AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 21, 1999
1933 ACT FILE NO. 333-84123
1940 ACT FILE NO. 811-5877
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2/A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 2 [X]
POST-EFFECTIVE AMENDMENT NO.__ [_]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 11 [X]
(Check appropriate box or boxes)
Dreyfus Strategic Municipal Bond Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
(Address of Principal Executive Offices)
(212) 922-6130
(Registrant's Telephone Number, including Area Code)
Mark N. Jacobs, Esq.
The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
(Name and Address of Agent for Service)
Copy to:
Lewis G. Cole, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
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Proposed Proposed Amount
Amount Maximum Maximum of
Title Of Securities Being Offering Aggregate Registration
Being Registered Registered Price Per Offering Fee(1)(2)
Unit(1) Price(1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Auction Preferred Stock
(Series A, Series B and Series C) 7,440 $25,000 $186,000,000 $51,708
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Estimated soley for the purpose of calculating the registration fee.
(2) Registration fee previously paid on September 21, 1999.
</TABLE>
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
Subject to Completion, September 17, 1999
[LOGO] Dreyfus $186,000,000
Dreyfus Strategic Municipal Bond Fund, Inc.
2,480 Shares Series A
2,480 Shares Series B
2,480 Shares Series C
Auction Preferred Stock
Liquidation Preference $25,000 Per Share
-----------
Dreyfus Strategic Municipal Bond Fund, Inc. (the "Fund") is a diversified,
closed-end management investment company. Its investment objective is to
maximize current income exempt from federal income tax to the extent believed by
the Fund's investment adviser to be consistent with the preservation of capital.
The Fund ordinarily seeks to invest 100% of its assets in municipal obligations
and at least 80% of its assets in municipal obligations considered investment
grade. The Fund may invest the remainder of its assets in higher risk, higher
yielding municipal obligations of lesser quality. See the "Investment Objective
and Policies" section beginning on page 13 of this Prospectus for a discussion
of the investment risks you should consider in making an investment decision.
The Dreyfus Corporation ("Dreyfus") is the Fund's investment adviser.
Per Share Sales Load(2) Proceeds to Fund(1)
------------ ------------- -------------------
Public Offering Price............ $25,000 $ $
TOTAL............................ $186,000,000 $ $
- -----
(1) Plus accumulated dividends, if any, from the Date of Original Issue.
(2) The Fund and Dreyfus have agreed to indemnify the Underwriter against
certain liabilities under the Securities Act of 1933. See "Underwriting."
The Applicable Rate for the Initial Dividend Period will be % per annum for
Series A Preferred Stock, % per annum for Series B Preferred Stock, and % per
annum for Series C Preferred Stock. The Applicable Rate on the Preferred Stock
for each Subsequent Dividend Period generally will be determined pursuant to
periodic Auctions conducted in accordance with the procedures described herein.
Unless the Fund gives notice of a Special Dividend Period, each Subsequent
Dividend Period for each series of Preferred Stock will be a 28-Day Dividend
Period.
Dividends on the Preferred Stock will be cumulative from the Date of
Original Issue and payable commencing on ___________, 1999 for Series A
Preferred Stock, _______, 1999 for Series B Preferred Stock and __________, 1999
for Series C Preferred Stock and, generally, on each succeeding fourth Tuesday
for Series A Preferred Stock, each succeeding fourth Thursday for Series B
Preferred Stock and each succeeding fourth Monday for Series C Preferred Stock.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
This Prospectus sets forth concisely information about the Fund that you
should know before investing. You should retain it for future reference. A
statement of additional information ("SAI") dated September , 1999, containing
additional information about the Fund, is on file with the SEC and is
incorporated by reference into this Prospectus. The table of contents of the SAI
appears on page 47 of this Prospectus. You may obtain a copy of the SAI without
charge by calling the Fund at 1-800-334-6899, or writing to the Fund at 200 Park
Avenue, New York, New York 10166.
[Left Margin: The information in this Prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This Prospectus is not
an offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.]
-----------
PaineWebber Incorporated
-----------
The date of this Prospectus is September , 1999.
<PAGE>
(continued from the previous page)
The Broker-Dealers may maintain a secondary trading market in the Preferred
Stock outside of the Auctions; however, they have no obligation to do so, and
there can be no assurance that a secondary market for the Preferred Stock will
develop or, if it does develop, that it will provide holders with a liquid
trading market. The Preferred Stock will not be listed for trading on any
exchange or any other market. An increase in the level of interest rates,
particularly during any Long Term Dividend Period, likely will have an adverse
effect on the secondary market price of the shares of Preferred Stock.
Each prospective purchaser should review carefully the detailed information
regarding the Auction Procedures which appears in this Prospectus and the SAI.
Certain capitalized terms used in this Prospectus are defined in the
"Glossary" that appears at the end of this Prospectus.
The Underwriter is offering the shares of Preferred Stock subject to
certain conditions. It is expected that one certificate for each series of
Preferred Stock will be delivered to the nominee of The Depository Trust Company
on or about September , 1999.
---------------
The shares of Preferred Stock are not bank deposits. An investment in
shares of Preferred Stock is not guaranteed, endorsed or insured by any bank,
financial institution or government entity, such as the Federal Deposit
Insurance Corporation.
TABLE OF CONTENTS
Page
----
Prospectus Summary................. 1
Financial Highlights............... 10
The Fund........................... 11
Use of Proceeds.................... 11
Capitalization..................... 12
Portfolio Composition.............. 12
Investment Objective and Policies.. 13
Description of Preferred Stock..... 19
Management of the Fund............. 37
Taxes.............................. 39
Description of Capital Structure... 42
Page
----
Conversion to Open-End Fund........ 43
Certain Provisions of the Charter.. 44
Underwriting....................... 45
Custodian and Transfer Agent....... 45
Legal Opinions..................... 45
Independent Auditors............... 45
Additional Information............. 46
Special Note Regarding Forward-
Looking Statements................ 46
Table of Contents of the SAI....... 47
Glossary........................... 48
You should rely only on the information contained in this Prospectus.
Neither the Fund nor the Underwriter has authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. Neither the Fund nor the
Underwriter is making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the information
appearing in this Prospectus is accurate as of the date on the front cover only.
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to the more detailed
information included elsewhere in this Prospectus and in the SAI. Certain of the
capitalized terms used in this summary are defined in the glossary that appears
at the end of this Prospectus.
The Fund.................... The Fund is a diversified, closed-end management
investment company. The Fund was organized under
Maryland law on September 26, 1989, and has
registered under the Investment Company Act of
1940, as amended (the "Investment Company Act").
The Fund's principal office is located at 200
Park Avenue, New York, New York 10166, and its
telephone number is 1-800-334-6899.
Investment Adviser and
Administrator.............. Dreyfus is the Fund's investment adviser and
administrator.
Investment Objective and The Fund's investment objective is to maximize
Policies................... current income exempt from federal income tax to
the extent believed by Dreyfus to be consistent
with the preservation of capital. The Fund
ordinarily invests all of its net assets in
municipal obligations that provide income exempt
from federal income tax. No assurance can be
given that the Fund's investment objective will
be achieved. Under normal market conditions, the
Fund will invest at least 80% of its net assets
in municipal obligations considered investment
grade (at least Baa/BBB) by Moody's, S&P or Fitch
or the unrated equivalent as determined by
Dreyfus. The remainder of the Fund's assets may
be invested in municipal obligations considered
below investment grade, but rated no lower than C
by such Rating Agencies.
The Offering................ The Fund is offering an aggregate of:
. 2,480 shares of Series A Preferred Stock
. 2,480 shares of Series B Preferred Stock
. 2,480 shares of Series C Preferred Stock,
each at a purchase price of $25,000 per share
plus accumulated dividends, if any, from the Date
of Original Issue.
The shares of Preferred Stock are being offered
by PaineWebber Incorporated. See "Underwriting."
Principal Investment Risks Before investing in shares of the Preferred
........................... Stock, you should consider carefully the
following risks of such an investment:
. if an Auction fails, you may not be able
to sell some or all of your shares;
. because of the nature of the market for
shares of Preferred Stock, you may receive
less than the price you paid for your
shares if you sell them outside of the
Auction, especially when market interest
rates are rising;
. the Rating Agency could downgrade the
shares of Preferred Stock, which could
adversely affect liquidity;
. the Fund may be forced to redeem your
shares to meet regulatory or Rating Agency
requirements or may voluntarily redeem
your shares in certain circumstances;
. the Fund may not earn sufficient income
from its investments to pay dividends;
. if long term interest rates rise, the
value of the Fund's investment portfolio
will decline, reducing the asset coverage
for the shares of Preferred Stock; and
. if an issuer of a municipal obligation in
which the Fund invests defaults, there may
be a negative impact on the income and net
asset value of the Fund's portfolio.
For a description of additional risks of
investing in the Fund, see "Investment Objective
and Policies--Additional Risk Considerations,"
and "--Risks of Investing in the Preferred
Stock."
Dividends on Preferred
Stock....................... The shares of Preferred Stock will entitle their
holders to receive cash dividends at the
Applicable Rate. The Applicable Rate for each
Dividend Period after the Initial Dividend Period
will be determined by an Auction conducted on the
Business Day next preceding the start of the
Dividend Period. Typically, each Dividend Period
for each series of Preferred Stock after the
Initial Dividend Period will be 28 days.
Dividends ordinarily will be payable on each
succeeding fourth Tuesday for Series A Preferred
Stock, on each succeeding fourth Thursday for
Series B Preferred Stock, and on each succeeding
fourth Monday for Series C Preferred Stock,
subject to certain exceptions. The Fund, however,
may change the Dividend Period, subject to giving
notice to holders of the Preferred Stock.
Beneficial Owners and Potential Beneficial Owners
of shares of Preferred Stock may participate in
Auctions through their Broker-Dealers. Except for
certain Special Dividend Periods, Beneficial
Owners desiring to continue to hold all of their
shares of Preferred Stock regardless of the
Applicable Rate resulting from Auctions need not
participate. For an explanation of Auctions and
the method of determining the Applicable Rate,
see "Description of Preferred Stock--The
Auction."
Dividends for the shares of Preferred Stock will
be paid through the Securities Depository on each
Dividend Payment Date. The Securities Depository
typically will distribute dividends in same-day
funds to Agent Members, who are expected to
distribute such dividends to the person for whom
they are acting as agent in accordance with the
instructions of such person. See "Description of
Preferred Stock--Dividends."
A Special Dividend Period can be declared only if
certain conditions are met. See "Description of
Preferred Stock--Dividends." If Sufficient
Clearing Bids do not exist at the Auction for the
shares of Preferred Stock, the Dividend Period
commencing on the Business Day succeeding that
Auction will be a 28-Day Dividend Period, and the
holders of the shares of Preferred Stock
outstanding before that Auction will be required
to continue to hold such shares for that Dividend
Period. In addition, the Fund may not give a
Notice of Special Dividend Period, or if the Fund
has given a Notice of Special Dividend Period for
the Preferred Stock, the Fund will be required to
give a Notice of Revocation, if:
. either the Investment Company Act
Preferred Stock Asset Coverage is not
satisfied or the Fund fails to maintain
S&P Eligible Assets with an aggregate
Discounted Value at least equal to the
Preferred Stock Basic Maintenance Amount,
in each case on each of the two Valuation
Dates immediately preceding the Business
Day prior to the related Auction Date for
the shares of Preferred Stock,
. sufficient funds for the payment of
dividends payable on the immediately
succeeding Dividend Payment Date have not
been irrevocably deposited with the
Auction Agent by the close of business on
the third Business Day preceding the
related Auction Date, or
. the Broker-Dealers have not given the Fund
notice that it is advisable to hold an
Auction in respect of a Special Dividend
Period.
In any of these events, the next succeeding
Dividend Period will be a 28-Day Dividend Period.
Advance Notice of
Allocation of Taxable
Income; Inclusion of
Taxable Income in
Dividends.................. Dividends paid from tax-exempt income earned on
municipal obligations will be exempt from federal
income tax, although some or all of those
dividends may be a tax preference item for
purposes of the federal alternative minimum tax.
The Fund is required to allocate net capital
gains and any other income subject to federal
income tax proportionately among the Fund's
shares of common stock and shares of Preferred
Stock. The Fund will seek to notify the Auction
Agent of the amount of the taxable income to be
included in any dividend on the shares of
Preferred Stock before the Auction establishing
the Applicable Rate for such dividend. The
Auction Agent will notify each Broker-Dealer
whenever it receives any such notice from the
Fund, and each Broker-Dealer will notify its
Beneficial Owners and Potential Beneficial
Owners, as provided in its Broker-Dealer
Agreement.
The Fund also may include such taxable income in
a dividend on the shares of Preferred Stock
without giving advance notice thereof if it
increases the dividend by an amount sufficient to
offset substantially the tax effect thereof. The
amount of taxable income allocable to the shares
of Preferred Stock will depend upon the amount of
taxable income realized by the Fund and other
factors but generally is not expected to be
significant. See "Taxes" and "Description of
Preferred Stock--The Auction--Auction Date;
Advance Notice of Allocation of Taxable Income;
Inclusion of Taxable Income in Dividends."
Additional Dividends........ If the Fund retroactively allocates any net
capital gains or other taxable income to the
shares of Preferred Stock without advance notice,
the Fund will make payments to holders of the
shares of Preferred Stock to which such
allocation was made to offset substantially the
tax effect thereof. This retroactive allocation
may happen if (i) all or a portion of the
outstanding shares of Preferred Stock are
redeemed, (ii) the Fund liquidates, (iii) a debt
obligation believed to be a municipal obligation
unexpectedly turns out to be an obligation
subject to federal income tax or (iv) any other
reason determined in good faith by the Fund. See
"Description of Preferred Stock--Dividends--
Additional Dividends" and "Taxes."
Determination of Maximum
Applicable Rates........... Except during a Non-Payment Period, the
Applicable Rate for any Dividend Period for the
Preferred Stock will not be more than the Maximum
Applicable Rate. The Maximum Applicable Rate for
each series of Preferred Stock will depend on the
credit rating assigned to such shares and on the
duration of the Dividend Period. The Maximum
Applicable Rate will be the Applicable Percentage
of the Reference Rate.
The Reference Rate is:
. with respect to any Dividend Period or any
Short Term Dividend Period having 28 or
fewer days, the higher of the applicable
"AA" Composite Commercial Paper Rate and
the Taxable Equivalent of the Short Term
Municipal Obligation Rate,
. with respect to any Short Term Dividend
Period having more than 28 but fewer than
183 days, the applicable "AA" Composite
Commercial Paper Rate,
. with respect to any Short Term Dividend
Period having 183 or more but fewer than
364 days, the applicable U.S. Treasury
Bill Rate, and
. with respect to any Long Term Dividend
Period, the applicable U.S. Treasury Note
Rate.
The Applicable Percentage will be determined
based on:
. the credit rating assigned on such date to
the shares of Preferred Stock by S&P (or,
if S&P does not make such rating
available, the equivalent of such rating
by a Substitute Rating Agency) and
. whether the Fund has provided notification
to the Auction Agent, before the Auction
establishes the Applicable Rate for any
dividend, that net capital gains or other
taxable income will be included in such
dividend on the shares of Preferred Stock
as follows:
Applicable
Percentage of Applicable
Reference Rate Percentage of
-- Reference Rate--
S&P Credit Ratings No Notification Notification
------------------ --------------- ----------------
AA- or higher............... 110% 150%
A- to A+.................... 125 160
BBB- to BBB+................ 150 250
Below BBB-.................. 200 275
There is no minimum Applicable Rate in respect of
any Dividend Period.
The Applicable Rate for any Dividend Period
commencing during any Non-Payment Period, and the
rate used to calculate the late charge described
under "Description of Preferred Stock--
Dividends--Non-Payment Period; Late Charge,"
initially will be 200% of the Reference Rate (or
275% of such rate if the Fund has provided
notification to the Auction Agent before the
Auction establishing the Applicable Rate for any
dividend that net capital gains or other taxable
income will be included in such dividend on
shares of Preferred Stock).
Auction Procedures ......... Separate Auctions will be conducted for each
series of Preferred Stock. Unless otherwise
permitted by the Fund, Beneficial Owners and
Potential Beneficial Owners of shares of
Preferred Stock may participate in Auctions only
through their Broker-Dealers. Broker-Dealers will
submit the Orders of their respective customers
who are Beneficial Owners and Potential
Beneficial Owners to the Auction Agent,
designating themselves as Existing Holders in
respect of shares subject to Orders submitted or
deemed submitted to them by Beneficial Owners and
as Potential Holders in respect of shares subject
to Orders submitted to them by Potential
Beneficial Owners. On or before each Auction Date
(the Business Day next preceding the first day of
each Dividend Period), each Beneficial Owner may
submit Orders to its Broker-Dealer as follows:
. Hold Order--indicating its desire to hold
the shares of Preferred Stock without
regard to the Applicable Rate for the next
Dividend Period for such shares.
. Bid--indicating its desire to hold the
shares of Preferred Stock, provided the
Applicable Rate for the next Dividend
Period for such shares is not less than
the rate per annum specified in such Bid.
. Sell Order--indicating its desire to sell
the shares of Preferred Stock without
regard to the Applicable Rate for the next
Dividend Period for such shares.
A Beneficial Owner may submit different types of
Orders to its Broker-Dealer with respect to the
shares of Preferred Stock then held by such
Beneficial Owner, provided that the total number
of shares of Preferred Stock covered by such
Orders does not exceed the number of shares of
Preferred Stock held by the Beneficial Owner. If,
however, a Beneficial Owner offers through its
Broker-Dealer to purchase additional shares of
Preferred Stock in the Auction, such Beneficial
Owner, for purposes of such offer to purchase
additional shares, will be treated as a Potential
Beneficial Owner as described below. Bids by
Beneficial Owners through their Broker-Dealers
with rates per annum higher than the Maximum
Applicable Rate will be treated as Sell Orders.
If an Order is not submitted on behalf of a
Beneficial Owner for any reason, including the
failure of a Broker-Dealer to submit such
Beneficial Owner's Order to the Auction Agent,
then a Hold Order (in the case of an Auction
relating to a Dividend Period of 91 days or less)
and a Sell Order (in the case of an Auction
relating to a Special Dividend Period of longer
than 91 days) will be deemed to have been
submitted on behalf of such Beneficial Owner.
Potential Beneficial Owners of shares of
Preferred Stock may submit Bids through their
Broker-Dealers offering to purchase shares of
Preferred Stock, provided the Applicable Rate for
the next Dividend Period for such shares is not
less than the rate per annum specified in such
Bid. A Bid by a Potential Beneficial Owner with a
rate per annum higher than the Maximum Applicable
Rate will not be considered.
Neither the Fund nor the Auction Agent will be
responsible for a Broker-Dealer's failure to
comply with any of the Auction Procedures.
A Broker-Dealer also may hold shares of Preferred
Stock for its own account as a Beneficial Owner
and, thus, may participate in an Auction on
behalf of both itself and its customers. A
Broker-Dealer acting for itself will be subject
to the same procedures as when it acts on behalf
of a Beneficial Owner or a Potential Beneficial
Owner.
If Sufficient Clearing Bids exist in an Auction
for a series of Preferred Stock, the Applicable
Rate will be the lowest rate per annum specified
in the Submitted Bids which, taking into account
such rate per annum and all lower rates per annum
bid by Existing Holders and Potential Holders,
would result in Existing Holders and Potential
Holders owning all of the shares of Preferred
Stock available for purchase in the Auction.
