owned by the Fund plus (ii) 25% of the aggregate settlement value, as marked to
A-43
<PAGE> 59
market, of any outstanding futures contract based on Treasury Bonds which
contracts are owned by the Fund.
(ii) For as long as any Preferred Shares are rated by Moody's, the
Fund will not buy or sell futures contracts, write, purchase or sell call
options on futures contracts or purchase put options on futures contracts
or write call options (except covered call options) on portfolio securities
unless it receives written confirmation from Moody's that engaging in such
transactions would not impair the ratings then assigned to the shares of
Preferred Shares by Moody's, except that the Fund may purchase or sell
exchange-traded futures contracts based on the Municipal Index or Treasury
Bonds and purchase, write or sell exchange-traded put options on such
futures contracts and purchase, write or sell exchange-traded call options
on such futures contracts (collectively, "Moody's Hedging Transactions"),
subject to the following limitations:
(A) the Fund will not engage in any Moody's Hedging Transaction
based on the Municipal Index (other than Closing Transactions) which
would cause the Municipal Bonds rated by Moody's but not rated by
Standard & Poor's may comprise no more than 50% of short-term
municipal securities that qualify as Standard & Poor's Eligible
Securities;
(B) the Standard & Poor's Security Discount Factor for funds to
be received for sales of municipal securities that are due in more
than five Business days from such Valuation Date will be the Standard
& Poor's Security Discount Factor applicable to the municipal
securities sold; and
(C) no Standard & Poor's Security Discount Factor will be applied
to cash or to funds to be received for sales of municipal securities
if such funds are due within five business days of such Valuation
Date. For purposes of calculating Standard & Poor's Eligible
Securities as of any Valuation Date, funds to be received for sales of
municipal securities is the book value of such funds to be received
for municipal securities sold as of or prior to such Valuation Date.
For purposes of the foregoing, anticipation notes rated "SP-1" or, if
not rated by Standard & Poor's, rated "VMIG-1" by Moody's, which do
not mature or have a demand feature exercisable in 30 days and which
do not have a long-term rating, shall be considered to be short-term
municipal securities.
(d) Hedging Transactions. The Fund will enter into futures and options
transactions only for hedging purposes and not for leveraging or
speculative purposes. So long as Moody's is rating the Preferred Shares,
the Fund will not enter into a futures or options
A-44
<PAGE> 60
transaction unless, after giving effect to such futures or options
transactions, the Rating Agency Required Asset Coverage is met and the Fund
will not write any anticipatory call options pursuant to which the Fund
hedges the anticipated purchase of an asset prior to the completion of such
purchase. For the purpose of determining the Rating Agency Value of Rating
Agency Required Assets, assets held for initial and variation margin will
have an Adjusted Value of zero.
So long as Moody's is rating the Preferred Shares, the Fund will
not enter into futures contracts with respect to individual securities
and will not write put or call options on futures contracts. Also, any
contracts for index based futures or options transactions entered into
by the Fund shall expire on the first or second succeeding settlement
date under such contracts.
(i) Options Transactions. A purchase of a put or call option by
the Fund, whether in particular securities or on futures contracts,
will have no effect on the Value of the Rating Agency Required Assets
except to the extent of premiums paid and profits received. The Fund
will write only exchange-traded covered call options which are traded
on exchanges which have been approved by Moody's. If the Fund writes a
covered call option, the security or futures contract deliverable upon
the exercise of the option will have an Adjusted Value of zero unless
the option expires within [44] days, in which case such security or
futures contract will have an Adjusted Value equal to the lesser of
the call price specified in such call option and the Adjusted Value,
if any, that the security would have disregarding the existence of the
option. In addition, if the Fund writes a covered call option, 10% of
the exercise price of the covered call option will be a liability of
the Fund for purposes of determining the Rating Agency Value of Rating
Agency Required Assets. The Fund will write only exchange-traded put
options which are traded on exchanges which have been approved by
Moody's. If the Fund writes a put option with respect to any security,
the put price will be a liability of the Fund for purposes of
determining the Rating Agency Value of the Rating Agency Required
Assets.