If Sufficient Clearing Bids do not exist, the
Dividend Period next following the Auction
automatically will be a 28-Day Dividend Period
and the Applicable Rate will be the Maximum
Applicable Rate. In such event, Existing Holders
that have submitted Sell Orders will not be able
to sell in the Auction all, and may not be able
to sell any, shares of Preferred Stock subject to
such Sell Orders.
If all Existing Holders submit (or are deemed to
have submitted) Hold Orders in an Auction, the
Dividend Period next following the Auction
automatically will be the same length as the
immediately preceding Dividend Period, and the
Applicable Rate will be 40% of the Reference Rate
(as defined under "Determination of Maximum
Applicable Rates" above) in effect on the date of
the Auction (or 60% of such rate if the Fund has
provided notification to the Auction Agent,
before the Auction establishes the Applicable
Rate for any dividend, that net capital gains or
other taxable income will be included in such
dividend on shares of Preferred Stock).
The Auction Procedures include a pro rata
allocation of shares for purchase and sale, which
may result in an Existing Holder selling or
holding, or a Potential Holder purchasing, a
number of shares of Preferred Stock that is less
than the number of shares of Preferred Stock
specified in its Order. If the allocation has
this result, a Broker-Dealer will be required to
make appropriate pro rata allocations among its
customers and itself.
A Sell Order by an Existing Holder will
constitute an irrevocable offer to sell the
shares of Preferred Stock subject to it, and a
Bid placed by an Existing Holder also will
constitute an irrevocable offer to sell the
shares of Preferred Stock subject to it if the
rate per annum specified in the Bid is higher
than the Applicable Rate determined in the
Auction, in each case at a price per share equal
to $25,000.
A Bid placed by a Potential Holder will constitute
an irrevocable offer to purchase the shares of
Preferred Stock subject thereto if the rate per
annum specified in such Bid is less than or equal
to the Applicable Rate determined in the Auction.
Settlement of purchases and sales will be made on
the next Business Day (also a Dividend Payment
Date) after the Auction Date through the
Securities Depository. Purchasers will make
payment through their Agent Members in same-day
funds to the Securities Depository against
delivery by book-entry to their Agent Members. The
Securities Depository will make payment to the
sellers' Agent Members in accordance with the
Securities Depository's normal procedures, which
now provide for payment in same-day funds. See
"Description of Preferred Stock--The Auction."
Asset Maintenance........... Under its Charter, the Fund must maintain (i) S&P
Eligible Assets having in the aggregate a
Discounted Value at least equal to the Preferred
Stock Basic Maintenance Amount and (ii)
Investment Company Act Preferred Stock Asset
Coverage of at least 200%. See "Description of
Preferred Stock--Asset Maintenance."
The Fund estimates that, based on the composition
of its portfolio at August 31, 1999, the
Investment Company Act Preferred Stock Asset
Coverage with respect to shares of Preferred
Stock will be approximately 328% immediately
after the issuance of the shares of Preferred
Stock offered hereby in an amount representing
approximately 30% of the Fund's capital
(including the capital attributable to the shares
of Preferred Stock).
The Discount Factors and guidelines for
calculating the Discounted Value of the Fund's
portfolio for purposes of determining whether the
Preferred Stock Basic Maintenance Amount has been
satisfied have been established by S&P in
connection with the Fund's receipt of ratings on
the shares of Preferred Stock on their Date of
Original Issue of "AAA" from S&P.
Mandatory Redemption........ If the Preferred Stock Basic Maintenance Amount
or the Investment Company Act Preferred Stock
Asset Coverage is not maintained or restored as
required, the shares of Preferred Stock will be
subject to mandatory redemption, out of funds
legally available, at the Mandatory Redemption
Price of $25,000 per share, plus an amount equal
to accumulated but unpaid dividends to the date
fixed for redemption. In addition, holders of
shares of Preferred Stock may be entitled to
receive Additional Dividends in the event of
redemption of such shares of Preferred Stock. See
"Description of Preferred Stock--Dividends--
Additional Dividends." Any such redemption will
be limited to the minimum number of shares of
Preferred Stock necessary to restore the
Preferred Stock Basic Maintenance Amount or the
Investment Company Act Preferred Stock Asset
Coverage, as the case may be. The Fund's ability
to complete a mandatory redemption may be
restricted by the provisions of the Investment
Company Act. See "Description of Preferred
Stock--Redemption--Mandatory Redemption."
Optional Redemption......... The shares of Preferred Stock are redeemable at
the option of the Fund on any Dividend Payment
Date (except during the Initial Dividend Period or
a Non-Call Period) at the Optional Redemption
Price of $25,000 per share, plus an amount equal
to accumulated but unpaid dividends to the date
fixed for redemption plus the premium, if any,
resulting from the designation of a Premium Call
Period. See "Description of Preferred Stock--
Redemption--Optional Redemption." Holders of
shares of Preferred Stock also may be entitled to
receive Additional Dividends if their shares of
Preferred Stock are redeemed. See "Description of
Preferred Stock--Dividends--Additional Dividends."
Liquidation Preference...... The liquidation preference of the shares of
Preferred Stock will be $25,000 per share, plus
an amount equal to accumulated but unpaid
dividends. See "Description of Preferred Stock--
Liquidation Rights." Holders of shares of
Preferred Stock also may be entitled to receive
Additional Dividends if the Fund is liquidated.
See "Description of Preferred Stock--Dividends--
Additional Dividends."
Rating...................... Shares of Preferred Stock will be issued only if
S&P gives them a credit quality rating of "AAA."
The Fund may seek at some future time to have the
shares of Preferred Stock rated by an additional
Rating Agency. See "Investment Objective and
Policies--Rating Agency Guidelines."
Voting Rights............... Holders of any shares of Preferred Stock, voting
as a separate class, have the right to elect at
least two Directors at all times and to elect a
majority of the Directors at any time when two
years' dividends on any shares of Preferred Stock
are unpaid. The holders of any shares of
Preferred Stock will vote as a separate class on
certain other matters as required under the
Fund's Charter and the Investment Company Act.
See "Description of Preferred Stock--Voting
Rights," "Description of Capital Structure" and
"Certain Provisions of the Charter."
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth certain specified information for a share of
common stock of the Fund outstanding throughout each period presented. The
financial highlights for each of the ten years in the period ended November 30,
1998 have been audited by Ernst & Young LLP, the Fund's independent auditors,
whose report covering each of the five years in the period ended November 30,
1998 is included in the Fund's November 30, 1998 Annual Report and is
incorporated by reference in the SAI. The financial highlights should be read in
conjunction with the financial statements and notes thereto included in the
Fund's November 30, 1998 Annual Report and Semi-Annual Report for the six months
ended May 31, 1999, which are available without charge from the Fund.
Six-Month
Period Ended
May 31, 1999
(Unaudited)
------------
PER SHARE DATA:
Net asset value,
beginning of
period.......... $ 9.52
--------
Investment
Operations:
Investment
income--net.... .29
Net realized and
unrealized gain
(loss) on
investments.... (.22)
--------
Total from
Investment
Operations..... $ .07
--------
Distributions:
Dividends from
investment
income--net.... $ (.30)
Dividends from
net realized
gain on
investments.... --
Dividends in
excess of net
realized gains
on
investments.... --
--------
Total
Distributions.. $ (.30)
--------
Net asset value,
end of period... $ 9.29
========
Market value, end
of period....... $ 9 1/8
========
TOTAL RETURN*.... (15.02%)(3)
RATIOS/SUPPLEMENTAL
DATA:
Ratio of
expenses to
average net
assets......... .81%(3)
Ratio of net
investment
income
to average net
assets......... 6.24%(3)
Portfolio
turnover rate.. 16.60%(4)
Net assets, end
of
period (000's
omitted)....... $443,816
<TABLE>
<CAPTION>
Year Ended November 30,
---------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989(1)
---------- --------- --------- --------- ---------- --------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of
period.......... $ 9.49 $ 9.54 $ 9.60 $ 8.68 $ 9.93 $ 9.78 $ 9.61 $ 9.44 $ 9.32 $ 9.32(2)
---------- --------- --------- --------- ---------- --------- --------- --------- ---------- ------------
Investment
Operations:
Investment
income--net.... .60 .62 .64 .66 .65 .70 .70 .69 .69 --
Net realized and
unrealized gain
(loss) on
investments.... .05 (.01) (.08) .90 (1.16) .17 .18 .19 .02 --
---------- --------- --------- --------- ---------- --------- --------- --------- ---------- ------------
Total from
Investment
Operations..... $ .65 $ .61 $ .56 $ 1.56 $ (.51) $ .87 $ .88 $ .88 $ .71 --
---------- --------- --------- --------- ---------- --------- --------- --------- ---------- ------------
Distributions:
Dividends from
investment
income--net.... $ (.62) $ (.66) $ (.62) $ (.64) $ (.67) $ (.68) $ (.71) $ (.71) $ (.59) --
Dividends from
net realized
gain on
investments.... -- -- -- -- -- (.04) -- -- -- --
Dividends in
excess of net
realized gains
on
investments.... -- -- -- -- (.07) -- -- -- -- --
---------- --------- --------- --------- ---------- --------- --------- --------- ---------- ------------
Total
Distributions.. $ (.62) $ (.66) $ (.62) $ (.64) $ (.74) $ (.72) $ (.71) $ (.71) $ (.59) --
---------- --------- --------- --------- ---------- --------- --------- --------- ---------- ------------
Net asset value,
end of period... $ 9.52 $ 9.49 $ 9.54 $ 9.60 $ 8.68 $ 9.93 $ 9.78 $ 9.61 $ 9.44 $ 9.32
========== ========= ========= ========= ========== ========= ========= ========= ========== ============
Market value, end
of period....... $10 3/16 $ 10 5/8 $ 9 3/4 $ 9 1/4 $ 8 5/8 $ 10 1/4 $ 10 1/4 $ 9 7/8 $ 9 1/2 $ 10 1/8
========== ========= ========= ========= ========== ========= ========= ========= ========== ============
TOTAL RETURN*.... (2.23%) 16.60% 12.61% 15.12% (8.97%) 7.37% 11.65% 12.02% (.13%) 1.25%(4)
RATIOS/SUPPLEMENTAL
DATA:
Ratio of
expenses to
average net
assets......... .81% .81% .82% .84% .86% .85% .84% .88% .56% --
Ratio of net
investment
income
to average net
assets......... 6.26% 6.55% 6.82% 7.12% 6.94% 7.05% 7.16% 7.27% 7.49% --
Portfolio
turnover rate.. 6.33% 2.95% 13.47% 13.19% 10.96% 13.87% 8.58% 22.41% 16.51% --
Net assets, end
of
period (000's
omitted)....... $453,893 $446,152 $440,681 $439,192 $396,316 $447,691 $428,824 $408,314 $389,342 $326,391
- -------
* Total return is calculated based on market value.
(1) From November 22, 1989 (commencement of operations) to November 30, 1989.
(2) Net of offering costs charged to paid-in capital.
(3) Annualized.
(4) Not annualized.
</TABLE>
<PAGE>
THE FUND
The Fund is a diversified, closed-end management investment company that
commenced operations in 1989. The Fund's investment objective is to maximize
current income exempt from federal income tax to the extent believed by Dreyfus
to be consistent with the preservation of capital. The Fund invests primarily in
a diversified portfolio of investment grade municipal obligations.
The Fund was organized as a Maryland corporation on September 26, 1989 and
has registered with the SEC under the Investment Company Act. In November 1989,
the Fund issued 35,000,000 shares of common stock pursuant to the initial public
offering thereof and commenced operations. The net proceeds of such offering
were $327,250,000. The Fund's common stock is traded on the New York Stock
Exchange ("NYSE") under the symbol "DSM." The Fund's principal office is located
at 200 Park Avenue, New York, New York 10166. Dreyfus is registered with the SEC
under the Investment Advisers Act of 1940, as amended.
USE OF PROCEEDS
The estimated net proceeds of this offering will be $183,940,000 after the
payment of offering expenses (not expected to exceed $200,000) and the sales
load. See "Underwriting."
Dreyfus anticipates that the Fund will take up to sixty days from its
receipt of the net proceeds of the offer to invest or otherwise employ such
proceeds in accordance with the Fund's investment objective and policies under
current market conditions. Pending such investment, the proceeds of the offer
will be held in high-quality, short term, tax-exempt money market instruments or
shares of investment companies which invest in such securities. Consequently,
the proceeds may not be invested for up to sixty days in securities consistent
with the Fund's goal of maximizing current income.
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Fund as
of August 31, 1999 as adjusted to give effect to the issuance of the shares of
Preferred Stock offered hereby.
Actual As Adjusted
------------ ------------
Shareholders' equity:
Preferred Stock, par value $0.001 per share (no
shares issued; 7,440 shares of Preferred Stock,
as adjusted, at $25,000 per share liquidation
preference)..................................... -- $186,000,000
Common Stock, par value $0.001 per share
(47,783,925 shares
issued and outstanding)......................... $ 47,784 47,784
Capital in excess of par value attributable to
common stock...................................... 447,839,246 445,779,246
Accumulated distributions in excess of investment
income--net....................................... 1,749,303 1,749,303
Accumulated realized gain (loss)--net.............. (13,517,364) (13,517,364)
Unrealized depreciation on investments--net........ (10,303,293) (10,303,293)
------------ ------------
Net assets......................................... $425,815,676 $609,755,676
============ ============
PORTFOLIO COMPOSITION
As of August 31, 1999, approximately 98.5% of the market value of the
Fund's portfolio was invested in long term municipal obligations and the
remainder was invested in short term municipal obligations. The following table
sets forth certain information with respect to the composition of the Fund's
investment portfolio as of August 31, 1999.
<TABLE>
<CAPTION>
Number of Value
S&P* Moody's* Fitch* Issues (In Thousands) Percent
---- -------- ------ --------- -------------- -------
<S> <C> <C> <C> <C> <C>
AAA Aaa AAA 12 $ 62,296 14.8%
AA Aa AA 8 55,431 13.1
A A A 8 49,019 11.6
BBB Baa BBB 20 93,302 22.1
BB Ba BB 4 21,829 5.2
B B B 2 12,662 3.0
NR+ NR+ NR+ 25 121,187 28.7
Cash 5 6,500 1.5
--- -------- -----
Total................... 84 $422,226 100.0%
=== ======== =====
- --------
* Ratings: Using the highest of S&P's, Moody's or Fitch's ratings on the
Fund's municipal obligations. See "Appendix A" to the SAI. S&P's and Fitch's
rating categories may be modified further by a plus (+) or minus (-) in AA,
A, BBB, BB and B ratings. Moody's rating categories may be modified further
by a 1, 2 or 3 in Aa, A, Baa, Ba and B ratings.
+ Securities that are not rated by S&P, Moody's or Fitch. These municipal
obligations may be rated by a Rating Agency other than S&P, Moody's or
Fitch, or may not be rated by any Rating Agency.
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective
The Fund's investment objective is to maximize current income exempt from
federal income tax to the extent believed by Dreyfus to be consistent with the
preservation of capital. The Fund invests primarily in a diversified portfolio
of investment grade municipal obligations. The Fund's investment objective may
not be changed without the affirmative vote of the holders of a majority (as
defined in the Investment Company Act) of the Fund's outstanding voting
securities. No assurance can be given that the Fund will achieve its investment
objective.
Management Policies
Under normal market conditions, the Fund will invest, as a fundamental
policy, at least 80% of its net assets in municipal obligations. At least 65% of
the value of the Fund's net assets (except when maintaining a temporary
defensive position) will be invested in bonds and debentures. Under normal
market conditions, the weighted average maturity of the Fund's portfolio is
expected to exceed ten years.
Municipal obligations are debt obligations issued by states, territories
and possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, or multi-state agencies
or authorities, that provide income exempt from federal income tax. Municipal
obligations are classified as general obligation bonds, revenue bonds and notes.
General obligation bonds are secured by the issuer's pledge of its faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenue derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Notes are short
term instruments which are obligations of the issuing municipalities or agencies
and are sold in anticipation of a bond sale, collection of taxes or receipt of
other revenues. The Fund may purchase floating and variable rate obligations,
municipal derivatives, such as custodial receipt programs created by financial
intermediaries, tender option bonds, and participations in municipal
obligations.
Under normal market conditions, the Fund invests at least 80% of its net
assets in municipal obligations considered investment grade by Moody's, S&P or
Fitch or the unrated equivalent as determined by Dreyfus in the case of bonds,
and in the two highest rating categories of Moody's, S&P or Fitch or the unrated
equivalent as determined by Dreyfus in the case of short term obligations having
or deemed to have maturities of less than one year. The Fund may invest the
remainder of its assets in municipal obligations considered below investment
grade by Moody's, S&P and Fitch, including those rated no lower than C, but it
currently is the intention of the Fund to invest such remainder of its assets
primarily in bonds rated no lower than Ba by Moody's and BB by S&P and Fitch.
Bonds rated below investment grade and short term obligations rated below the
two highest rating categories of Moody's, S&P and Fitch will be purchased only
if Dreyfus determines that the purchase is consistent with the Fund's investment
objective. Investment grade bonds are those rated in the four highest rating
categories of Moody's, S&P or Fitch. See "Additional Risk Considerations" below.
The Fund also may invest in taxable investments to the extent and of the quality
described below.
The Fund emphasizes investments in municipal obligations with long term
maturities, but the degree of such emphasis depends upon market conditions
existing at the time of investment. Under normal market conditions, long term
municipal obligations generally provide a higher yield than short term municipal
obligations. The Fund, however, may invest in short term municipal obligations
when their yields are greater than yields available on long term municipal
obligations, for temporary defensive purposes and after the closing of this
offering as the Fund selects longer term municipal obligations to purchase for
its portfolio.
From time to time, the Fund may invest more than 25% of the value of its
total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental users. Interest on certain municipal
obligations (including certain industrial development bonds) which are specific
private activity bonds, while exempt from federal income tax, is a preference
item for the purpose of the federal alternative minimum tax ("AMT"). Where a
regulated investment company receives such interest, a proportionate share of
any exempt-interest dividend paid by the investment company will be treated as a
preference item to the shareholder. The Fund may invest without limitation in
such municipal obligations if Dreyfus determines that their purchase is
consistent with the Fund's investment objective.
From time to time, (a) on a temporary basis other than for temporary
defensive purposes (but not to exceed 20% of the Fund's net assets) or (b) for
temporary defensive purposes without limitation, the Fund may invest in taxable
short term investments ("Taxable Investments") consisting of: notes of issuers
having, at the time of purchase, a quality rating within the two highest grades
of Moody's, S&P or Fitch; obligations of the U.S. Government, its agencies or
instrumentalities; commercial paper rated at least P-2 by Moody's or at least
A-2 by S&P or Fitch; certificates of deposit of U.S. domestic banks, including
foreign branches of domestic banks, with assets of $1 billion or more; bankers'
acceptances; time deposits; and repurchase agreements in respect of any of the
foregoing. See the SAI for a description of these securities. Dividends paid by
the Fund that are attributable to interest earned from Taxable Investments will
be taxable to investors. See "Taxes." Under normal market conditions, the Fund
anticipates that not more than 5% of its total assets will be invested in any of
the foregoing categories of Taxable Investments.
Investment Techniques
The Fund may employ, among others, the investment techniques described
below. Use of certain of these techniques may give rise to taxable income. These
instruments and certain related risks are described more specifically under
"Additional Information About Certain Portfolio Securities and Investment
Techniques" in the SAI. The Fund's ability to use some of these techniques, such
as investing in futures, engaging in options transactions and lending portfolio
securities is limited as a condition to S&P's rating the shares of Preferred
Stock "AAA." See "Rating Agency Guidelines" below.
When-Issued Securities. New issues of municipal obligations usually are
offered on a when-issued basis, which means that delivery and payment for such
municipal obligations normally take place within 45 days after the date of the
commitment to purchase. The payment obligation and the interest rate that will
be received on the municipal obligations are fixed at the time the buyer enters
into the commitment. The Fund will make commitments to purchase such municipal
obligations only with the intention of actually acquiring the securities, but
the Fund may sell these securities before the settlement date if it is deemed
advisable, although any gain realized on such sale would be taxable. The Fund
will not accrue income with respect to a when-issued security before its stated
delivery date. No additional when-issued commitments will be made if more than
20% of the Fund's net assets would be so committed.
Stand-By Commitments. The Fund may acquire "stand-by commitments" with
respect to municipal obligations held in its portfolio. Under a stand-by
commitment the Fund obligates a broker, dealer or bank to repurchase at the
Fund's option specified securities at a specified price. In this respect,
stand-by commitments are comparable to put options. The exercise of a stand-by
commitment, therefore, is subject to the ability of the seller to make payment
on demand. The Fund will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The Fund anticipates that stand-by commitments will be
available from brokers, dealers and banks without the payment of any direct or
indirect consideration. The Fund may pay for stand-by commitments if such action
is deemed necessary, thus increasing to a degree the cost of the underlying
municipal obligation and similarly decreasing such security's yield to
investors.
Derivatives. The Fund may invest in, or enter into, certain types of
derivatives, such as futures and options, for a variety of reasons, including to
increase current income, reduce fluctuations in net asset value and protect
against a decline in the value of municipal obligations held by the Fund or an
increase in the price of municipal obligations the Fund proposes to purchase in
the future. Distributions by the Fund of any gains realized on the Fund's
futures and options transactions will be taxable. The rating agency guidelines
for the Preferred Stock limit the use of these derivatives.
Derivatives may entail investment exposures that are greater than their
cost would suggest, meaning that a small investment in derivatives could have a
large potential impact on the Fund's performance.
If the Fund invests in derivatives at inopportune times or judges market
conditions incorrectly, such investments may lower the Fund's return or result
in a loss. The Fund also could experience losses if its derivatives were poorly
correlated with its other investments, or if the Fund were unable to liquidate
its position because of an illiquid secondary market. The market for many
derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid and unpredictable changes in the prices for
derivatives.
The Fund may acquire call options on specific municipal obligations. The
Fund generally would purchase these call options to protect the Fund from the
issuer of the related municipal obligation redeeming, or other holder of the
call option from calling away, the municipal obligation before maturity. The
sale by the Fund of a call option it owns on a specific municipal obligation
could result in the receipt of taxable income by the Fund. Certain securities
purchased by the Fund, such as those with interest rates that fluctuate directly
or indirectly based on multiples of a stated index, are designed to be highly
sensitive to changes in interest rates and can subject the holders thereof to
extreme reductions of yield and possibly loss of principal.
Although the Fund will not be a commodity pool, certain derivatives subject
the Fund to the rules of the Commodity Futures Trading Commission which limit
the extent to which the Fund can invest in such derivatives. The Fund may invest
in futures contracts and options with respect thereto for hedging purposes
without limit. However, the Fund may not invest in such contracts and options
for other purposes if the sum of the amount of initial margin deposits and
premiums paid for unexpired options with respect to such contracts, other than
for bona fide hedging purposes, exceeds 5% of the liquidation value of the
Fund's assets, after taking into account unrealized profits and unrealized
losses on such contracts and options, but in the case of an option that is in-
the-money at the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation.
The Fund may purchase call and put options and may write (i.e., sell)
covered call and put option contracts. When required by the SEC, the Fund will
segregate permissible liquid assets to cover its obligations relating to its
purchase of derivatives. To maintain this required cover, the Fund may have to
sell portfolio securities at disadvantageous prices or times because it may not
be possible to liquidate a derivative position at a reasonable price.
The Fund may invest in residual interest municipal obligations whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in inverse
floaters may involve greater risk than an investment in a fixed-rate bond.
Because changes in the interest rate on the other security or index inversely
affect the residual interest paid on the inverse floater, the value of an
inverse floater is generally more volatile than that of a fixed-rate bond.
Inverse floaters have interest rate adjustment formulas which generally reduce
or, in the extreme, eliminate the interest paid to the Fund when short term
interest rates rise, and increase the interest paid to the Fund when short term
interest rates fall. Inverse floaters have varying degrees of liquidity, and the
market for these securities is relatively volatile. These securities tend to
underperform the market for fixed-rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed-rate bonds when
interest rates decline. Shifts in long term interest rates may, however, alter
this tendency. Although volatile, inverse floaters typically offer the potential
for yields exceeding the yields available on fixed-rate bonds with comparable
credit quality, coupon, call provisions and maturity. These securities usually
permit the investor to convert the floating-rate to a fixed-rate (normally
adjusted downward), and this optional conversion feature may provide a partial
hedge against rising rates if exercised at an opportune time.
Additional Risk Considerations
The Fund's investments are subject to interest rate, market, income, call
and credit risk. The prices of municipal obligations tend to fall as interest
rates rise. Securities that have longer maturities tend to fluctuate more in
price in response to changes in market interest rates. This risk is usually
greater among municipal obligations with longer maturities or durations and when
residual interest municipal obligations are held by the Fund. This means that
the Fund, which invests in such longer term securities, is subject to greater
market risk (other things being equal) than a fund investing solely in shorter
term securities.
The Fund's income is based primarily on the interest it earns from its
investments, which can vary widely over the short and long term. If interest
rates fall, the Fund's income available over time to make dividend payments with
respect to the Preferred Stock could drop as well if the Fund purchases
securities with lower interest coupons.
The Fund may invest in inverse floaters. Compared to similar fixed-rate
municipal obligations, the value of these bonds will fluctuate to a greater
extent in response to changes in prevailing long term interest rates. Moreover,
the income earned on inverse floaters will fluctuate in response to changes in
prevailing short term interest rates. Thus, when such bonds are held by the
Fund, an increase in short or long term market interest rates will adversely
affect the income received from such bonds.
If interest rates fall, it is possible that issuers of callable bonds with
high interest coupons will "call" (or prepay) their bonds before their maturity
date. If a call were exercised by the issuer during a period of declining
interest rates, the Fund would likely replace such called security with a lower
yielding security.
Municipal obligations are subject to the risk of non-payment of scheduled
interest and/or principal. Such non-payment would result in a reduction of
income to the Fund, a reduction in the value of the security experiencing non-
payment and a potential decrease in the net asset value of the Fund. Securities
rated below investment grade or unrated securities of comparable quality are
subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations ("credit risk") and also may be subject to price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity ("market
risk"). The prices of lower quality securities also are more likely to react to
real or perceived developments affecting market and credit risk than are prices
of investment grade quality securities, which react primarily to movements in
the general level of interest rates.
The Fund is permitted to invest in securities rated Baa by Moody's or BBB
by S&P or Fitch and up to 20% of its assets may be invested in securities rated
below Baa by Moody's and BBB by S&P or Fitch, but in no event lower than C by
such Rating Agencies. Bonds which are rated Baa by Moody's are considered medium
grade obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Bonds which are rated
BBB by S&P are regarded as having adequate capacity to pay interest and repay
principal, and while such bonds normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for bonds in this
category than in higher rated categories. Bonds rated BBB by Fitch are
considered to be of satisfactory credit quality and the obligor's ability to pay
interest and repay principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely to have an
adverse impact on these bonds, and therefore, impair timely payment of interest
or principal. Because up to 20% of the Fund's portfolio may consist of bonds
rated below investment grade and as low as C by Moody's, S&P and Fitch (commonly
known as junk bonds), the Fund may be subject to investment risks as to these
securities that are greater in some respects than those incurred by a fund which
invests only in securities rated in a higher category by these Rating Agencies.
These higher yielding (and, therefore, higher risk) securities generally may be
subject to certain risks with respect to the issuing entity and to greater
market fluctuation than certain lower yielding, higher rated fixed-income
securities. The retail secondary market for these securities may be less liquid
than that of higher rated securities; adverse conditions could make it difficult
at times for the Fund to sell certain securities or could result in lower
prices. See "Appendix A" to the SAI for a general description of Moody's, S&P
and Fitch ratings of municipal obligations. Although ratings may be useful in
evaluating the safety of interest and principal payments, they do not evaluate
the market value risk of these bonds. It also is possible that a Rating Agency
might not timely change the rating on a particular issue to reflect subsequent
events. Once the rating of a bond in the Fund's portfolio has been changed, the
Fund will consider all circumstances deemed relevant in determining whether to
continue to hold the bond.
Year 2000 issues. The Fund could be adversely affected if the computer
systems used by Dreyfus and the Fund's other service providers do not properly
process and calculate date-related information from and after January 1, 2000.
Dreyfus is working to avoid year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the Fund invests may be
adversely affected by year 2000-related problems. This could have an impact on
the value of the Fund's investments.
Portfolio Turnover
The Fund's portfolio turnover rate will not be a limiting factor when the
Fund deems it desirable to purchase or sell securities. A 100% annual turnover
rate would occur, for example, if all the securities in the portfolio were
replaced in a period of one year. A higher turnover rate necessarily involves
greater expenses to the Fund. The Fund will engage in portfolio trading if it
believes that a transaction will help in achieving its investment objective.
Rating Agency Guidelines
The Fund intends that, so long as shares of Preferred Stock are
outstanding, the composition of its portfolio will reflect guidelines
established by S&P in connection with the Fund's receipt of a rating for such
shares on or prior to their Date of Original Issue of at least "AAA" from S&P.
S&P issues ratings for various securities reflecting the perceived
creditworthiness of such securities. The guidelines have been developed by S&P
in connection with issuances of asset-backed and similar securities, including
debt obligations and variable rate preferred stock, generally on a case-by-case
basis through discussions with the issuers of these securities. The guidelines
are designed to ensure that assets underlying outstanding debt or preferred
stock will be varied sufficiently and will be of sufficient quality and amount
to justify investment grade ratings. The guidelines do not have the force of law
but have been adopted by the Fund to satisfy current requirements necessary for
S&P to issue the above-described rating for the shares of Preferred Stock, which
rating generally is relied upon by institutional investors in purchasing such
securities. The guidelines provide a set of tests for portfolio composition and
asset coverage that supplement (and in some cases are more restrictive than) the
applicable requirements under the Investment Company Act. See "Description of
Preferred Stock--Asset Maintenance."
The Fund intends to maintain a Discounted Value for its portfolio at least
equal to the Preferred Stock Basic Maintenance Amount. S&P has established
guidelines for determining Discounted Value. To the extent any particular
portfolio holding does not satisfy these guidelines, all or a portion of such
holding's value will not be included in the calculation of Discounted Value of
the Fund's portfolio assets. The S&P guidelines may impose limitations on the
percentage of Fund assets that may be invested in holdings not eligible for
inclusion in the calculation of the Discounted Value of the Fund's portfolio.
Upon any failure to maintain the required aggregate Discounted Value, the
Fund will seek to alter the composition of its portfolio to retain a Discounted
Value at least equal to the Preferred Stock Basic Maintenance Amount on or
before the Preferred Stock Basic Maintenance Cure Date, thereby incurring
additional transaction costs and possible losses and/or gains on dispositions of
portfolio securities. If any such failure is not cured in a timely manner, the
shares of Preferred Stock will be subject to mandatory redemption. The Preferred
Stock Basic Maintenance Amount includes the sum of (i) the aggregate liquidation
value of the shares of Preferred Stock then outstanding and (ii) certain accrued
and projected payment obligations of the Fund. See "Description of Preferred
Stock--Asset Maintenance" and "Description of Preferred Stock--Redemption."
The Fund may, but is not required to, adopt any modifications to these
guidelines established hereafter by S&P. Failure to adopt any such
modifications, however, may result in a change in the rating described above or
a withdrawal of the rating altogether. In addition, any Rating Agency providing
a rating for the shares of Preferred Stock, at any time, may change or withdraw
any such rating. As set forth in the Charter, the Fund's Board of Directors,
without shareholder approval, may modify certain definitions or restrictions
that have been adopted by the Fund pursuant to the rating agency guidelines,
provided the Fund's Board of Directors has obtained written confirmation from
S&P that any such change would not impair the ratings then assigned by S&P to
the shares of Preferred Stock.
As described by S&P, a preferred stock rating is an assessment of the
capacity and willingness of an issuer to pay preferred stock obligations. The
rating on the shares of Preferred Stock is not a recommendation to purchase,
hold or sell shares of Preferred Stock, inasmuch as the rating does not comment
as to market price or suitability for a particular investor, nor do the rating
agency guidelines address the likelihood that a holder of shares of Preferred
Stock will be able to sell such shares in an Auction or otherwise. The rating is
based on current information furnished to S&P by the Fund and Dreyfus and
information obtained from other sources. The rating may be changed, suspended or
withdrawn as a result of changes in, or the unavailability of, such information.
The Fund's shares of common stock have not been rated by a Rating Agency.
For a more detailed description of S&P guidelines, see "Rating Agency
Guidelines" in the SAI.
Risks of Investing in the Preferred Stock
There are a number of specific factors investors in the shares of Preferred
Stock should consider:
. The credit rating of the shares of Preferred Stock could be reduced
while an investor holds the shares of Preferred Stock, which could
affect liquidity.
. Neither the Broker-Dealers nor the Fund are obligated to purchase the
shares of Preferred Stock in an Auction or otherwise, nor is the Fund
required to redeem the shares of Preferred Stock in the event of a
failed Auction.
. If in an Auction Sufficient Clearing Bids do not exist, the Applicable
Rate will be the Maximum Applicable Rate, and in such event, Beneficial
Owners that have submitted Sell Orders will not be able to sell in the
Auction all, and may not be able to sell any, of the shares of Preferred
Stock subject to such Sell Orders. Thus, under certain circumstances,
Beneficial Owners may not have liquidity of investment.
. If long term interest rates rise, the value of the Fund's investment
portfolio will decline, reducing the asset coverage for the Preferred
Stock.
The Broker-Dealers may maintain a secondary trading market in the shares of
Preferred Stock outside of Auctions; however, they have no obligation to do so
and there can be no assurance that a secondary market for the shares of
Preferred Stock will develop or, if it does develop, that it will provide
holders with a liquid trading market (i.e., trading will depend on the presence
of willing buyers and sellers and the trading price is subject to variables to
be determined at the time of the trade by the Broker-Dealers). The shares of
Preferred Stock will not be registered on any stock exchange or on any automated
quotation system. If you try to sell your shares of Preferred Stock between
Auctions, you may not be able to sell any or all of your shares, or you may not
be able to sell them for $25,000 per share or $25,000 per share plus accumulated
dividends. An increase in the level of interest rates, particularly during any
Long Term Dividend Period, likely will have an adverse effect on the secondary
market price of the shares of Preferred Stock.
The Fund's Charter includes provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the Fund
or to change the composition of its Board of Directors. See "Certain Provisions
of the Charter."
<PAGE>
DESCRIPTION OF PREFERRED STOCK
The following is a brief description of the terms of the shares of
Preferred Stock. This description does not purport to be complete and is subject
to and qualified in its entirety by reference to the Charter, including the
provisions thereof establishing the shares of Preferred Stock. The Charter has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part.
Each series of Preferred Stock will be preferred stock that entitles its
holders to receive dividends when, as and if declared by the Fund's Board of
Directors, out of funds legally available therefor, at a rate per annum that may
vary for the successive Dividend Periods for each such series. After the Initial
Dividend Period, each Subsequent Dividend Period for each series of Preferred
Stock generally will be a 28-Day Dividend Period; provided, however, that before
any Auction, the Fund may elect, subject to certain limitations described
herein, upon giving notice to holders thereof, a Special Dividend Period. In
addition, the Fund may change the dividend period for one or more series,
subject to giving notice to holders of the Preferred Stock. The Applicable Rate
for a particular Dividend Period for a series of Preferred Stock will be
determined by an Auction conducted on the Business Day before the start of such
Dividend Period. Beneficial Owners and Potential Beneficial Owners of shares of
Preferred Stock may participate in Auctions therefor. Except in the case of a
Special Dividend Period of longer than 91 days, Beneficial Owners desiring to
continue to hold all of their shares of Preferred Stock regardless of the
Applicable Rate resulting from Auctions need not participate. For an explanation
of Auctions and the method of determining the Applicable Rate, see "Description
of Preferred Stock--The Auction."
Except as otherwise required by law or unless there is no Securities
Depository, all outstanding shares of Preferred Stock of each series will be
represented by one or more certificates registered in the name of the nominee of
the Securities Depository (initially expected to be Cede & Co. ("Cede")), and no
person acquiring shares of Preferred Stock will be entitled to receive a
certificate representing such shares. See "Appendix D" to the SAI. As a result,
the nominee of the Securities Depository is expected to be the sole holder of
record of each series of Preferred Stock. Accordingly, each purchaser of shares
of Preferred Stock must rely on (i) the procedures of the Securities Depository
and, if such purchaser is not a member of the Securities Depository, such
purchaser's Agent Member, to receive dividends, distributions and notices and to
exercise voting rights (if and when applicable) and (ii) the records of the
Securities Depository and, if such purchaser is not a member of the Securities
Depository, such purchaser's Agent Member, to evidence its beneficial ownership
of the shares of Preferred Stock.
When issued and sold, the shares of Preferred Stock of each series will
have a liquidation preference of $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) and will be
fully paid and non-assessable. See "Description of Preferred Stock--Liquidation
Rights." The shares of Preferred Stock will not be convertible into the Fund's
shares of common stock or other shares of the Fund, and the holders thereof will
have no preemptive rights. The shares of Preferred Stock will not be subject to
any sinking fund but will be subject to redemption at the option of the Fund at
the Optional Redemption Price on any Dividend Payment Date for such series
(except during the Initial Dividend Period and during a Non-Call Period) and, in
certain circumstances, will be subject to mandatory redemption by the Fund at
the Mandatory Redemption Price. See "Description of Preferred
Stock--Redemption."
In addition to serving as the Auction Agent in connection with the Auction
Procedures described below, Bankers Trust Company will be the transfer agent,
registrar, dividend disbursing agent and redemption agent for each series of
Preferred Stock. The Auction Agent, however, will serve merely as the agent of
the Fund, acting in accordance with the Fund's instructions, and will not be
responsible for any evaluation or verification of any matters certified to it.
Except in an Auction, the Fund will have the right (to the extent permitted
by applicable law) to purchase or otherwise acquire any shares of Preferred
Stock so long as the Fund is current in the payment of dividends on shares of
Preferred Stock and on any other shares of the Fund ranking on a parity with the
shares of Preferred Stock with respect to the payment of dividends or upon
liquidation.
The Auction
General. Holders of the shares of Preferred Stock of each series will be
entitled to receive cumulative cash dividends on their shares when, as and if
declared by the Fund's Board of Directors, out of the funds legally available
therefor. Dividends will be paid on the Initial Dividend Payment Date with
respect to the Initial Dividend Period for each series and, thereafter, on each
Dividend Payment Date with respect to a Subsequent Dividend Period for each
series at the rate per annum equal to the Applicable Rate for each such Dividend
Period.
The provisions of the Charter establishing the terms of the shares of
Preferred Stock offered hereby provide that the Applicable Rate for each
Dividend Period after the Initial Dividend Period for each series will be equal
to the rate per annum that the Auction Agent advises has resulted on the
Business Day preceding the first day of such Dividend Period as a result of the
Auction Procedures. The Auction Procedures are attached as "Appendix D" to the
SAI. If, however, the Fund should fail to pay or duly provide for the full
amount of any dividend on or the redemption price of the shares of Preferred
Stock called for redemption, the Applicable Rate for the shares of Preferred
Stock will be determined as set forth under "Description of Preferred Stock--
Dividends--Determination of Dividend Rate."