(ii) Futures Transactions. So long as Moody's is rating the
Preferred Shares the Fund will only enter into futures contracts with
respect to indices of rates applicable to municipal securities and
U.S. Treasury bonds which are traded on exchanges which have been
approved by Moody's. If the Fund enters into a long or short futures
contract with respect to an index of
A-45
<PAGE> 61
rates applicable to securities, that futures contract will, so
long as Standard & Poor's is rating the Preferred Shares, be
considered a liability for purposes of determining the Rating Agency
Value of Rating Agency Required Assets in an amount equal to 30%, in
the case of an index of rates applicable to municipal securities, and
25%, in the case of an index of rates applicable to U.S. Treasury
bonds, of the settlement value of such futures contract. So long as
Moody's is rating the Preferred Shares, the Fund may not enter into
short futures contracts with respect to (A) an index of rates
applicable to municipal securities if the market value of all such
futures contracts owned by the Fund exceeds 100% of the principal
amount of all Moody's Eligible Municipal Securities owned by the Fund
with a rating of "Baa" or better from Moody's less the market value of
all short futures contracts with respect to an index of rates
applicable to U.S. Treasury bonds, or (B) an index of rates applicable
to U.S. Treasury bonds if the market value of all such futures
contracts owned by the Fund exceeds 10% of the principal amount of all
Moody's Eligible Municipal Securities owned by the Fund with a rating
of "Aaa" from Moody's, 50% of the principal amount of all Moody's
Eligible Municipal Securities owned by the Fund with a rating of "Aa"
from Moody's, or 90% of the principal amount of all Moody's Eligible
Municipal Securities owned by the Fund with each of the ratings of "A"
or "Baa" from Moody's less the market value of all short futures
contracts with respect to an index of rates applicable to municipal
securities. In addition, the Fund may enter into a futures contracts
only if (W) after entering into such contract, the total number of
futures contracts owned by the Fund with respect to an index of rates
applicable to municipal securities does not exceed 1,000, (X) the
market value of all such futures contracts owned by the Fund with
respect to any index of rates applicable to municipal securities does
not, after the purchase of such contract, exceed an amount equal to
10% of the daily rolling average trading volume of such futures
contracts for the previous month, (Y) the market value of all such
futures contracts owned by the Fund with respect to an index of rates
applicable to U.S. Treasury bonds does not, after entering into such
contract, exceed 10% of the daily rolling average trading volume of
such contracts for the previous month, and (Z) the market value of all
futures contracts owned by the Fund with respect to indices of rates
applicable to securities does not, after the purchase of such
contract, exceed 35% of the aggregate Market Value of the
Fund's total assets. So long as Moody's is rating the Preferred
Shares, the Fund will maintain, in a segregated account, cash equal to
the face value of all open long
A-46
<PAGE> 62
futures contracts plus 5% of the market value of such contracts. Such
cash will have an Adjusted Value of zero.
So long as Standard & Poor's is rating the Preferred Shares, the
Fund will be obligated to liquidate positions in futures contracts
with respect to indices of rates applicable to securities if, on two
successive Evaluation Dates, the Rating Agency Required Asset Coverage
is not met and on the second of those two Evaluation Dates the Fund
was required to make a variation margin deposit. Any such liquidation
shall be made in an amount sufficient to enable the Fund to meet the
Rating Agency Required Asset Coverage as of such second Evaluation
Date, or in whole. The Fund will liquidate each open futures contract
with respect to an index of rates to U.S. Treasury bonds by the last
day of the month prior to the month in which such contract expires.
The Fund will liquidate each open futures contract with respect to an
index of rates applicable to municipal securities by the fifth
Business Day of the month in which such contract expires. In addition,
so long as Moody's is rating the Preferred Shares, the Fund will
liquidate each Bond Buyer Municipal Bond Index contract if the amount
of open interest in all such contracts fall below 5,000 contracts.