Auction Agent Agreement. The Fund will enter into the Auction Agent
Agreement, which provides, among other things, that the Auction Agent will
follow the Auction Procedures for the purpose of determining the Applicable Rate
for each series of Preferred Stock. The Fund will pay the Auction Agent
compensation for its services under the Auction Agent Agreement.
The Auction Agent will act as agent for the Fund in connection with
Auctions. In the absence of bad faith or negligence on its part, the Auction
Agent will not be liable for any action taken, suffered or omitted, or for any
error of judgment made, by it in the performance of its duties under the Auction
Agent Agreement, and will not be liable for any error of judgment made in good
faith unless the Auction Agent shall have been negligent in ascertaining the
pertinent facts. Pursuant to the Auction Agent Agreement, the Fund is required
to indemnify the Auction Agent for certain losses and liabilities incurred by
the Auction Agent without negligence or bad faith on its part in connection with
the performance of its duties under such agreement.
The Auction Agent may terminate the Auction Agent Agreement upon notice to
the Fund, which termination may be no earlier than sixty days following delivery
of such notice. If the Auction Agent resigns, the Fund will use its best efforts
to enter into an agreement with a successor Auction Agent containing
substantially the same terms and conditions as the Auction Agent Agreement. The
Fund may terminate the Auction Agent Agreement, provided that prior to such
termination the Fund shall have entered into such an agreement with respect
thereto with a successor Auction Agent.
Broker-Dealer Agreements. The Auctions require the participation of one or
more broker-dealers. The Auction Agent will enter into Broker-Dealer Agreements
with PaineWebber Incorporated and other Broker-Dealers selected by the Fund,
which provide for the participation of such Broker-Dealers in Auctions. A
Broker-Dealer Agreement may be terminated by the Auction Agent or a Broker-
Dealer on five days' notice to the other party, provided that the Broker-Dealer
Agreement with PaineWebber Incorporated may not be terminated without the prior
written consent of the Fund, which consent may not be unreasonably withheld.
Securities Depository. The Depository Trust Company initially will act as
the Securities Depository for the Agent Members with respect to the shares of
Preferred Stock. One or more registered certificates for all of the shares of
each series of Preferred Stock initially will be registered in the name of Cede,
as nominee of the Securities Depository. The certificate will bear a legend to
the effect that such certificate is issued subject to the provisions restricting
transfers of the shares of Preferred Stock of the series to which it relates
contained in the Charter. Cede initially will be the holder of record of all
shares of Preferred Stock, and Beneficial Owners will not be entitled to receive
certificates representing their ownership interest in such shares. See "Appendix
D" to the SAI. The Securities Depository will maintain lists of its participants
and will maintain the positions (ownership interests) of the shares of Preferred
Stock held by each Agent Member, whether as the Beneficial Owner thereof for its
own account or as nominee for the Beneficial Owner thereof. Payments made by the
Fund to holders of shares of Preferred Stock will be duly made by making
payments to the nominee of the Securities Depository.
Auction Procedures. The following is a brief summary of the procedures to
be used in conducting Auctions. This summary is qualified by reference to the
Auction Procedures set forth in "Appendix D" to the SAI. The Settlement
Procedures to be used with respect to Auctions are set forth in "Appendix C" to
the SAI.
Auction Date; Advance Notice of Allocation of Taxable Income; Inclusion of
Taxable Income in Dividends. An Auction to determine the Applicable Rate for the
shares of Preferred Stock offered hereby for each Dividend Period for such
shares (other than the Initial Dividend Period therefor) will be held on the
Auction Date. The initial Auction Date will be , 1999 for Series A Preferred
Stock, , 1999 for Series B Preferred Stock, and , 1999 for Series C Preferred
Stock. Auctions for the shares of Preferred Stock for Dividend Periods after the
Initial Dividend Period ordinarily will be held every fourth Monday after the
preceding Dividend Payment Date for Series A Preferred Stock, every such fourth
Wednesday for Series B Preferred Stock, and every such fourth Friday for Series
C Preferred Stock; and each subsequent Dividend Period ordinarily will begin on
the following Tuesday for Series A Preferred Stock, on the following Thursday
for Series B Preferred Stock, and on the following Monday for Series C Preferred
Stock. The Auction Date and the first day of the related Dividend Period for a
series of Preferred Stock (both of which must be Business Days) need not be
consecutive calendar days. See "Description of Preferred Stock--Dividends" for
information concerning the circumstances under which a Dividend Payment Date may
fall on a date other than the days specified above, which may affect the Auction
Date.
Except as noted below, whenever the Fund intends to include any net capital
gain or other income subject to federal income tax in any dividend on the shares
of Preferred Stock, the Fund will notify the Auction Agent of the amount to be
so included at least five Business Days prior to the Auction Date on which the
Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from the Fund, in turn it will notify each
Broker-Dealer, who, on or prior to such Auction Date, in accordance with its
Broker-Dealer Agreement, will notify its customers who are Beneficial Owners and
Potential Beneficial Owners believed to be interested in submitting an Order in
the Auction to be held on such Auction Date. The Fund also may include such
income in a dividend on the shares of Preferred Stock without giving advance
notice thereof if it increases the dividend by an additional amount calculated
as if such income were a Retroactive Taxable Allocation and the additional
amount were an Additional Dividend; provided, that the Fund will notify the
Auction Agent of the additional amounts to be included in such dividend at least
five Business Days prior to the applicable Dividend Payment Date. See
"Description of Preferred Stock--Dividends--Additional Dividends."
Orders by Beneficial Owners, Potential Beneficial Owners, Existing Holders
and Potential Holders. On or prior to each Auction Date for a series of
Preferred Stock:
(a) each Beneficial Owner may submit to its Broker-Dealer by telephone
a:
(i) Hold Order--indicating the number of outstanding shares of
Preferred Stock, if any, that such Beneficial Owner desires to continue
to hold without regard to the Applicable Rate for the next Dividend
Period for such shares;
(ii) Bid--indicating the number of outstanding shares of Preferred
Stock, if any, that such Beneficial Owner desires to continue to hold;
provided, that the Applicable Rate for the next Dividend Period for
such shares is not less than the rate per annum then specified by such
Beneficial Owner; and/or
(iii) Sell Order--indicating the number of outstanding shares of
Preferred Stock, if any, that such Beneficial Owner offers to sell
without regard to the Applicable Rate for the next Dividend Period for
such shares; and
(b) Broker-Dealers will contact customers who are Potential Beneficial
Owners of shares of Preferred Stock to determine whether such Potential
Beneficial Owners desire to submit Bids indicating the number of shares of
Preferred Stock which they offer to purchase provided that the Applicable
Rate for the next Dividend Period for such shares is not less than the
rates per annum specified in such Bids.
The communication by a Beneficial Owner or Potential Beneficial Owner to a
Broker-Dealer and the communication by a Broker-Dealer, whether or not acting
for its own account, to the Auction Agent of the foregoing information is
hereinafter referred to as an "Order" and collectively as "Orders." A Beneficial
Owner or a Potential Beneficial Owner placing an Order, including a
Broker-Dealer acting in such capacity for its own account, is hereinafter
referred to as a "Bidder" and collectively as "Bidders." Any Order submitted by
a Beneficial Owner or a Potential Beneficial Owner to its Broker-Dealer, or by a
Broker-Dealer to the Auction Agent, before the Submission Deadline on any
Auction Date will be irrevocable.
In an Auction, a Beneficial Owner may submit different types of Orders with
respect to shares of Preferred Stock then held by such Beneficial Owner, as well
as Bids for additional shares of Preferred Stock. For information concerning the
priority given to different types of Orders placed by Beneficial Owners, see
"Submission of Orders by Broker-Dealers to Auction Agent" below.
The Maximum Applicable Rate for a series of Preferred Stock will be the
Applicable Percentage of the Reference Rate. The Auction Agent will round each
applicable Maximum Applicable Rate to the nearest one-thousandth (0.001) of one
percent per annum, with any such number ending in five ten-thousandths of one
percent being rounded upwards to the nearest one-thousandth (0.001) of one
percent. The Auction Agent will not round the applicable Reference Rate as part
of its calculation of the Maximum Applicable Rate.
The Maximum Applicable Rate for a series of Preferred Stock will depend on
the credit rating or ratings assigned to the shares of such series. The
Applicable Percentage will be determined based on (i) the credit rating assigned
on such date to such shares by S&P (or if S&P shall not make such rating
available, the equivalent of such rating by a Substitute Rating Agency), and
(ii) whether the Fund has provided notification to the Auction Agent before the
Auction establishing the Applicable Rate for any dividend that net capital gains
or other taxable income will be included in such dividend on the shares of
Preferred Stock as follows:
Applicable Applicable
Percentage of Percentage of
Reference Reference
Rate--No Rate--
S&P Credit Ratings Notification Notification
------------------ ------------- -------------
AA- or higher.................................... 110% 150%
A- to A+......................................... 125 160
BBB- to BBB+..................................... 150 250
Below BBB-....................................... 200 275
There is no minimum Applicable Rate in respect of any Dividend Period. The
Fund will take all reasonable action necessary to enable S&P to provide a rating
for each series of Preferred Stock. If S&P does not make such a rating
available, the Underwriter or its affiliates and successors, after consultation
with the Fund, will select a Substitute Rating Agency.
Any Bid by a Beneficial Owner specifying a rate per annum higher than the
Maximum Applicable Rate will be treated as a Sell Order, and any Bid by a
Potential Beneficial Owner specifying a rate per annum higher than the Maximum
Applicable Rate will not be considered. See "Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate" and "Acceptance and
Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares"
below.
Neither the Fund nor the Auction Agent will be responsible for a Broker-
Dealer's failure to comply with the foregoing. A Broker-Dealer also may hold
shares of Preferred Stock in its own account as a Beneficial Owner. A Broker-
Dealer thus may submit Orders to the Auction Agent as a Beneficial Owner or a
Potential Beneficial Owner and therefore participate in an Auction as an
Existing Holder or Potential Holder on behalf of both itself and its customers.
Any Order placed with the Auction Agent by a Broker-Dealer as or on behalf of a
Beneficial Owner or a Potential Beneficial Owner will be treated in the same
manner as an Order placed with a Broker-Dealer by a Beneficial Owner or a
Potential Beneficial Owner. Similarly, any failure by a Broker-Dealer to submit
to the Auction Agent an Order in respect of any shares of Preferred Stock held
by it or its customers who are Beneficial Owners will be treated in the same
manner as a Beneficial Owner's failure to submit to its Broker-Dealer an Order
in respect of shares of Preferred Stock held by it, as described in the next
paragraph. If a Broker-Dealer participates in an Auction as an Existing Holder
or a Potential Holder only to represent the interests of a Beneficial Owner or
Potential Beneficial Owner, whether it be its customers or itself, all
discussion herein relating to the consequences of an Auction for Existing
Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented thereby. For information concerning the priority
given to different types of Orders placed by Existing Holders, see "Submission
of Orders by Broker-Dealers to Auction Agent" below. Each purchase or sale in an
Auction will be settled on the Business Day next succeeding the Auction Date at
a price per share equal to $25,000. See "Notification of Results; Settlement"
below.
If one or more Orders covering in the aggregate all of the outstanding
shares of Preferred Stock held by a Beneficial Owner are not submitted to the
Auction Agent prior to the Submission Deadline, either because a Broker-Dealer
failed to contact such Beneficial Owner or otherwise, the Auction Agent will
deem a Hold Order (in the case of an Auction relating to a Dividend Period of 91
days or less) and a Sell Order (in the case of an Auction relating to a Special
Dividend Period of longer than 91 days) to have been submitted on behalf of such
Beneficial Owner covering the number of outstanding shares of Preferred Stock
held by such Beneficial Owner and not subject to Orders submitted to the Auction
Agent. If all of the outstanding shares of Preferred Stock are subject to
Submitted Hold Orders, the Dividend Period next succeeding the Auction
automatically will be the same length as the immediately preceding Dividend
Period, and the Applicable Rate for the next Dividend Period for all the shares
of Preferred Stock will be 40% of the Reference Rate on the date of the
applicable Auction (or 60% of such rate if the Fund has provided notification to
the Auction Agent prior to the Auction establishing the Applicable Rate for any
dividend that net capital gains or other taxable income will be included in such
dividend on the shares of Preferred Stock).
For the purposes of an Auction, the shares of Preferred Stock for which the
Fund has given notice of redemption and deposited moneys therefor with the
Auction Agent in trust or segregated in an account at the Fund's custodian bank
for the benefit of the Auction Agent, as set forth under "Description of
Preferred Stock--Redemption," will not be considered as outstanding and will not
be included in such Auction. Pursuant to its Charter, the Fund is prohibited
from reissuing and its affiliates (other than the Underwriter) are prohibited
from transferring (other than to the Fund) any shares of Preferred Stock they
may acquire. Neither the Fund nor any affiliate of the Fund (other than the
Underwriter) may submit an Order in any Auction, except that an affiliate of the
Fund that is a Broker-Dealer may submit an Order.
Submission of Orders by Broker-Dealers to Auction Agent. Before 1:00 p.m.,
New York City time, on each Auction Date, or such other time on the Auction Date
as may be specified by the Auction Agent (the "Submission Deadline"), each
Broker-Dealer will submit to the Auction Agent in writing all Orders obtained by
it for the Auction for a series of Preferred Stock to be conducted on such
Auction Date, designating itself (unless otherwise permitted by the Fund) as the
Existing Holder or Potential Holder in respect of the shares of Preferred Stock
subject to such Orders. Any Order submitted by a Beneficial Owner or a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, before the Submission Deadline on any Auction Date, will be irrevocable.
If the rate per annum specified in any Bid contains more than three figures
to the right of the decimal point, the Auction Agent will round such rate per
annum up to the next highest one-thousandth (0.001) of one percent. If one or
more Orders of an Existing Holder are submitted to the Auction Agent and such
Orders cover in the aggregate more than the number of outstanding shares of
Preferred Stock held by such Existing Holder, such Orders will be considered
valid in the following order of priority:
(i) any Hold Order will be considered valid up to and including the
number of outstanding shares of Preferred Stock held by such Existing
Holder; provided, that if more than one Hold Order is submitted by such
Existing Holder and the number of shares of Preferred Stock subject to such
Hold Orders exceeds the number of outstanding shares of Preferred Stock
held by such Existing Holder, the number of shares of Preferred Stock
subject to each of such Hold Orders will be reduced pro rata so that such
Hold Orders, in the aggregate, will cover exactly the number of outstanding
shares of Preferred Stock held by such Existing Holder;
(ii) any Bids will be considered valid, in the ascending order of their
respective rates per annum if more than one Bid is submitted by such
Existing Holder, up to and including the excess of the number of
outstanding shares of Preferred Stock held by such Existing Holder over the
number of outstanding shares of Preferred Stock subject to any Hold Order
referred to in clause (i) above (and if more than one Bid submitted by such
Existing Holder specifies the same rate per annum and together they cover
more than the remaining number of shares that can be the subject of valid
Bids after application of clause (i) above and of the foregoing portion of
this clause (ii) to any Bid or Bids specifying a lower rate or rates per
annum, the number of shares subject to each of such Bids will be reduced
pro rata so that such Bids, in the aggregate, cover exactly such remaining
number of outstanding shares); and the number of outstanding shares, if
any, subject to Bids not valid under this clause (ii) will be treated as
the subject of a Bid by a Potential Holder; and
(iii) any Sell Order will be considered valid up to and including the
excess of the number of outstanding shares of Preferred Stock held by such
Existing Holder over the sum of the number of shares of Preferred Stock
subject to Hold Orders referred to in clause (i) above and the number of
shares of Preferred Stock subject to valid Bids by such Existing Holder
referred to in clause (ii) above; provided, that if more than one Sell
Order is submitted by any Existing Holder and the number of shares of
Preferred Stock subject to such Sell Orders is greater than such excess,
the number of shares of Preferred Stock subject to each of such Sell Orders
will be reduced pro rata so that such Sell Orders, in the aggregate, will
cover exactly the number of shares of Preferred Stock equal to such excess.
If more than one Bid of any Potential Holder is submitted in any Auction,
each Bid submitted in such Auction will be considered a separate Bid with the
rate per annum and number of shares of Preferred Stock therein specified.
Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate. Not earlier than the Submission Deadline for each Auction, the Auction
Agent will assemble all Orders submitted or deemed submitted to it by the
Broker-Dealers (each such "Hold Order," "Bid" or "Sell Order" as submitted or
deemed submitted by a Broker-Dealer hereinafter being referred to as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order") and will determine the excess of the
number of outstanding shares of Preferred Stock over the number of outstanding
shares of Preferred Stock subject to Submitted Hold Orders (such excess being
referred to as the "Available Shares of Preferred Stock") and whether Sufficient
Clearing Bids have been made in such Auction. Sufficient Clearing Bids will have
been made if the number of outstanding shares of Preferred Stock that are the
subject of Submitted Bids of Potential Holders with rates per annum not higher
than the Maximum Applicable Rate equals or exceeds the number of outstanding
shares that are the subject of Submitted Sell Orders (including the number of
shares subject to Bids of Existing Holders specifying rates per annum higher
than the Maximum Applicable Rate). If Sufficient Clearing Bids have been made,
the Auction Agent will determine the lowest rate per annum specified in the
Submitted Bids (the "Winning Bid Rate") which would result in the number of
shares subject to Submitted Bids specifying such rate per annum or a lower rate
per annum being at least equal to the Available Shares of Preferred Stock. If
Sufficient Clearing Bids have been made, the Winning Bid Rate will be the
Applicable Rate for the next Dividend Period for the shares of Preferred Stock
then outstanding. If Sufficient Clearing Bids have not been made (other than
because all outstanding shares of Preferred Stock are the subject of Submitted
Hold Orders), the Dividend Period next following the Auction automatically will
be a 28-Day Dividend Period, and the Applicable Rate for such Dividend Period
will be equal to the Maximum Applicable Rate.
If Sufficient Clearing Bids have not been made, Beneficial Owners that have
Submitted Sell Orders will not be able to sell in the Auction all, and may not
be able to sell any, shares of Preferred Stock subject to such Submitted Sell
Orders. See "Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares" below. Thus, under some circumstances,
Beneficial Owners may not have liquidity of investment.
Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares. Based on the determinations described under "Determination
of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate" above and
subject to the discretion of the Auction Agent to round as described below,
Submitted Bids and Submitted Sell Orders will be accepted or rejected in the
order of priority set forth in the Auction Procedures with the result that
Existing Holders and Potential Holders of a series of Preferred Stock will sell,
continue to hold and/or purchase shares of Preferred Stock as set forth below.
Existing Holders that submit or are deemed to have submitted Hold Orders will
continue to hold the shares of Preferred Stock subject to such Hold Orders.
If Sufficient Clearing Bids have been made:
(a) each Existing Holder that placed a Submitted Bid specifying a rate
per annum higher than the Winning Bid Rate or a Submitted Sell Order will
sell the outstanding shares of Preferred Stock subject to such Submitted
Bid or Submitted Sell Order;
(b) each Existing Holder that placed a Submitted Bid specifying a rate
per annum lower than the Winning Bid Rate will continue to hold the
outstanding shares of Preferred Stock subject to such Submitted Bid;
(c) each Potential Holder that placed a Submitted Bid specifying a rate
per annum lower than the Winning Bid Rate will purchase the number of
shares of Preferred Stock subject to such Submitted Bid;
(d) each Existing Holder that placed a Submitted Bid specifying a rate
per annum equal to the Winning Bid Rate will continue to hold the
outstanding shares of Preferred Stock subject to such Submitted Bids,
unless the number of outstanding shares of Preferred Stock subject to all
such Submitted Bids of Existing Holders is greater than the excess of the
Available Shares of Preferred Stock over the number of shares of Preferred
Stock accounted for in clauses (b) and (c) above, in which event each
Existing Holder with such a Submitted Bid will sell a number of outstanding
shares of Preferred Stock determined on a pro rata basis based on the
number of outstanding shares of Preferred Stock subject to all such
Submitted Bids of such Existing Holders; and
(e) each Potential Holder that placed a Submitted Bid specifying a rate
per annum equal to the Winning Bid Rate will purchase any Available Shares
of Preferred Stock not accounted for in clause (b), (c) or (d) above on a
pro rata basis based on the shares of Preferred Stock subject to all such
Submitted Bids of Potential Holders.
If Sufficient Clearing Bids have not been made (other than because all
outstanding shares of Preferred Stock are the subject of Submitted Hold Orders):
(a) each Existing Holder that placed a Submitted Bid specifying a rate
per annum equal to or lower than the Maximum Applicable Rate will continue
to hold the outstanding shares of Preferred Stock subject to such Submitted
Bid;
(b) each Potential Holder that placed a Submitted Bid specifying a rate
per annum equal to or lower than the Maximum Applicable Rate will purchase
the number of shares of Preferred Stock subject to such Submitted Bid; and
(c) each Existing Holder that placed a Submitted Bid specifying a rate
per annum higher than the Maximum Applicable Rate or a Submitted Sell Order
will sell a number of outstanding shares of Preferred Stock determined on a
pro rata basis based on the outstanding shares of Preferred Stock subject
to all such Submitted Bids and Submitted Sell Orders. If as a result of the
Auction Procedures described above any Existing Holder would be entitled or
required to sell, or any Potential Holder would be entitled or required to
purchase, a fraction of shares of Preferred Stock, the Auction Agent, in
such manner as, in its sole discretion, it shall determine, will round up
or down the number of shares of Preferred Stock being sold or purchased on
such Auction Date so that each share sold or purchased by each Existing
Holder or Potential Holder will be a whole share of Preferred Stock. If any
Potential Holder would be entitled or required to purchase less than a
whole share of Preferred Stock, the Auction Agent, in such manner as, in
its sole discretion, it shall determine, will allocate shares of Preferred
Stock for purchase among Potential Holders so that only whole shares of
Preferred Stock are purchased by any such Potential Holder, even if such
allocation results in one or more of such Potential Holders not purchasing
any shares of Preferred Stock.
Notification of Results; Settlement. The Auction Agent will advise each
Broker-Dealer who submitted a Bid or Sell Order in an Auction whether such Bid
or Sell Order was accepted or rejected in whole or in part and of the Applicable
Rate for the next Dividend Period for the related shares of Preferred Stock by
telephone at approximately 3:00 p.m., New York City time, on the Auction Date
for such Auction. Each such Broker-Dealer that submitted an Order for the
account of a customer then will advise such customer whether such Bid or Sell
Order was accepted or rejected, will confirm purchases and sales with each
customer purchasing or selling shares of Preferred Stock as a result of the
Auction and will advise each customer purchasing or selling shares of Preferred
Stock to give instructions to its Agent Member of the Securities Depository to
pay the purchase price against delivery of such shares or to deliver such shares
against payment therefor as appropriate. If a customer selling shares of
Preferred Stock as a result of an Auction fails to instruct its Agent Member to
deliver such shares, the Broker-Dealer that submitted such customer's Bid or
Sell Order will instruct such Agent Member to deliver such shares against
payment therefor. Each Broker-Dealer that submitted a Hold Order in an Auction
on behalf of a customer also will advise such customer of the Applicable Rate
for the next Dividend Period for the shares of Preferred Stock. The Auction
Agent will record each transfer of shares of Preferred Stock on the record book
of Existing Holders to be maintained by the Auction Agent.
In accordance with the Securities Depository's normal procedures, on the
day after each Auction Date, the transactions described above will be executed
through the Securities Depository, and the accounts of the respective Agent
Members at the Securities Depository will be debited and credited as necessary
to effect the purchases and sales of shares of Preferred Stock as determined in
such Auction. Purchasers will make payment through their Agent Members in same-
day funds to the Securities Depository against delivery through their Agent
Members; the Securities Depository will make payment in accordance with its
normal procedures, which now provide for payment in same-day funds. If the
procedures of the Securities Depository applicable to shares of Preferred Stock
shall be changed to provide for payment in next-day funds, then purchasers may
be required to make payment in next-day funds. If the certificates for the
shares of Preferred Stock are not held by the Securities Depository or its
nominee, payment will be made in same-day funds to the Auction Agent against
delivery of such certificates.
If any Existing Holder selling shares of Preferred Stock in an Auction
fails to deliver such shares, the Broker-Dealer of any person that was to have
purchased shares of Preferred Stock in such Auction may deliver to such person a
number of whole shares of Preferred Stock that is less than the number of shares
that otherwise was to be purchased by such person. In such event, the number of
shares of Preferred Stock to be so delivered will be determined by such
Broker-Dealer. Delivery of such lesser number of shares will constitute good
delivery. Each Broker-Dealer Agreement also will provide that neither the Fund
nor the Auction Agent will have responsibility or liability with respect to the
failure of a Potential Beneficial Owner, Beneficial Owner or their respective
Agent Members to deliver shares of Preferred Stock or to pay for shares of
Preferred Stock purchased or sold pursuant to an Auction or otherwise.
Broker-Dealers
The Auction Agent after each Auction will pay a service charge from funds
provided by the Fund to each Broker-Dealer on the basis of the purchase price of
shares of Preferred Stock placed by such Broker-Dealer at such Auction. The
service charge (i) for any 28-Day Dividend Period will be payable at the annual
rate of 0.25% of the purchase price of the shares of Preferred Stock placed by
such Broker-Dealer in any such Auction and (ii) for any Special Dividend Period
will be determined by mutual consent of the Fund and any such Broker-Dealer or
Broker-Dealers and will be based upon a selling concession that would be
applicable to an underwriting of fixed or variable rate preferred stock with a
similar final maturity or variable rate dividend period, respectively, at the
commencement of the Dividend Period with respect to such Auction. For the
purposes of the preceding sentence, the shares of Preferred Stock will be placed
by a Broker-Dealer if such shares were (i) the subject of Hold Orders deemed to
have been made by Beneficial Owners that were acquired by such Beneficial Owners
through such Broker-Dealer or (ii) the subject of the following Orders submitted
by such Broker-Dealer: (A) a Submitted Bid of a Beneficial Owner that resulted
in such Beneficial Owner continuing to hold such shares as a result of the
Auction, (B) a Submitted Bid of a Potential Beneficial Owner that resulted in
such Potential Beneficial Owner purchasing such shares as a result of the
Auction or (C) a Submitted Hold Order.
The Broker-Dealer Agreements provide that a Broker-Dealer may submit Orders
in Auctions for its own account, unless the Fund notifies all Broker-Dealers
that they no longer may do so; provided, that Broker-Dealers may continue to
submit Hold Orders and Sell Orders. If a Broker-Dealer submits an Order for its
own account in any Auction of shares of Preferred Stock, it may have knowledge
of Orders placed through it in that Auction and therefore have an advantage over
other Bidders, but such Broker-Dealer would not have knowledge of Orders
submitted by other Broker-Dealers in that Auction.
The Broker-Dealers may maintain a secondary trading market in the shares of
Preferred Stock outside of Auctions; however, they have no obligation to do so
and there can be no assurance that a secondary market for the shares of
Preferred Stock will develop or, if it does develop, that it will provide
holders with a liquid trading market (i.e., trading will depend on the presence
of willing buyers and sellers and the trading price is subject to variables to
be determined at the time of the trade by the Broker-Dealers). The shares of
Preferred Stock will not be registered on any stock exchange or on any automated
quotation system. An increase in the level of interest rates, particularly
during any Long Term Dividend Period for a series of Preferred Stock, likely
will have an adverse effect on the secondary market price of such shares of
Preferred Stock, and a selling shareholder may sell shares of Preferred Stock
between Auctions at a price per share of less than $25,000.
Dividends
General. The holders of shares of Preferred Stock of each series will be
entitled to receive, when, as and if declared by the Fund's Board of Directors,
out of funds legally available therefor, cumulative cash dividends on their
shares, at the Applicable Rate determined as set forth below under
"Determination of Dividend Rate," payable on the dates set forth below.
Dividends on the shares of Preferred Stock so declared and payable will be paid
(i) in preference to and in priority over any dividends so declared and payable
on the Fund's shares of common stock, and (ii) to the extent permitted under the
Internal Revenue Code and to the extent available, out of net tax-exempt income
earned on the Fund's investments. Dividends on the shares of Preferred Stock, to
the extent that they are derived from municipal obligations, generally will be
exempt from federal income tax, though some or all of those dividends may be a
tax preference item for purposes of AMT. See "Taxes."
Dividends on each series of Preferred Stock will accumulate from the Date
of Original Issue and will be payable on the dates described below. Dividends on
a series of shares of Preferred Stock with respect to the Initial Dividend
Period will be payable on the Initial Dividend Payment Date for that series.
Following the Initial Dividend Payment Date, dividends on each series of
Preferred Stock will be payable, at the option of the Fund, either (i) with
respect to any 28-Day Dividend Period and any Short Term Dividend Period of 35
or fewer days, on the day next succeeding the last day thereof or (ii) with
respect to any Short Term Dividend Period of more than 35 days and with respect
to any Long Term Dividend Period, monthly on the first Business Day of each
calendar month during such Short Term Dividend Period or Long Term Dividend
Period and on the day next succeeding the last day thereof (each such date
referred to in clause (i) or (ii) being referred to herein as a "Normal Dividend
Payment Date"), except that if such Normal Dividend Payment Date is not a
Business Day, the Dividend Payment Date will be the first Business Day next
succeeding such Normal Dividend Payment Date. Although any particular Dividend
Payment Date may not occur on the originally scheduled date because of the
exceptions discussed above, the next succeeding Dividend Payment Date, subject
to such exceptions, will occur on the next following originally scheduled date.
If for any reason a Dividend Payment Date cannot be fixed as described above,
then the Fund's Board of Directors will fix the Dividend Payment Date. The
Fund's Board of Directors before authorizing a dividend may change a Dividend
Payment Date if such change does not adversely affect the contract rights of the
holders of shares of Preferred Stock set forth in the Charter.
Before each Dividend Payment Date, the Fund is required to deposit with the
Auction Agent sufficient funds for the payment of declared dividends. The Fund
does not intend to establish any reserves for the payment of dividends.
Each dividend will be paid to the record holder of the shares of Preferred
Stock, which holder is expected to be the nominee of the Securities Depository.
See "Description of Preferred Stock--The Auction--Securities Depository." The
Securities Depository will credit the accounts of the Agent Members of the
Existing Holders in accordance with the Securities Depository's normal
procedures which provide for payment in same-day funds. The Agent Member of an
Existing Holder will be responsible for holding or disbursing such payments on
the applicable Dividend Payment Date to such Existing Holder in accordance with
the instructions of such Existing Holder. Dividends in arrears for any past
Dividend Period may be declared and paid at any time, without reference to any
regular Dividend Payment Date, to the nominee of the Securities Depository. Any
dividend payment made on the shares of Preferred Stock first will be credited
against the earliest declared but unpaid dividends accumulated with respect to
such shares.
Holders of the shares of Preferred Stock will not be entitled to any
dividends, whether payable in cash, property or stock, in excess of full
cumulative dividends except as described under "Additional Dividends" and "Non-
Payment Period; Late Charge" below. No interest will be payable in respect of
any dividend payment or payments on the shares of Preferred Stock which may be
in arrears.
The amount of cash dividends per share of Preferred Stock of each series
payable (if declared) on the Initial Dividend Payment Date, each 28-Day Dividend
Period and each Dividend Payment Date of each Short Term Dividend Period will be
computed by multiplying the Applicable Rate for such Dividend Period by a
fraction, the numerator of which will be the number of days in such Dividend
Period or part thereof that such share was outstanding and for which dividends
are payable on such Dividend Payment Date and the denominator of which will be
365, multiplying the amount so obtained by $25,000, and rounding the amount so
obtained to the nearest cent. During any Long Term Dividend Period, the amount
of cash dividends per share of Preferred Stock payable (if declared) on any
Dividend Payment Date will be computed by multiplying the Applicable Rate for
such Dividend Period by a fraction, the numerator of which will be such number
of days in such part of such Dividend Period that such share was outstanding and
for which dividends are payable on such Dividend Payment Date and the
denominator of which will be 360, multiplying the amount so obtained by $25,000,
and rounding the amount so obtained to the nearest cent.
Notification of Dividend Period. With respect to each Dividend Period that
is a Special Dividend Period, the Fund, at its sole option and to the extent
permitted by law, by a Request for Special Dividend Period to the Auction Agent
and to each Broker-Dealer, may request that the next succeeding Dividend Period
for a series of Preferred Stock will be a number of days (other than 28), evenly
divisible by seven, and not fewer than seven nor more than 364 in the case of a
Short Term Dividend Period or one whole year or more but not greater than five
years in the case of a Long Term Dividend Period, specified in such notice,
provided that the Fund may not give a Request for Special Dividend Period of
greater than 28 days (and any such request will be null and void) unless, for
any Auction occurring after the initial Auction, Sufficient Clearing Bids were
made in the last occurring Auction and unless full cumulative dividends, any
amounts due with respect to redemptions, and any Additional Dividends payable
before such date have been paid in full. Such Request for Special Dividend
Period, in the case of a Short Term Dividend Period, will be given on or before
the second Business Day but not more than seven Business Days before an Auction
Date for the shares of Preferred Stock of that series and, in the case of a Long
Term Dividend Period, will be given on or before the second Business Day but not
more than 28 days before an Auction Date for the shares of Preferred Stock of
that series. Upon receiving such Request for Special Dividend Period, the
Broker-Dealers jointly will determine whether, given the factors set forth
below, it is advisable that the Fund issue a Notice of Special Dividend Period
as contemplated by such Request for Special Dividend Period and the Optional
Redemption Price of the shares of Preferred Stock of that series during such
Special Dividend Period and the Specific Redemption Provisions and will give the
Fund and the Auction Agent written notice (a "Response") of such determination
by no later than the second Business Day prior to such Auction Date. In making
such determination, the Broker-Dealers will consider (i) existing short term and
long term market rates and indices of such short term and long term rates, (ii)
existing market supply and demand for short term and long term securities, (iii)
existing yield curves for short term and long term securities comparable to the
shares of Preferred Stock, (iv) industry and financial conditions which may
affect the shares of Preferred Stock of that series, (v) the investment
objective of the Fund and (vi) the Dividend Periods and dividend rates at which
current and potential beneficial holders of the shares of Preferred Stock would
remain or become beneficial holders.
If the Broker-Dealers do not give the Fund and the Auction Agent a Response
by such second Business Day or if the Response states that given the factors set
forth above it is not advisable that the Fund give a Notice of Special Dividend
Period for the shares of Preferred Stock of that series, the Fund may not give a
Notice of Special Dividend Period in respect of such Request for Special
Dividend Period. In the event the Response indicates that it is advisable that
the Fund give a Notice of Special Dividend Period for the shares of Preferred
Stock of that series, the Fund, by no later than the second Business Day before
such Auction Date, may give a notice (a "Notice of Special Dividend Period") to
the Auction Agent, the Securities Depository and each Broker-Dealer, which
notice will specify (i) the duration of the Special Dividend Period, (ii) the
Optional Redemption Price, if any, as specified in the related Response and
(iii) the Specific Redemption Provisions, if any, as specified in the related
Response. The Fund has agreed to provide a copy of such Notice of Special
Dividend Period to S&P. The Fund will not give a Notice of Special Dividend
Period, and, if such Notice of Special Dividend Period was given already, will
give telephonic and written notice of its revocation (a "Notice of Revocation")
to the Auction Agent, each Broker-Dealer, and the Securities Depository on or
before the Business Day prior to the relevant Auction Date if (x) either the
Investment Company Act Preferred Stock Asset Coverage is not satisfied or the
Fund fails to maintain S&P Eligible Assets with an aggregate Discounted Value at
least equal to the Preferred Stock Basic Maintenance Amount, on each of the two
Valuation Dates immediately preceding the Business Day prior to the relevant
Auction Date on an actual basis and on a pro forma basis giving effect to the
proposed Special Dividend Period (using as a pro forma dividend rate with
respect to such Special Dividend Period the dividend rate the Broker-Dealers
advise the Fund is an approximately equal rate for securities similar to the
shares of Preferred Stock with an equal dividend period), (y) sufficient funds
for the payment of dividends payable on the immediately succeeding Dividend
Payment Date have not been irrevocably deposited with the Auction Agent by the
close of business on the third Business Day preceding the related Auction Date
or (z) the Broker-Dealers jointly advise the Fund that, after consideration of
the factors listed above, they have concluded that it is advisable to give a
Notice of Revocation. The Fund also has agreed to provide a copy of such Notice
of Revocation to S&P. If the Fund is prohibited from giving a Notice of Special
Dividend Period as a result of the factors enumerated in clause (x), (y) or (z)
above or if the Fund gives a Notice of Revocation with respect to a Notice of
Special Dividend Period, the next succeeding Dividend Period for that series
will be a 28-Day Dividend Period. In addition, in the event Sufficient Clearing
Bids are not made in any Auction or an Auction is not held for any reason, the
next succeeding Dividend Period will be a 28-Day Dividend Period, and the Fund
may not again give a Notice of Special Dividend Period (and any such attempted
notice will be null and void) until Sufficient Clearing Bids have been made in
an Auction with respect to a 28-Day Dividend Period.
Determination of Dividend Rate. The dividend rate on a series of Preferred
Stock during the period from and including the Date of Original Issue for the
shares of Preferred Stock to but excluding the Initial Dividend Payment Date for
that series of Preferred Stock (the "Initial Dividend Period") will be the rate
per annum set forth on the cover page of this Prospectus. Commencing on the
Initial Dividend Payment Date for a series of Preferred Stock, the Applicable
Rate on that series of Preferred Stock for each Subsequent Dividend Period,
which Subsequent Dividend Period will be a period commencing on and including a
Dividend Payment Date and ending on and including the calendar day before the
next Dividend Payment Date (or last Dividend Payment Date in a Dividend Period
if there is more than one Dividend Payment Date), will be equal to the rate per
annum that results from the Auction with respect to such Subsequent Dividend
Period. The Initial Dividend Period and Subsequent Dividend Period for each
series of Preferred Stock is referred to herein as a "Dividend Period." Cash
dividends will be calculated as set forth above under "Dividends--General."