So long as Standard & Poor's and Moody's are rating the Preferred
Shares, the Fund will only engage in those futures or options
transactions explicitly described above.
(e) When-Issued and Forward Delivery Purchases. If the Fund purchases
securities on a "when-issued" or "forward delivery" basis, the cash or
securities segregated by the Fund to satisfy its purchase obligations will
have an Adjusted Value of zero. The contract to purchase will have an
Adjusted Value of zero unless the settlement date is within [44] 49 days,
in which case the contract to purchase will have an Adjusted Value equal to
the lesser of the purchase price and the Adjusted Value, if any, the
security contracted to the purchase would have it were owned by the Trust.
(f) Borrowings. So long any Preferred Shares are outstanding and
Moody's and Standard & Poor's, or both, are rating the Preferred Shares,
the Fund will not borrow money unless it has received written confirmation
from Moody's or Standard & Poor's, or both, as appropriate, that the
proposed borrowing would not impair the ratings then assigned by such
ratings agency to the Preferred Shares. Notwithstanding the foregoing, the
Fund may, without obtaining the written confirmation described above,
borrow money for the purpose of clearing securities transactions if (i) the
Ratings Agency Required Asset Coverage would continue to
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<PAGE> 63
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 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.
8. Conversion. The Preferred Shares, by their terms shall not be
convertible into or exchangeable for, shares of another series or class.
9. Certification. No certificate representing Preferred Shares shall be
issued for less than a Unit.
10. Liquidation Rights
(a) Payment Upon Liquidation. In the event of a liquidation,
dissolution or winding up of the Fund, whether voluntary or involuntary,
the Owners of the Preferred Shares, in preference to the owners of the
Common Shares but not in preference of any other series or class of
preferred shares of beneficial interests of the Fund, shall be entitled to
payment, out of the assets of the Fund or the proceeds thereof available
for distribution to shareholders after satisfaction of claims of creditors
of the Fund, of a liquidation distribution in the amount of $5,000 per
share, plus an amount equal to all accumulated dividends (whether or not
declared but without interest) to the date payment of such distribution
shall be made in full or a sum sufficient for the payment thereof shall be
set apart with the Paying Agent. After payment of the full amount of such
liquidation distribution, the Owners of the Preferred Shares shall not be
entitled to any further participation in any distribution of assets of the
Fund.
(b) Insufficient Assets. If, upon the liquidation, dissolution or
winding up of the Fund whether voluntary or involuntary, the assets of the
Fund or the proceeds thereof available for distribution to shareholders
after satisfaction of claims of creditors of the Fund shall be insufficient
to pay in full the liquidation distribution to which the Owners of the
Preferred Shares or the holders of other preferred shares of beneficial
interest of the Fund are entitled, such assets or the proceeds thereof
shall be distributed among the Owners of the Preferred Shares and the
owners of other preferred shares of beneficial interest ratably, so that
the amount of the distribution to be made to each Owner and owner of the
other preferred shares of beneficial interest will bear the same ratio to
the aggregate
A-48
<PAGE> 64
amount of the distribution to be made to all Owners and owners of the other
preferred shares of beneficial interest as the aggregate amount of the
liquidation distribution owed to such Owner and owner of the other
preferred shares of beneficial interest will bear to the aggregate amount
of the liquidation distribution owed to all Owners and owners of the other
preferred shares of beneficial interest.
So long as any Preferred Shares shall remain outstanding, the Fund, in the event
of any liquidation, dissolution or winding up of the Fund, whether voluntary or
involuntary, shall not (i) make any payment or other distribution to the holders
of the Common Shares or (ii) purchase, redeem or otherwise acquire for any
consideration any of the Common Shares, until payment in full shall have been
made to the holders of the Preferred Shares of the liquidation distribution to
which they shall be entitled. Neither the sale, lease or exchange (for cash,
securities or other consideration) of all or substantially all of the property
and assets of the Fund nor the consolidation or merger of the Fund with or into
any other corporation or corporations shall be deemed to be a liquidation,
dissolution or winding up of the Fund, whether voluntary or involuntary, within
the meaning of this paragraph 10; provided that such sale, lease, exchange,
consolidation or merger, by its terms, would not adversely affect the voting
powers, preferences and relative, participating, optional or other special
rights of the holders of the Preferred Shares.