Non-Payment Period; Late Charge. A Non-Payment Period for a series of
Preferred Stock will commence if the Fund fails to (i) declare, before the close
of business on the second Business Day preceding any Dividend Payment Date, for
payment on or (to the extent permitted as described below) within three Business
Days after such Dividend Payment Date to the persons who held such shares as of
12:00 noon, New York City time, on the Business Day preceding such Dividend
Payment Date, the full amount of any dividend on the shares of Preferred Stock
payable on such Dividend Payment Date or (ii) deposit, irrevocably in trust, in
same-day funds, with the Auction Agent by 12:00 noon, New York City time, (A) on
such Dividend Payment Date the full amount of any cash dividend on such shares
(if declared) payable on such Dividend Payment Date or (B) on any redemption
date for the shares of Preferred Stock called for redemption, the Mandatory
Redemption Price per share of such shares of Preferred Stock or, in the case of
an optional redemption, the Optional Redemption Price per share. Such
Non-Payment Period will consist of the period commencing on and including the
aforementioned Dividend Payment Date or redemption date, as the case may be, and
ending on and including the Business Day on which, by 12:00 noon, New York City
time, all unpaid cash dividends and unpaid redemption prices shall have been so
deposited or otherwise shall have been made available to the applicable holders
in same-day funds, provided that a Non-Payment Period for the Preferred Stock
will not end unless the Fund shall have given at least five days' but no more
than 30 days' written notice of such deposit or availability to the Auction
Agent, the Securities Depository and all holders of the Preferred Stock of such
series. Notwithstanding the foregoing, the failure by the Fund to deposit funds
as provided for by clauses (ii) (A) or (ii) (B) above within three Business Days
after any Dividend Payment Date or redemption date, as the case may be, in each
case to the extent contemplated below, shall not constitute a "Non-Payment
Period." The Applicable Rate for each Dividend Period for the shares of
Preferred Stock of any series, commencing during a Non-Payment Period, will be
equal to the Non-Payment Period Rate; and each Dividend Period commencing after
the first day of, and during, a Non-Payment Period will be a 28-Day Dividend
Period. Any dividend on the Preferred Stock due on any Dividend Payment Date for
such shares (if, prior to the close of business on the second Business Day
preceding such Dividend Payment Date, the Fund has declared such dividend
payable on such Dividend Payment Date to the persons who held such shares as of
12:00 noon, New York City time, on the Business Day preceding such Dividend
Payment Date) or redemption price with respect to such shares not paid to such
persons when due may be paid to such persons in the same form of funds by 12:00
noon, New York City time, on any of the first three Business Days after such
Dividend Payment Date or due date, as the case may be, provided that such amount
is accompanied by a late charge calculated for such period of non-payment at the
Non-Payment Period Rate applied to the amount of such non-payment based on the
actual number of days comprising such period divided by 365. In the case of a
willful failure of the Fund to pay a dividend on a Dividend Payment Date or to
redeem any shares of Preferred Stock on the date set for such redemption, the
preceding sentence shall not apply and the Applicable Rate for the Dividend
Period commencing during the Non-Payment Period resulting from such failure
shall be the Non-Payment Period Rate. For the purposes of the foregoing, payment
to a person in same-day funds on any Business Day at any time will be considered
equivalent to payment to that person in New York Clearing House (next-day) funds
at the same time on the preceding Business Day, and any payment made after 12:00
noon, New York City time, on any Business Day shall be considered to have been
made instead in the same form of funds and to the same person before 12:00 noon,
New York City time, on the next Business Day. The Non-Payment Period Rate
initially will be 200% of the applicable Reference Rate (or 275% of such rate if
the Fund has provided notification to the Auction Agent prior to the Auction
establishing the Applicable Rate for any dividend that net capital gains or
other taxable income will be included in such dividend on the shares of
Preferred Stock), provided that the Board of Directors of the Fund shall have
the authority to adjust, modify, alter or change from time to time the initial
Non-Payment Period Rate if the Board of Directors of the Fund determines and S&P
(or any Substitute Rating Agency in lieu of S&P in the event such party shall
not rate the Preferred Stock) advises the Fund in writing that such adjustment,
modification, alteration or change will not adversely affect its then-current
rating on the shares of Preferred Stock.
Restrictions on Dividends and Other Payments. Under the Investment Company
Act, the Fund may not declare dividends or make other distributions on the
Fund's shares of common stock or purchase any such shares if, at the time of the
declaration, distribution or purchase, as applicable (and after giving effect
thereto), asset coverage (as defined in the Investment Company Act) with respect
to the outstanding shares of Preferred Stock would be less than 200% (or such
other percentage as in the future may be required by law). Under the Internal
Revenue Code, the Fund must, among other things, distribute each year at least
90% of the sum of its net tax-exempt income and investment company taxable
income in order to maintain its qualification for tax treatment as a regulated
investment company. The foregoing limitations on dividends, other distributions
and purchases in certain circumstances may impair the Fund's ability to maintain
such qualification. See "Taxes." Upon any failure to pay dividends on the shares
of Preferred Stock for two years or more, the holders of the shares of Preferred
Stock will acquire certain additional voting rights. See "Voting Rights" below.
For so long as any shares of Preferred Stock are outstanding, the Fund will
not declare, pay or set apart for payment any dividend or other distribution
(other than a dividend or distribution paid in shares of, or options, warrants
or rights to subscribe for or purchase, shares of its common stock or other
stock, if any, ranking junior to the shares of Preferred Stock as to dividends
or upon liquidation) in respect of its shares of common stock or any other stock
of the Fund ranking junior to or on a parity with the shares of Preferred Stock
as to dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any shares of common stock or shares of any
other such junior stock (except by conversion into or exchange for stock of the
Fund ranking junior to shares of Preferred Stock as to dividends and upon
liquidation) or any such parity stock (except by conversion into or exchange for
stock of the Fund ranking junior to or on a parity with shares of Preferred
Stock as to dividends and upon liquidation), unless (A) immediately after such
transaction, the Fund would have S&P Eligible Assets with an aggregate
Discounted Value equal to or greater than the Preferred Stock Basic Maintenance
Amount, and the Investment Company Act Preferred Stock Asset Coverage (see
"Asset Maintenance" and "Redemption" below) would be satisfied, (B) full
cumulative dividends on the shares of Preferred Stock due on or before the date
of the transaction have been declared and paid or have been declared and
sufficient funds for the payment thereof deposited with the Auction Agent, (C)
any Additional Dividend required to be paid on or before the date of such
declaration or payment has been paid and (D) the Fund has redeemed the full
number of shares of Preferred Stock required to be redeemed by any provision for
mandatory redemption contained in the Charter.
Additional Dividends. If the Fund retroactively allocates any net capital
gains or other taxable income to the shares of Preferred Stock without having
given advance notice thereof to the Auction Agent as described above under "The
Auction--Auction Date; Advance Notice of Allocation of Taxable Income; Inclusion
of Taxable Income in Dividends," the Fund, within 90 days (and generally within
60 days) after the end of the Fund's fiscal year for which a Retroactive Taxable
Allocation is made, will provide notice thereof to the Auction Agent and to each
holder of shares of Preferred Stock (initially Cede as nominee of the Securities
Depository) during such fiscal year at such holder's address as the same appears
or last appeared on the stock books of the Fund. Such a retroactive allocation
may happen when such allocation is made as a result of (i) the redemption of all
or a portion of the outstanding shares of Preferred Stock, (ii) the liquidation
of the Fund (the amount of such allocation referred to herein as a "Retroactive
Taxable Allocation"), (iii) a debt obligation believed to be a municipal
obligation unexpectedly turns out to be an obligation subject to federal income
tax or (iv) any other reason determined in good faith by the Fund. The Fund,
within 30 days after such notice is given to the Auction Agent, will pay to the
Auction Agent (who then will distribute to such holders of the shares of
Preferred Stock), out of funds legally available therefor, an amount equal to
the aggregate Additional Dividend with respect to all Retroactive Taxable
Allocations made to such holders during the fiscal year in question. See
"Taxes."
An "Additional Dividend" means a payment to a present or former holder of
the shares of Preferred Stock of an amount that would cause (i) the dollar
amount of such holder's dividends received on the shares of Preferred Stock with
respect to the fiscal year in question (including the Additional Dividend) less
the federal income tax and applicable state tax attributable to the aggregate of
(x) the Retroactive Taxable Allocations made to such holder with respect to the
fiscal year in question and (y) the Additional Dividend (to the extent taxable)
to equal (ii) the dollar amount of such holder's dividends received on the
shares of Preferred Stock with respect to the fiscal year in question (excluding
the Additional Dividend) if there had been no Retroactive Taxable Allocations.
An Additional Dividend shall be calculated (i) without consideration being given
to the time value of money; (ii) assuming that none of the dividends received
from the Fund is a preference item for purposes of AMT; and (iii) assuming that
each Retroactive Taxable Allocation would be taxable to each holder of shares of
Preferred Stock at the maximum marginal federal income tax rate (including any
surtax) applicable to the taxable character of the distribution (i.e., ordinary
income or net capital gain) in the hands of an individual or a corporation,
whichever is greater (disregarding the effect of any state and local taxes and
the phase out of, or provisions limiting, personal exemptions, itemized
deductions, or the benefit of lower tax brackets). Although the Fund generally
intends to designate any Additional Dividend as an "exempt-interest" dividend to
the extent permitted by applicable law, it is possible that all or a portion of
any Additional Dividend will be taxable to the recipient thereof. See
"Taxes--Tax Treatment of Additional Dividends." The Fund will not pay a further
Additional Dividend with respect to any taxable portion of an Additional
Dividend.
If the Fund does not give advance notice of the amount of taxable income to
be included in a dividend on the shares of Preferred Stock in the related
Auction, as described above under "The Auction--Auction Date; Advance Notice of
Allocation of Taxable Income; Inclusion of Taxable Income in Dividends," the
Fund may include such taxable income in a dividend on the shares of Preferred
Stock if it increases the dividend by an additional amount calculated as if such
income were a Retroactive Taxable Allocation and the additional amount were an
Additional Dividend and notifies the Auction Agent of such inclusion at least
five days prior to the applicable Dividend Payment Date.
Asset Maintenance
The Fund will be required to satisfy two separate asset maintenance
requirements under the terms of the Charter. These requirements are summarized
below.
Investment Company Act Preferred Stock Asset Coverage. The Fund will be
required under the Charter to maintain, with respect to the shares of Preferred
Stock, as of the last Business Day of each month in which any shares of
Preferred Stock are outstanding, asset coverage of at least 200% with respect to
senior securities which are shares in the Fund, including the shares of
Preferred Stock (or such other asset coverage as in the future may be specified
in or under the Investment Company Act as the minimum asset coverage for senior
securities which are shares of a closed-end investment company as a condition of
paying dividends on its common stock) ("Investment Company Act Preferred Stock
Asset Coverage"). If the Fund fails to maintain Investment Company Act Preferred
Stock Asset Coverage and such failure is not cured as of the last Business Day
of the following month (the "Investment Company Act Cure Date"), the Fund will
be required under certain circumstances to redeem certain of the shares of
Preferred Stock. See "Redemption" below.
The Investment Company Act Preferred Stock Asset Coverage immediately
following the issuance of shares of Preferred Stock offered hereby (after giving
effect to the deduction of the sales load and offering expenses for the shares
of Preferred Stock) computed using the Fund's net assets as of August 31, 1999
and assuming the shares of Preferred Stock had been issued as of such date will
be as follows:
<TABLE>
<CAPTION>
<S> <C>
Value of Fund assets less liabilities not
constituting senior securities $609,755,676
----------------------------------------------------- = -------------- = 328%
Senior securities representing indebtedness plus $186,000,000
liquidation value of the shares of Preferred Stock
</TABLE>
Preferred Stock Basic Maintenance Amount. So long as the shares of
Preferred Stock are outstanding, the Fund will be required under the Charter to
maintain as of each Business Day (a "Valuation Date") S&P Eligible Assets and
having in the aggregate a Discounted Value at least equal to the Preferred Stock
Basic Maintenance Amount. If the Fund fails to meet such requirement as of any
Valuation Date and such failure is not cured on or before the second Business
Day after such Valuation Date (the "Preferred Stock Basic Maintenance Cure
Date"), the Fund will be required in certain circumstances to redeem certain of
the shares of Preferred Stock. Upon any failure to maintain the required
Discounted Value, the Fund will use its best efforts to alter the composition of
its portfolio to retain a Discounted Value at least equal to the Preferred Stock
Basic Maintenance Amount on or before the Preferred Stock Basic Maintenance Cure
Date. See "Redemption" below.
The Discount Factors and guidelines for determining the market value of the
Fund's portfolio holdings have been based on criteria established in connection
with rating the shares of Preferred Stock. These factors include the sensitivity
of the market value of the relevant asset to changes in interest rates, the
liquidity and depth of the market for the relevant asset, the credit quality of
the relevant asset (for example, the lower the rating of a debt obligation, the
higher the related discount factor) and the frequency with which the relevant
asset is marked to market. In no event will the Discounted Value of any asset of
the Fund exceed its unpaid principal balance or face amount as of the date of
calculation. The Discount Factor relating to any asset of the Fund and the
Preferred Stock Basic Maintenance Amount, the assets eligible for inclusion in
the calculation of the Discounted Value of the Fund's portfolio and certain
definitions and methods of calculation relating thereto may be changed from time
to time by the Fund, without shareholder approval, but only in the event the
Fund receives written confirmation from S&P, and any Substitute Rating Agency
that any such changes would not impair the ratings then assigned to the shares
of Preferred Stock by S&P or any Substitute Rating Agency.
On or before the third Business Day after a Valuation Date on which the
Fund fails to maintain S&P Eligible Assets with an aggregate Discounted Value
equal to or greater than the Preferred Stock Basic Maintenance Amount, the Fund
is required to deliver to the Auction Agent and S&P a report with respect to the
calculation of the Preferred Stock Basic Maintenance Amount and the value of its
portfolio holdings as of the date of such failure (a "Preferred Stock Basic
Maintenance Report"). Additionally, on or before the third Business Day after
the first day of a Special Dividend Period, the Fund will deliver a Preferred
Stock Basic Maintenance Report to S&P and the Auction Agent. The Fund also will
deliver a Preferred Stock Basic Maintenance Report as of the last Business Day
of the last month of each fiscal quarter of the Fund on or before the third
Business Day after such day. Within ten Business Days after delivery of such
report relating to the last Business Day of the last month of each fiscal
quarter of the Fund, the Fund will deliver a letter prepared by the Fund's
independent auditors regarding the accuracy of the calculations made by the Fund
in its most recent Preferred Stock Basic Maintenance Report. Also, on or before
5:00 p.m., New York City time, on the first Business Day after shares of the
Fund's common stock are repurchased by the Fund, the Fund will complete and
deliver to S&P a Preferred Stock Basic Maintenance Report as of the close of
business on such date that shares of the Fund's common stock are repurchased. If
any such letter prepared by the Fund's independent auditors shows that an error
was made in the most recent Preferred Stock Basic Maintenance Report, the
calculation or determination made by the Fund's independent auditors will be
conclusive and binding on the Fund.
Redemption
Optional Redemption. To the extent permitted under the Investment Company
Act and under Maryland law, upon giving a Notice of Redemption, as provided
below, the Fund, at its option, may redeem the shares of Preferred Stock, in
whole or in part, out of funds legally available therefor, at the Optional
Redemption Price per share on any Dividend Payment Date; provided that no shares
of Preferred Stock may be redeemed at the option of the Fund during (a) the
Initial Dividend Period with respect to the shares of Preferred Stock or (b) a
Non-Call Period to which such share is subject. "Optional Redemption Price"
means $25,000 per share of Preferred Stock plus an amount equal to accumulated
but unpaid dividends (whether or not earned or declared) to the date fixed for
redemption plus any applicable redemption premium, if any, attributable to the
designation of a Premium Call Period. In addition, holders of shares of
Preferred Stock may be entitled to receive Additional Dividends in the event of
redemption of such shares of Preferred Stock to the extent provided herein. See
"Description of Preferred Stock--Dividends--Additional Dividends." The Fund has
the authority to redeem the shares of Preferred Stock for any reason and may
redeem all or part of the outstanding shares of Preferred Stock if it
anticipates that the Fund's leveraged capital structure will result in a lower
rate of return to holders of shares of the Fund's common stock for any
significant period of time than that obtainable if the shares of common stock
were unleveraged.
Mandatory Redemption. The Fund will be required to redeem, out of funds
legally available therefor, at the Mandatory Redemption Price per share, the
shares of Preferred Stock to the extent permitted under the Investment Company
Act and Maryland law, on a date fixed by the Fund's Board of Directors, if the
Fund fails to maintain S&P Eligible Assets with an aggregate Discounted Value
equal to or greater than the Preferred Stock Basic Maintenance Amount or to
satisfy the Investment Company Act Preferred Stock Asset Coverage and such
failure is not cured on or before the Preferred Stock Basic Maintenance Cure
Date or the Investment Company Act Cure Date (herein collectively referred to as
a "Cure Date"), as the case may be. "Mandatory Redemption Price" for each series
of Preferred Stock means $25,000 per share plus an amount equal to accumulated
but unpaid dividends (whether or not earned or declared) to the date fixed for
redemption. In addition, holders of shares of Preferred Stock may be entitled to
receive Additional Dividends in the event of redemption of such shares of
Preferred Stock to the extent provided herein. See "Description of Preferred
Stock--Dividends--Additional Dividends." The number of shares of Preferred Stock
to be redeemed will be equal to the lesser of (a) the minimum number of shares
of Preferred Stock the redemption of which, if deemed to have occurred
immediately prior to the opening of business on the Cure Date, together with all
other shares of the preferred stock subject to redemption or retirement, would
result in the Fund having S&P Eligible Assets each with an aggregate Discounted
Value equal to or greater than the Preferred Stock Basic Maintenance Amount or
satisfaction of the Investment Company Act Preferred Stock Asset Coverage, as
the case may be, on such Cure Date (provided that, if there is no such minimum
number of shares the redemption of which would have such result, all shares of
Preferred Stock then outstanding will be redeemed), and (b) the maximum number
of shares of Preferred Stock, together with all other shares of preferred stock
subject to redemption or retirement, that can be redeemed out of funds expected
to be legally available therefor on such redemption date. In determining the
number of shares of Preferred Stock required to be redeemed in accordance with
the foregoing, the Fund shall allocate the number required to be redeemed which
would result in the Fund having S&P Eligible Assets with an aggregate Discounted
Value equal to or greater than the Preferred Stock Basic Maintenance Amount or
satisfaction of the Investment Company Act Preferred Stock Asset Coverage, as
the case may be, pro rata among shares of Preferred Stock and other preferred
stock subject to redemption pursuant to provisions similar to those set forth
below; provided, that shares of Preferred Stock that may not be redeemed at the
option of the Fund due to the designation of a Non-Call Period applicable to
such shares (A) will be subject to mandatory redemption only to the extent that
other shares are not available to satisfy the number of shares required to be
redeemed and (B) will be selected for redemption in an ascending order of
outstanding number of days in the Non-Call Period (with shares with the lowest
number of days to be redeemed first) and by lot in the event of shares having an
equal number of days in such Non-Call Period. The Fund is required to effect
such a mandatory redemption not later than 35 days after such Cure Date, except
that if the Fund does not have funds legally available for the redemption of all
of the required number of shares of Preferred Stock which are subject to
mandatory redemption or the Fund otherwise is unable to effect such redemption
on or prior to 35 days after such Cure Date, the Fund will redeem those shares
of Preferred Stock which it was unable to redeem on the earliest practicable
date on which it is able to effect such redemption.
General. If the shares of Preferred Stock are to be redeemed, a notice of
redemption will be mailed to each record holder of such shares of Preferred
Stock (initially Cede as nominee of the Securities Depository) and to the
Auction Agent not less than 17 nor more than 30 days before the date fixed for
the redemption thereof. Each notice of redemption will include a statement
setting forth: (i) the redemption date, (ii) the aggregate number of shares of
Preferred Stock to be redeemed, (iii) the redemption price, (iv) the place or
places where shares of Preferred Stock are to be surrendered for payment of the
redemption price, (v) a statement that dividends on the shares to be redeemed
will cease to accumulate on such redemption date (except that holders may be
entitled to Additional Dividends) and (vi) the provision of the Charter pursuant
to which such shares are being redeemed. The notice also will be published in
The Wall Street Journal. No defect in the notice of redemption or in the mailing
or publication thereof will affect the validity of the redemption proceedings,
except as required by applicable law.