11. Remarketing: Tender for Remarketing
(a) The Remarketing Agent. The Fund shall take all reasonable action
necessary so that, at all times, an investment bank, broker, dealer or
other organization qualified to remarket the Preferred Shares and to
establish Dividend Periods and Dividend Rates as herein provided shall act
as Remarketing Agent for the Preferred Shares. On the first day of each
Dividend Period for each Preferred Share of a series tendered for
remarketing on such day, the Remarketing Agent shall use its best efforts
to remarket for the beneficial owners thereof, without charge to such
beneficial owners, such Preferred Shares, in transactions of at least a
Unit, at a price of $5,000 per share; provided, however, such Remarketing
Agent shall not be obligated to remarket such Preferred Shares if there
shall be a material misstatement or omission in any disclosure document
used in connection with the remarketing of such Preferred Shares or at any
time the Remarketing Agent shall have determined that it is not advisable
to remarket such Preferred Share by reason of any of: (i) a pending or
proposed change in applicable tax laws, (ii) a material adverse change in
the financial condition of the Fund, (iii) a banking moratorium, (iv)
domestic or international hostilities, (v) an amendment of this resolution,
the Agreement and Declaration or the
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By-Laws of the Fund which materially and adversely changes the nature of
the Preferred Shares or the remarketing procedures therefor, (vi) a
downgrading or withdrawal of the rating on the Preferred Shares, (vii) an
imposition of material restrictions on the Preferred Shares or any other
preferred shares of beneficial interest of the Fund or (viii) a failure by
the Fund, an any Dividend Payment Date for any Preferred Share, to have
paid, or set apart with the Paying Agent funds for the payment of, the
dividend payable on such Preferred Share on such date. Should the
Remarketing Agent not succeed in so remarketing all Preferred Shares of a
series tendered for remarketing on any date, the Remarketing Agent shall
select the Preferred Shares of such series to be sold from those tendered
pro rata or in such other manner as it shall deem appropriate so that no
beneficial owner of such tendered Preferred Shares shall own less than a
Unit of such tendered Preferred Shares; provided, however, that the
Remarketing Agent may own less than a Unit if it shall elect to purchase
Preferred Shares tendered for remarketing which it shall not have succeeded
in remarketing. Settlement of transactions will take place on the day of
remarketing, which is the first day of each Dividend Period, in accordance
with the normal procedures of the Depository.
(b) Notice of Preferred Shares to be Retained. Each Preferred Share
shall be deemed to have been tendered to the Fund (or such agent as the
Fund may appoint) for sale by remarketing on the day following the last day
of each Dividend Period, unless the beneficial owner thereof shall have
given irrevocable notice to the contrary to the Remarketing Agent (or such
other agent as the Fund may appoint). Any such notice shall be irrevocable
when given. Such notice, which may be telephonic or written, must be
delivered to the Remarketing Agent prior to 3:00 p.m., New York City time,
on the last Business Day of the Dividend Period. The notice from such
beneficial owner of an election to retain Preferred Shares shall state (i)
the number of Preferred Shares not to be deemed to have been so tendered
and (ii) the number of such Preferred Shares which shall be deemed not to
have been so tendered, which number may not be less than a Unit and may not
result in such beneficial owner retaining less than a Unit of such
Preferred Shares.
(c) Preferred Shares Deemed to have been Tendered. The failure to give
notice with respect to any Preferred Share as provided in clause (b) of
this paragraph 11 shall constitute the irrevocable tender for remarketing
of such Preferred Share. Thereupon, such Preferred Shares shall cease to
accrue dividends payable to the former beneficial owners thereof, which
shall have no further rights with respect to such Preferred Shares, except
the right to receive any
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<PAGE> 66
previously declared but unpaid dividends thereon and the proceeds of the
remarketing thereof.
(d) Funds for Purchase of Preferred Shares. Preferred Shares tendered
for remarketing as provided in this paragraph 11 shall be purchased solely
from the proceeds received from the purchasers of such Preferred Shares in
a remarketing. Neither the Fund nor the Remarketing Agent (nor any other
agent which the Fund may appoint) shall be obligated to provide funds to
make payment to the beneficial owners of Preferred Shares so tendered.
12. Restrictions on the Common Shares. So long as any Preferred Shares shall be
outstanding, the Fund shall not declare, pay or set aside for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or options, warrants or rights to subscribe for or purchase Common
Shares) in respect of any Common Share, or call for redemption, redeem purchase
or otherwise acquire for consideration any Common Shares, unless:
(a) such transaction is on an EvaluationValuation Date;
(b) immediately thereafter the 1940 Act Coverage and the Rating Agency
Required Asset Coverage would be met as of such EvaluationValuation Date;
(c) full cumulative dividends on the Preferred Shares and any other
preferred shares of beneficial interest of the Fund for all past Dividend
Periods ended on or prior to the EvaluationValuation Date shall have been
declared and paid (or declared and a sum sufficient for the payment of such
dividends shall have been set apart with the Paying Agent for payment); and
(d) the Fund has redeemed the full number of Preferred Shares required
to be redeemed by any provision for mandatory redemption contained in
paragraph 4(b) above.
13. Other Securities. While the Preferred Shares are outstanding, the Fund will
not issue any other series or class of securities which, if issued, would
violate the provisions of Section 18 of the 1940 Acts.
14. Other Rights. Except as provided by law, the Preferred Shares shall not have
any designation preference, or relative, participating, optional or other
special rights, or qualifications, limitations or restrictions, other than as
set forth in this resolution.
15. Limitation on Liability. A copy of the Agreement and Declaration is on file
with the Secretary of the Commonwealth of Massachusetts, and is hereby agreed
that this instrument is executed on behalf of the Board of Trustees of the Fund
as trustees and not individually and that the obligations of this instrument are
not binding upon any of the trustees, officers
A-51
<PAGE> 67
or holders of Common or Preferred Shares of the Fund individually but are
binding only upon the assets and property of the Fund.
16. Board of Trustees Interpretation. To the extent permitted by applicable law,
the Board of Trustees may interpret or adjust the provisions of this Certificate
of Designation to resolve any inconsistency or ambiguity or to remedy any formal
defect, and may amend this Certificate of Designation with respect to any series
of Preferred Shares prior to the issuance of shares of such series.
17. No Fractional Shares. No fractional Preferred Shares shall be issued.
18. Status of Preferred Shares Redeemed, Exchanged or Otherwise Acquired by the
Fund. Preferred Shares which are redeemed, exchanged or otherwise acquired by
the Fund shall return to the status of authorized and unissued Preferred Shares
without designation as to series.
19. Headings Not Determinative. The headings contained in this Certificate of
Designation are for convenience of reference only and shall not affect the
meaning or interpretation of this Certificate of Designation.
20. Notices. All notices or communications, unless otherwise specified in the
By-laws of the Fund or this Certificate of Designation, shall be sufficiently
given if in writing and delivered in person or mailed by first-class mail,
postage prepaid.
IN WITNESS WHEREOF, this instrument has been executed for and on behalf and in
the name of the Fund by its officers thereunto duly authorized on
, 1999.
KEMPER MUNICIPAL INCOME TRUST
By
-----------------------------------
[Seal]
Attest:
- ------------------------------------------
A-52
<PAGE> 68
PROXY PROXY
KEMPER MUNICIPAL INCOME TRUST
COMMON SHARES
FOR THE ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 15, 1999
PLEASE VOTE PROMPTLY!