If less than all of the outstanding shares of Preferred Stock are to be
redeemed, the shares to be redeemed will be selected by lot or such other method
as the Fund deems fair and equitable, and the results thereof will be
communicated to the Auction Agent. The Auction Agent will give notice to the
Securities Depository, whose nominee will be the record holder of all shares of
Preferred Stock, and the Securities Depository will determine the number of
shares to be redeemed from the account of the Agent Member of each Existing
Holder. Each Agent Member will determine the number of shares to be redeemed
from the account of each Existing Holder for which it acts as agent. An Agent
Member may select for redemption shares from the accounts of some Existing
Holders without selecting for redemption any shares from the accounts of other
Existing Holders. Notwithstanding the foregoing, if neither the Securities
Depository nor its nominee is the record holder of all of the shares of the
series of Preferred Stock, the particular shares to be redeemed will be selected
by the Fund by lot or by such other method as the Fund deems fair and equitable.
If the Fund gives notice of redemption, and concurrently or thereafter
deposits in trust with the Auction Agent, or segregates in an account at the
Fund's custodian bank for the benefit of the Auction Agent, Deposit Securities
(with a right of substitution) having an aggregate Discounted Value (utilizing
an S&P Exposure Period of three Business Days) equal to the redemption payment
for the shares of Preferred Stock as to which notice of redemption has been
given, with irrevocable instructions and authority to pay the redemption price
to the record holders thereof, then upon the date of such deposit or, if no such
deposit is made, upon such date fixed for redemption (unless the Fund defaults
in making payment of the redemption price), all rights of the holders of such
shares called for redemption will cease and terminate, except the right of such
holders to receive the redemption price thereof and any Additional Dividends,
but without interest, and such shares no longer will be deemed to be
outstanding. The Fund will be entitled to receive, from time to time, the
interest, if any, earned on such Deposit Securities deposited with the Auction
Agent, and the holders of any shares so redeemed will have no claim to any such
interest. Any funds so deposited which are unclaimed at the end of one year from
such redemption date will be repaid, upon demand, to the Fund, after which the
holders of the shares of Preferred Stock of such series so called for redemption
may look only to the Fund for payment thereof.
So long as any shares of Preferred Stock are held of record by the nominee
of the Securities Depository (initially Cede), the redemption price for such
shares will be paid on the redemption date to the nominee of the Securities
Depository. The Securities Depository's normal procedures now provide for it to
distribute the amount of the redemption price to Agent Members who, in turn, are
expected to distribute such funds to the persons for whom they are acting as
agent.
Notwithstanding the provisions for redemption described above, no shares of
Preferred Stock will be subject to optional redemption (i) unless all dividends
in arrears on the outstanding shares of Preferred Stock, and all capital stock
of the Fund ranking on a parity with the shares of Preferred Stock with respect
to the payment of dividends or upon liquidation, have been or are being
contemporaneously paid or declared and set aside for payment and (ii) if
redemption thereof would result in the Fund's failure to maintain S&P Eligible
Assets with an aggregate Discounted Value equal to or greater than the shares of
Preferred Stock Basic Maintenance Amount.
Liquidation Rights
Upon any liquidation, dissolution or winding up of the Fund, whether
voluntary or involuntary, the holders of shares of Preferred Stock of each
series will be entitled to receive, out of the assets of the Fund available for
distribution to shareholders, before any distribution or payment is made upon
any common stock or any other shares of the Fund ranking junior in right of
payment upon liquidation of the Preferred Stock, $25,000 per share together with
the amount of any dividends accumulated but unpaid (whether or not earned or
declared) thereon to the date of distribution, and after such payment the
holders of the Preferred Stock will be entitled to no other payments except for
any Additional Dividends. If such assets of the Fund are insufficient to make
the full liquidation payment on outstanding shares of Preferred Stock and
liquidation payments on any other outstanding class or series of preferred stock
of the Fund ranking on a parity with the Preferred Stock as to payment upon
liquidation, then such assets will be distributed among the holders of the
Preferred Stock and the holders of shares of such other class or series ratably
in proportion to the respective preferential amounts to which they are entitled.
After payment of the full amount of liquidation distribution to which they are
entitled, the holders of shares of Preferred Stock will not be entitled to any
further participation in any distribution of assets by the Fund except for any
Additional Dividends. A consolidation, merger or share exchange of the Fund with
or into any other entity or entities or a sale, whether for cash, shares of
stock, securities or properties, of all or substantially all or any part of the
assets of the Fund will not be deemed or construed to be a liquidation,
dissolution or winding up of the Fund.
Voting Rights
Except as otherwise indicated in this Prospectus and except as otherwise
required by applicable law, holders of shares of Preferred Stock will be
entitled to one vote per share on each matter submitted to a vote of
shareholders and will vote together with holders of shares of the Fund's common
stock and any other preferred stock as a single class.
In connection with the election of the Fund's Directors, holders of the
shares of Preferred Stock and any other preferred stock, voting as a separate
class, shall be entitled at all times to elect two of the Fund's Directors, and
the remaining Directors will be elected by holders of shares of the Fund's
common stock and shares of Preferred Stock and any other preferred stock, voting
together as a single class. In addition, if at any time dividends on outstanding
shares of Preferred Stock are unpaid in an amount equal to at least two full
years' dividends thereon or if at any time holders of the shares of Preferred
Stock are entitled, together with the holders of shares of any other preferred
stock, to elect a majority of the Fund's Directors under the Investment Company
Act, then the number of Directors constituting the Fund's Board of Directors
automatically will be increased by the smallest number that, when added to the
two Directors elected exclusively by the holders of the Preferred Stock and any
other preferred stock as described above, would constitute a majority of the
Fund's Board of Directors as so increased by such smallest number, and at a
special meeting of shareholders which will be called and held as soon as
practicable, and at all subsequent meetings at which Directors are to be
elected, the holders of the shares of Preferred Stock and any other preferred
stock, voting as a separate class, will be entitled to elect the smallest number
of additional Directors that, together with the two Directors which such holders
in any event will be entitled to elect, constitutes a majority of the total
number of Directors of the Fund as so increased. The terms of office of the
persons who are Directors at the time of that election will continue. If the
Fund thereafter pays, or declares and sets apart for payment in full, all
dividends payable on all outstanding shares of Preferred Stock and any other
preferred stock for all past Dividend Periods, the additional voting rights of
the holders of shares of Preferred Stock and any other preferred stock as
described above will cease, and the terms of office of all of the additional
Directors elected by the holders of shares of Preferred Stock and any other
preferred stock (but not of the Directors with respect to whose election the
holders of shares of common stock were entitled to vote or the two Directors the
holders of shares of Preferred Stock and any other preferred stock have the
right to elect in any event) will terminate automatically.
The affirmative vote of a majority of the votes entitled to be cast by
holders of outstanding shares of Preferred Stock and any other preferred stock,
voting as a separate class, will be required to (i) authorize, create or issue
any class or series of stock ranking prior to the shares of Preferred Stock or
any other series of Preferred Stock with respect to the payment of dividends or
the distribution of assets on liquidation; provided, however, that no vote is
required to authorize the issuance of another class or series of preferred stock
which is substantially identical in all respects to the shares of Preferred
Stock, if the Fund obtains written confirmation from S&P that the issuance of
any additional shares would not impair the rating then assigned by S&P to the
Preferred Stock, or (ii) amend, alter or repeal the provisions of the Charter,
whether by merger, consolidation or otherwise, so as to adversely affect any of
the contract rights expressly set forth in the Charter of holders of shares of
Preferred Stock or any other preferred stock. The Fund may not, without the
affirmative vote of the holders of at least 66 2/3% of the shares of Preferred
Stock outstanding at the time, voting as a separate class, file a voluntary
application for relief under federal bankruptcy law or any similar application
under state law for so long as the Fund is solvent and does not foresee becoming
insolvent. To the extent permitted under the Investment Company Act, in the
event shares of more than one series of Preferred Stock are outstanding, the
Fund will not approve any of the actions set forth in clause (i) or (ii) which
adversely affects the contract rights expressly set forth in the Charter of a
holder of shares of a series of Preferred Stock differently than those of a
holder of shares of any other series of Preferred Stock without the affirmative
vote of at least a majority of votes entitled to be cast by holders of the
shares of Preferred Stock of each series adversely affected and outstanding at
such time (each such adversely affected series voting separately as a class).
The Fund's Board of Directors, however, without shareholder approval, may amend,
alter or repeal any or all of the various rating agency guidelines described
herein in the event the Fund receives confirmation from S&P that any such
amendment, alteration or repeal would not impair the rating then assigned to the
shares of Preferred Stock.
Unless a higher percentage is provided for under the Charter, as described
in "Description of Capital Structure" or "Certain Provisions of the Charter,"
the affirmative vote of a majority of the votes entitled to be cast by holders
of outstanding shares of Preferred Stock and any other preferred stock, voting
as a separate class, will be required to approve any plan of reorganization
(including bankruptcy proceedings) adversely affecting such shares or any action
requiring a vote of security holders under Section 13(a) of the Investment
Company Act including, among other things, changes in the Fund's investment
objective or changes in the investment restrictions described as fundamental
policies under "Investment Objective and Policies." The class vote of holders of
shares of Preferred Stock and any other preferred stock described above in each
case will be in addition to a separate vote of the requisite percentage of
shares of common stock and shares of Preferred Stock and any other preferred
stock, voting together as a single class, necessary to authorize the action in
question.
The foregoing voting provisions will not apply to the shares of Preferred
Stock if, at or before the time when the act with respect to which such vote
otherwise would be required to be taken, such shares were (i) redeemed or (ii)
called for redemption and sufficient funds were deposited in trust to effect
such redemption.
MANAGEMENT OF THE FUND
Board of Directors. The business affairs of the Fund are managed under the
general supervision of its Board of Directors in accordance with Maryland law.
The names and business addresses of the Directors and officers of the Fund and
their principal occupations during the past five years are set forth in the SAI.
Investment Adviser. Dreyfus is a wholly-owned subsidiary of Mellon Bank,
N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation ("Mellon").
Mellon is a publicly owned multi-bank holding company incorporated under
Pennsylvania law in 1971 and registered under the Federal Bank Holding Company
Act of 1956, as amended. Mellon provides a comprehensive range of financial
products and services in domestic and selected international markets. Mellon is
among the twenty-five largest bank holding companies in the United States based
on total assets.
Dreyfus provides investment management services to the Fund pursuant to an
Investment Advisory Agreement, subject to the authority of the Fund's Board of
Directors in accordance with Maryland law. The Fund's primary portfolio manager
is A. Paul Disdier. He has held that position since January 1996 and has been
employed by Dreyfus since 1988. The Fund's other portfolio managers are
identified in the SAI. Dreyfus also provides research services for the Fund and
for other funds advised by Dreyfus through a professional staff of portfolio
managers and securities analysts.
Under the terms of the Investment Advisory Agreement, the Fund has agreed
to pay Dreyfus a monthly fee at the annual rate of 0.50% of the value of the
Fund's average weekly net assets.
The Investment Advisory Agreement provides that Dreyfus shall not be liable
for any error of judgment or mistake of law, or for any loss suffered by the
Fund in connection with the matters to which the Investment Advisory Agreement
relates, except for a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of Dreyfus in the performance of its duties or from
reckless disregard of its obligations and duties under the Investment Advisory
Agreement.
Dreyfus has a personal securities trading policy (the "Policy") which
restricts the personal securities transactions of its employees. Its primary
purpose is to ensure that personal trading by Dreyfus's employees does not
disadvantage any fund managed by Dreyfus. Under the Policy, Dreyfus's employees
must preclear personal transactions in securities not exempt under the Policy.
In addition, Dreyfus's employees must report their personal securities
transactions and holdings, which are reviewed for compliance with the Policy. In
that regard, Dreyfus's portfolio managers and other investment personnel also
are subject to the oversight of Mellon's Investment Ethics Committee (the
"Committee"). Portfolio managers and other investment personnel of Dreyfus who
comply with the Policy's preclearance and disclosure procedures and the
requirements of the Committee may be permitted to purchase, sell or hold
securities which also may be or are held in fund(s) they manage or for which
they otherwise provide investment advice.
The Investment Advisory Agreement may be terminated without penalty upon 60
days' written notice by the Fund's Board of Directors or by a majority vote of
the outstanding shares of the Fund or, upon not less than 90 days' notice, by
Dreyfus, and automatically terminates in the event of its assignment.
Administrator. Dreyfus also serves as the Fund's administrator pursuant to
an Administration Agreement with the Fund, pursuant to which Dreyfus, subject to
the overall authority of the Fund's Board of Directors in accordance with
Maryland law, generally assists in all aspects of the Fund's administration and
operation. Among other things, Dreyfus provides to the Fund statistical and
research data, clerical help and accounting, data processing, bookkeeping,
internal auditing and certain other services (including calculation of the net
asset value of the Fund's shares) required by the Fund, prepares reports to
holders of the common stock and prepares tax returns and reports to and filings
with the SEC. Dreyfus bears all expenses in connection with the performance of
these services. The Fund pays an aggregate monthly fee at the annual rate of
0.25% of the value of the Fund's average weekly net assets for the
administrative services provided by Dreyfus and for the custody and transfer
agency services provided by the Fund's custodian and transfer agent,
respectively.
<PAGE>
TAXES
General
The Fund qualifies and has elected to be treated as a regulated investment
company ("RIC") under Subchapter M of the Internal Revenue Code and intends to
continue to qualify under those provisions each year. To qualify as a RIC, the
Fund must, among other things, satisfy certain requirements as to the sources of
its income and the composition of its assets (see below). In addition, the Fund
is required, each year, to distribute at least 90% of its net investment income
(i.e., the Fund's investment company taxable income, as that term is defined in
the Internal Revenue Code, without regard to the deduction for dividends paid)
and 90% of its net tax-exempt income. As a RIC, the Fund (but not its
stockholders) generally will be relieved of U.S. federal income taxes on its
taxable investment income and capital gains that it distributes to its
stockholders. The Fund intends, each year, to distribute to its stockholders
substantially all of its taxable investment income and capital gains as well as
its tax-exempt income.
Under present law and based, in part, on certain representations of the
Fund, Stroock & Stroock & Lavan LLP, counsel to the Fund, is of the opinion that
the Preferred Stock will constitute stock of the Fund, and thus distributions
with respect to the Preferred Stock (other than distributions in redemption of
the Preferred Stock that are treated as exchanges of stock under section 302(b)
of the Internal Revenue Code) will constitute dividends to the extent of the
Fund's current and accumulated earnings and profits, as calculated for federal
income tax purposes. It is possible, however, that the IRS might take a contrary
position, asserting, for example, that the Preferred Stock constitutes debt of
the Fund. If this position were upheld, the discussion of the treatment of
distributions herein would not apply. Instead, distributions by the Fund to the
holders of the Preferred Stock would constitute interest, whether or not they
exceeded the earnings and profits of the Fund, would be included in full in the
income of the recipient and would be taxed as ordinary income. Stroock & Stroock
& Lavan LLP believes that such a position, if asserted by the IRS, would be
unlikely to prevail if the issue were properly litigated. The following
discussion assumes that the Preferred Stock constitutes stock of the Fund.
Each dividend distribution ordinarily will constitute income exempt from
federal income tax (i.e., qualify as an "exempt-interest dividend," which is
excludable from the shareholder's gross income). A portion of dividends
attributable to interest on certain municipal obligations, however, may be a
preference item for purposes of AMT. Furthermore, exempt-interest dividends are
included in determining what portion, if any, of a person's social security and
railroad retirement benefits will be includible in gross income subject to
federal income tax. Distributions of any taxable net investment income and net
short term capital gain will be taxable as ordinary income. Finally,
distributions of the Fund's net capital gain (the excess of net long term
capital gain over net short term capital loss) as capital gain dividends, if
any, will be taxable to shareholders as long term capital gains, regardless of
the length of time they held their shares. Distributions, if any, in excess of
the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after that basis has been reduced to zero, will constitute
capital gains to the shareholder (assuming the shares are held as a capital
asset).
Dividends and other distributions declared by the Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. The IRS has taken
the position that if a RIC has more than one class of shares, it may designate
distributions made to each class in any year as consisting of no more than that
class's proportionate share of particular types of income for that year,
including tax-exempt interest and net capital gain. A class's proportionate
share of a particular type of income for a year is determined according to the
percentage of total dividends paid by the RIC during that year that was paid to
the class. Thus, the Fund is required to allocate a portion of its net capital
gains and other taxable income to the shares of Preferred Stock. The Fund
generally will notify the Auction Agent of the amount of any net capital gain
and other taxable income to be included in any dividend on the shares of
Preferred Stock prior to the Auction establishing the Applicable Rate for that
dividend. Except for the portion of any dividend that it informs the Auction
Agent will be treated as net capital gain or other taxable income, the Fund
anticipates that the dividends paid on the shares of Preferred Stock will
constitute exempt-interest dividends. The amount of net capital gains and
ordinary income allocable to the shares of Preferred Stock (a "taxable
distribution") will depend upon the amount of such gains and income realized by
the Fund and the total dividends paid by the Fund to its holders of common stock
and holders of preferred stock during a taxable year, but taxable distributions
generally are not expected to be significant. The tax treatment of Additional
Dividends also may affect the Fund's calculation of each class's allocable share
of capital gains and other taxable income. See "Tax Treatment of Additional
Dividends" below.
Although the matter is not free from doubt, due to the absence of direct
regulatory or judicial authority, Stroock & Stroock & Lavan LLP has advised the
Fund that under current law the manner in which the Fund intends to allocate
items of tax-exempt income, net capital gain, and other taxable income, if any,
among the Fund's shares of common stock and the shares of Preferred Stock will
be respected for federal income tax purposes. It is possible that the IRS could
disagree with counsel's opinion and attempt to reallocate the Fund's net capital
gain or other taxable income. In the event of such a reallocation, some of the
dividends identified by the Fund as exempt-interest dividends to holders of
shares of Preferred Stock may be recharacterized as additional net capital gain
or other taxable income. In the event of such recharacterization, however, the
Fund would not be required to make payments to such shareholders to offset the
tax effect of such reallocation. Stroock & Stroock & Lavan LLP has advised the
Fund that, in its opinion, if the IRS were to challenge in court the Fund's
allocation of income and gain and the issue were properly litigated, the IRS
would be unlikely to prevail. You should be aware, however, that the opinion of
Stroock & Stroock & Lavan LLP represents only its best legal judgment and is not
binding on the IRS or the courts.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of Preferred Stock is not deductible for federal income tax
purposes to the extent that interest relates to exempt-interest dividends
received from the Fund.
If at any time when shares of Preferred Stock are outstanding the Fund does
not meet the asset coverage requirements of the Investment Company Act, the Fund
will be required to suspend distributions to holders of common stock until the
asset coverage is restored. See "Description of Preferred Stock--
Dividends--Restrictions on Dividends and Other Payments." Such a suspension may
prevent the Fund from distributing the amounts required for maintaining its RIC
status, and may, therefore, jeopardize the Fund's qualification for taxation as
a RIC. Upon any failure to meet the asset coverage requirements of the
Investment Company Act, the Fund, in its sole discretion, may redeem shares of
Preferred Stock in order to maintain or restore the requisite asset coverage and
avoid the adverse consequences to the Fund and its shareholders of failing to
qualify for treatment as a RIC. See "Description of Preferred Stock--
Redemption." There can be no assurance, however, that any such action would
achieve that objective.
Certain of the Fund's investment practices are subject to Internal Revenue
Code provisions that, among other things, may defer the use of certain losses of
the Fund and affect the holding period of securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in the amounts necessary to satisfy the requirements for
maintaining RIC status and for avoiding income and excise taxes. The Fund will
monitor its transactions and may make certain tax elections in order to mitigate
the effect of these rules and prevent disqualification of the Fund as a RIC.