Your vote is needed! Please vote below and sign in the space provided and
return it in the envelope provided. You may receive additional proxies for your
other accounts with Kemper. These are not duplicates; you should sign and
return each proxy card in order for your votes to be counted. Please return them
as soon as possible to help save the cost of additional mailings.
The signers of this proxy hereby appoint Philip J. Collora, Maureen E. Kane,
Caroline Pearson and Katherine L. Quirk, and each of them, attorneys and
proxies, with power of substitution in each, to vote all shares for the signers
at the Annual Meeting of Shareholders to be held September 15, 1999, and at any
adjournments thereof, as specified herein, and in accordance with their best
judgment, on any other business that may properly come before this meeting. If
no specification is made herein, all shares will be voted as recommended by the
Board on each item set forth on this proxy.
THE PROXY IS SOLICITED BY THE BOARD OF THE FUND WHICH RECOMMENDS A VOTE "FOR"
ALL ITEMS.
TO VOTE, MAKE BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]
<TABLE>
<S> <C>
1. Election of Trustees: For Withhold For all To withhold authority to vote,
All All Except mark the "For All Except" box
and write the nominee's number
01) James E. Akins, 02) James R. Edgar, 03) Arthur R. [ ] [ ] [ ] on the line provided below.
Gottschalk, 04) Fred B. Renwick, 05) Thomas W. Littauer,
06) Fred B. Renwick, 07) John G. Weithers -------------------------------
2. Ratification of the selection of Ernst & Young LLP as the For Against Abstain
Fund's independent auditors for the current fiscal year.
[ ] [ ] [ ]
3. Approval of an Amended and Restated Certificates of For Against Abstain
Designation for Preferred Shares
[ ] [ ] [ ]
</TABLE>
Note: All registered owners of accounts shown above must sign. Please sign
exactly as your name appears on this Proxy. If signing for a corporation,
estate or trust, please indicate your capacity or title.
---------------------- -------------- --------------------- ------------
Signature Date Signature (Joint) Date
<PAGE> 69
PROXY PROXY
KEMPER MUNICIPAL INCOME TRUST
COMMON SHARES
FOR THE ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 15, 1999
PLEASE VOTE PROMPTLY!
Your vote is needed! Please vote below and sign in the space provided and
return it in the envelope provided. You may receive additional proxies for your
other accounts with Kemper. These are not duplicates; you should sign and
return each proxy card in order for your votes to be counted. Please return them
as soon as possible to help save the cost of additional mailings.
The signers of this proxy hereby appoint Philip J. Collora, Maureen E. Kane,
Caroline Pearson and Katherine L. Quirk, and each of them, attorneys and
proxies, with power of substitution in each, to vote all shares for the signers
at the Annual Meeting of Shareholders to be held September 15, 1999, and at any
adjournments thereof, as specified herein, and in accordance with their best
judgment, on any other business that may properly come before this meeting. If
no specification is made herein, all shares will be voted as recommended by the
Board on each item set forth on this proxy.
THE PROXY IS SOLICITED BY THE BOARD OF THE FUND WHICH RECOMMENDS A VOTE "FOR"
ALL ITEMS.
TO VOTE, MAKE BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]
<TABLE>
<S> <C>
1. Election of Trustees: For Withhold For all To withhold authority to vote,
All All Except mark the "For All Except" box
and write the nominee's number
01) James E. Akins, 02) James R. Edgar, 03) Arthur R. [ ] [ ] [ ] on the line provided below.
Gottschalk, 04) Fred B. Renwick, 05) John G. Weithers
-------------------------------
2. Ratification of the selection of Ernst & Young LLP as the For Against Abstain
Fund's independent auditors for the current fiscal year.
[ ] [ ] [ ]
</TABLE>
Note: All registered owners of accounts shown above must sign. Please sign
exactly as your name appears on this Proxy. If signing for a corporation,
estate or trust, please indicate your capacity or title.
---------------------- -------------- --------------------- ------------
Signature Date Signature (Joint) Date