Tax Treatment of Additional Dividends
If the Fund makes a Retroactive Taxable Allocation, it will pay Additional
Dividends to holders of shares of Preferred Stock who are subject to the
Retroactive Taxable Allocation. See "Description of Preferred Stock--
Dividends--Additional Dividends." The federal income tax consequences of the
receipt of Additional Dividends under existing law are uncertain. An Additional
Dividend generally will be designated by the Fund as an exempt-interest dividend
except to the extent net capital gain or other taxable income is allocated
thereto as described above.
Sales of Shares of Preferred Stock
The sale of shares of Preferred Stock (including transfers in connection
with a redemption or repurchase of shares of Preferred Stock) will be a taxable
transaction for federal income tax purposes. A selling shareholder generally
will recognize gain or loss equal to the difference between the holder's
adjusted tax basis in the shares of Preferred Stock and the amount received. If
the shares of Preferred Stock are held as a capital asset, the gain or loss will
be a capital loss and will be long term if the shares of Preferred Stock have
been held for more than one year. Any loss realized on a disposition of shares
of Preferred Stock held for six months or less will be disallowed to the extent
of any exempt-interest dividends received with respect to those shares of
Preferred Stock, and any such loss that is not disallowed will be treated as a
long term, rather than a short term, capital loss to the extent of any capital
gain dividends received with respect to those shares of Preferred Stock. A
shareholder's holding period is suspended for any periods during which the
shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property, or through certain
options or short sales. Any loss realized on a sale or exchange of shares of
Preferred Stock will be disallowed to the extent those shares of Preferred Stock
are replaced by other shares of Preferred Stock within a period of 61 days
beginning 30 days before and ending 30 days after the date of disposition of the
original shares of Preferred Stock. In that event, the basis of the replacement
shares of Preferred Stock will be adjusted to reflect the disallowed loss.
Backup Withholding
The Fund is required to withhold 31% of all taxable dividends, capital gain
dividends and repurchase proceeds payable to any individuals and certain other
non-corporate shareholders who do not provide the Fund with a correct taxpayer
identification number. Withholding at that rate from taxable dividends and
capital gain dividends also is required for such shareholders who otherwise are
subject to backup withholding.
----------------
The foregoing briefly summarizes some of the important federal income tax
consequences of investing in the shares of Preferred Stock, reflects the federal
income tax law, as of the date of this Prospectus, and does not address special
tax rules applicable to certain types of investors, such as corporate and
foreign investors. Other federal, state or local tax considerations may apply to
a particular investor, including state alternative minimum tax. Investors should
consult their tax advisers regarding the tax consequences of purchasing, holding
and disposing of Preferred Stock and any proposed tax law change.
<PAGE>
DESCRIPTION OF CAPITAL STRUCTURE
The Fund was incorporated in Maryland on September 26, 1989. It is
authorized to issue 109,992,560 shares of common stock, $0.001 par value per
share. All shares of common stock have equal non-cumulative voting rights and
equal rights with respect to dividends and liquidation. Shares of common stock
are fully paid and non-assessable when issued and have no pre-emptive,
conversion or exchange rights. So long as any preferred stock is outstanding,
holders of common stock will not be entitled to receive any net income of or
other distributions from the Fund unless all accrued dividends on any preferred
stock have been paid, and unless asset coverage (as defined in the Investment
Company Act) would be at least 200% after giving effect to such distributions.
The following table shows the amount of (i) shares authorized, and (ii) shares
outstanding (no shares are held for the Fund's own account), for each class of
authorized securities of the Fund as of August 31, 1999.
Amount Amount
Title of Class Authorized Outstanding
-------------- ----------- -----------
Common Stock........................................ 109,992,560 47,783,925
Shares of Preferred Stock
Series A.......................................... 2,480 -0-
Series B.......................................... 2,480 -0-
Series C.......................................... 2,480 -0-
Holders of shares of common stock are entitled to share equally in
dividends declared by the Fund's Board of Directors payable to holders of shares
of common stock and in the net assets of the Fund available for distribution to
holders of shares of common stock after payment of the preferential amounts
payable to holders of any outstanding preferred stock. Neither holders of shares
of common stock nor holders of shares of Preferred Stock have pre-emptive or
conversion rights and shares of common stock are not redeemable. Upon
liquidation of the Fund, after paying or adequately providing for the payment of
all liabilities of the Fund and the liquidation preference with respect to any
outstanding shares of Preferred Stock, and upon receipt of such releases,
indemnities and refunding agreements as they deem necessary for their
protection, the Directors may distribute the remaining assets of the Fund among
the holders of shares of common stock.
Holders of shares of common stock are entitled to one vote for each share
held and will vote with the holders of any outstanding shares of Preferred Stock
or other shares of preferred stock on each matter submitted to a vote of holders
of shares of common stock, except as described under "Description of Preferred
Stock--Voting Rights."
The shares of common stock, shares of Preferred Stock and any other shares
of preferred stock do not have cumulative voting rights, which means that the
holders of more than 50% of the shares of common stock, shares of Preferred
Stock and any other shares of preferred stock voting for the election of
directors can elect all of the directors standing for election by such holders,
and, in such event, the holders of the remaining shares of common stock, shares
of Preferred Stock and any other shares of preferred stock will not be able to
elect any of such directors.
So long as shares of Preferred Stock or other shares of preferred stock are
outstanding, holders of shares of common stock will not be entitled to receive
any dividends of or other distributions from the Fund, unless at the time of
such declaration, (1) all accrued dividends on shares of Preferred Stock or
accrued interest on borrowings has been paid and (2) the value of the Fund's
total assets (determined after deducting the amount of such dividend or other
distribution), less all liabilities and indebtedness of the Fund not represented
by senior securities, is at least 300% of the aggregate amount of such
securities representing indebtedness and at least 200% of the aggregate amount
of securities representing indebtedness plus the aggregate liquidation value of
the outstanding preferred stock (expected to equal the aggregate original
purchase price of the outstanding shares of Preferred Stock plus redemption
premium, if any, together with any accrued and unpaid dividends thereon, whether
or not earned or declared and on a cumulative basis). In addition to the
requirements of the Investment Company Act, the Fund is required to comply with
other asset coverage requirements as a condition of the Fund obtaining a rating
of the shares of Preferred Stock from a Rating Agency. These requirements
include an asset coverage test more stringent than under the Investment Company
Act. See "Description of Preferred Stock--Dividends--Restrictions on Dividends
and Other Payments."
So long as any shares of the Fund's preferred stock are outstanding, the
Fund may not purchase, redeem or otherwise acquire any shares of its common
stock unless (i) all accrued preferred stock dividends have been paid and (ii)
at the time of such purchase, redemption or acquisition, the net asset value of
the Fund's portfolio (determined after deducting the acquisition price of the
common stock) is at least 200% of the liquidation value of the outstanding
preferred stock (expected to equal the original purchase price per share plus
any accrued and unpaid dividends thereon). In addition, any purchase by the Fund
of the shares of its common stock at a time when shares of Preferred Stock are
outstanding will increase the leverage applicable to the outstanding shares of
common stock then remaining.
The shares of common stock commenced trading on the NYSE on November 22,
1989. At August 31, 1999, the net asset value per share of common stock was
$8.91, and the closing price per share of common stock on the NYSE was $8.13.
Under the Investment Company Act, the Fund is permitted to have outstanding
more than one series of preferred stock as long as no single series has priority
over another series as to the distribution of assets of the Fund or the payment
of dividends. Neither holders of shares of common stock nor holders of the
shares of Preferred Stock have pre-emptive rights to purchase any shares of
preferred stock. It is anticipated that the net asset value per share of
preferred stock will equal its original purchase price per share plus
accumulated dividends per share.
CONVERSION TO OPEN-END FUND
If the Fund's common stock has traded on the principal securities exchange
where listed at an average discount from net asset value of more than 10%,
determined on the basis of the discount as of the end of the last trading day in
each week, during the 12 calendar weeks preceding the beginning of such fiscal
year, the Fund will submit to its shareholders at the next succeeding annual
meeting of shareholders a proposal to convert the Fund to an open-end investment
company. Conversion of the Fund to an open-end investment company would require
an amendment of the Fund's Charter. The Fund's Board of Directors also at any
time may propose conversion of the Fund to an open-end investment company
depending upon the Directors' judgment as to the suitability of such action in
light of circumstances then prevailing. Conversion to an open-end investment
company would require the approval of the holders of at least a majority of the
Fund's outstanding shares of common stock and outstanding shares of preferred
stock, voting separately by class.
Shareholders of an open-end investment company may require the company to
redeem their shares at any time (except in certain circumstances as authorized
by or under the Investment Company Act) at their net asset value, less such
redemption charge, if any, as might be in effect at the time of redemption. If
the Fund is converted to an open-end investment company, it could be required to
liquidate portfolio securities to meet requests for redemptions, and its shares
of common stock would no longer be listed on the NYSE. Conversion of the Fund to
an open-end investment company also would require the redemption of all
outstanding shares of Preferred Stock.
<PAGE>
CERTAIN PROVISIONS OF THE CHARTER
The Charter includes provisions that could have the effect of limiting the
ability of other entities or persons to acquire control of the Fund or to change
the composition of its Board of Directors and could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging a third party from seeking to obtain control of
the Fund. The Fund's Board of Directors is divided into three classes, with the
term of office of one class expiring each year. This provision could delay for
up to two years the replacement of a majority of the Board of Directors. The
Charter provides that the maximum number of Directors that may constitute the
Fund's entire Board is twelve. A Director may be removed from office or the
maximum number of Directors increased only by vote of the holders of at least
75% of the shares of the Fund entitled to be voted on the matter. Moreover,
under Maryland law, a director on a classified board, such as the Fund's, may be
removed from office only for cause.
In addition, the Charter requires the favorable vote of the holders of at
least a majority of each class of shares of the Fund then entitled to be voted
to authorize the conversion of the Fund from a closed-end to an open-end
investment company, and the favorable vote of the holders of at least 75% of the
outstanding shares of the Fund to approve, adopt or authorize any of the
following actions:
(i) a merger or consolidation or statutory share exchange of the Fund
with or into another corporation;
(ii) a sale of all or substantially all of the Fund's assets (other than
in the regular course of the Fund's investment activities or in connection
with the repurchase of the Fund's shares); or
(iii) a liquidation or dissolution of the Fund;
unless such action has been approved, adopted or authorized by the affirmative
vote of two-thirds of the total number of Continuing Directors (defined as
those Directors who either were members of the Fund's Board of Directors on
November 22, 1989 or subsequently became or will become Directors and whose
election was or is approved by a majority of the Continuing Directors then on
the Board, in which case the affirmative vote of a majority of the outstanding
shares of the Fund is required. Such approval, adoption or authorization of the
foregoing actions also would require the favorable vote of at least a majority
of the Fund's shares of preferred stock then entitled to be voted, including
the Preferred Stock, voting as a separate class as described under "Description
of Preferred Stock--Voting Rights."
The Fund's Board of Directors has determined that the voting requirements
described above, which are greater than the minimum requirements under Maryland
law or the Investment Company Act and which can only be changed by a favorable
vote of the holders of at least 75% of the Fund's shares entitled to vote on the
matter, are in the best interests of shareholders generally. Reference should be
made to the Charter on file with the SEC for the full text of these provisions.
<PAGE>
UNDERWRITING
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York
10019, acting as underwriter (the "Underwriter"), has agreed, subject to the
terms and conditions of the Underwriting Agreement with the Fund and Dreyfus
(the "Underwriting Agreement"), to purchase from the Fund the number of shares
set forth below. The Underwriter is committed to purchase all of such shares of
Preferred Stock if any are purchased.
<TABLE>
<CAPTION>
Number of Number of Number of
Shares of Shares of Shares of
Series A Series B Series C
Preferred Preferred Preferred
Underwriter Stock Stock Stock
----------- --------- --------- ---------
<S> <C> <C> <C>
PaineWebber Incorporated.......................
</TABLE>
The Underwriter has advised the Fund that it proposes initially to offer
the shares of Preferred Stock to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriter may allow, and
such dealers may reallow, a discount not in excess of $ per share to other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed. Investors must pay for any shares of
Preferred Stock purchased in the initial public offering on or before , 1999.
The Underwriter will act in Auctions as a Broker-Dealer as set forth under
"Description of Preferred Stock--The Auction--Broker-Dealer Agreements" and will
be entitled to fees for services as a Broker-Dealer as set forth under
"Description of Preferred Stock--Broker-Dealers." The Underwriter also may
provide information to be used in ascertaining the Reference Rate.
The Fund anticipates that the Underwriter from time to time may act as a
dealer in connection with the execution of the Fund's portfolio transactions.
See "Investment Restrictions" and "Portfolio Trading" in the SAI.
The Fund and Dreyfus have agreed to indemnify the Underwriter against
certain liabilities including liabilities under the Securities Act of 1933.
CUSTODIAN AND TRANSFER AGENT
Boston Safe Deposit and Trust Company, an indirect wholly-owned subsidiary
of Mellon, located at One Boston Place, Boston, Massachusetts 02108, acts as
Custodian for the assets of the Fund. First Data Investor Services Group, Inc.,
a subsidiary of First Data Corporation, located at One Exchange Place, Boston,
Massachusetts 02109, acts as the Fund's Transfer Agent, Dividend-Paying Agent
and Registrar.
LEGAL OPINIONS
Stroock & Stroock & Lavan LLP, New York, New York, serves as counsel to the
Fund and will pass on the legality of the shares of Preferred Stock. Certain
legal matters will be passed on for the Underwriter by Skadden, Arps, Slate,
Meagher & Flom (Illinois), Chicago, Illinois.
INDEPENDENT AUDITORS
The data in the "Financial Highlights" section of this Prospectus for each
of the ten years in the period ended November 30, 1998 are based upon financial
statements that have been audited by Ernst & Young LLP, independent auditors,
787 Seventh Avenue, New York, New York 10019, as indicated in their reports with
respect thereto, and are included in reliance on their report given on their
authority as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act and in accordance therewith
is required to file reports, proxy statements and other information with the
SEC. Any such reports, proxy statements and other information can be inspected
and copied at the public reference facilities of the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the SEC: Regional Office, at Seven World Trade Center, 61
Suite 1300, New York, New York 10048; Pacific Regional Office, at 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, California 90036; and Midwest Regional
Office, at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such materials can be obtained from the
public reference section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The SEC maintains a Web site at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding registrants, including the Fund, that file electronically with the
SEC. Reports, proxy statements and other information concerning the Fund can
also be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
Additional information regarding the Fund and the shares of Preferred Stock
is contained in the Registration Statement on Form N-2, including amendments,
exhibits and schedules thereto, relating to such shares filed by the Fund with
the SEC in Washington, D.C. This Prospectus does not contain all of the
information set forth in the Registration Statement, including any amendments,
exhibits and schedules thereto. For further information with respect to the Fund
and the shares of Preferred Stock offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected without charge at the SEC's principal
office in Washington, D.C., and copies of all or any part thereof may be
obtained from the SEC upon the payment of certain fees prescribed by the SEC.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus constitute forward-looking
statements, which involve known and unknown risks, uncertainties and other
factors that may cause the actual results, levels of activity, performance or
achievements of the Fund to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. As a result, no assurance can be given as to the
future results, levels of activity, performance or achievements, and neither the
Fund nor any other person assumes responsibility for the accuracy and
completeness of such statements.
<PAGE>
TABLE OF CONTENTS OF THE SAI
Page
----
General Information...................................................... 2
Additional Information About Certain Portfolio Securities and Investment
Techniques.............................................................. 2
Investment Restrictions.................................................. 13
Rating Agency Guidelines................................................. 15
Management of the Fund................................................... 19
Ownership of Fund Shares................................................. 30
Portfolio Trading........................................................ 30
Repurchase of Shares..................................................... 31
Taxation................................................................. 32
Financial Statements..................................................... 35
Appendix A: Ratings of Municipal Obligations............................. A-1
Appendix B: Tax Equivalent Yield Table................................... B-1
Appendix C: Settlement Procedures........................................ C-1
Appendix D: Auction Procedures........................................... D-1
<PAGE>
GLOSSARY
"AA' Composite Commercial Paper Rate," on any Valuation Date, means (i) the
Interest Equivalent of the rate on commercial paper placed on behalf of issuers
whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's or the equivalent
of such rating by another nationally recognized statistical rating organization,
as such rate is made available on a discount basis or otherwise by the Federal
Reserve Bank of New York for the Business Day immediately preceding such date,
or (ii) in the event that the Federal Reserve Bank of New York does not make
available such a rate, then the arithmetic average of the Interest Equivalent of
the rate on commercial paper placed on behalf of such issuers, as quoted on a
discount basis or otherwise by PaineWebber Incorporated or its successors that
are Commercial Paper Dealers, to the Auction Agent for the close of business on
the Business Day immediately preceding such date. If one of the Commercial Paper
Dealers does not quote a rate required to determine the "AA" Composite
Commercial Paper Rate, the "AA" Composite Commercial Paper Rate will be
determined on the basis of the quotation or quotations furnished by any
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the Fund to provide such rate or rates not being supplied by the
Commercial Paper Dealer. If the number of Dividend Period days shall be (i) 7 or
more but fewer than 49 days, such rate shall be the Interest Equivalent of the
30-day rate on such commercial paper; (ii) 49 or more but fewer than 70 days,
such rate shall be the Interest Equivalent of the 60-day rate on such commercial
paper; (iii) 70 or more days but fewer than 85 days, such rate shall be the
arithmetic average of the Interest Equivalent of the 60-day and 90-day rates on
such commercial paper; (iv) 85 or more days but fewer than 99 days, such rate
shall be the Interest Equivalent of the 90-day rate on such commercial paper;
(v) 99 or more days but fewer than 120 days, such rate shall be the arithmetic
average of the Interest Equivalent of the 90-day and 120-day rates on such
commercial paper; (vi) 120 or more days but fewer than 141 days, such rate shall
be the Interest Equivalent of the 120-day rate on such commercial paper; (vii)
141 or more days but fewer than 162 days, such rate shall be the arithmetic
average of the Interest Equivalent of the 120-day and 180-day rates on such
commercial paper; and (viii) 162 or more days but fewer than 183 days, such rate
shall be the Interest Equivalent of the 180-day rate on such commercial paper.
"Additional Dividend" has the meaning set forth on page 32 of this
Prospectus.
"Agent Member" means the member of the Securities Depository that will act
on behalf of a Beneficial Owner of one or more shares of Preferred Stock or on
behalf of a Potential Beneficial Owner.
"AMT" has the meaning set forth on page 14 of this Prospectus.
"Anticipation Notes" means the following municipal obligations: revenue
anticipation notes, tax anticipation notes, tax and revenue anticipation notes,
grant anticipation notes and bond anticipation notes.
"Applicable Percentage" has the meaning set forth on page 22 of this
Prospectus.
"Applicable Rate" means the rate per annum at which cash dividends are
payable on shares of Preferred Stock for any Dividend Period.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means Bankers Trust Company unless and until another
commercial bank, trust company or other financial institution appointed by a
resolution of the Fund's Board of Directors or a duly authorized committee
thereof enters into an agreement with the Board of Directors to follow the
Auction Procedures for the purpose of determining the Applicable Rate and to act
as transfer agent, registrar, dividend disbursing agent and redemption agent for
the shares of Preferred Stock.
"Auction Agent Agreement" means the agreement entered into between the Fund
and the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction Procedures for the purpose of determining the Applicable
Rate.
"Auction Date" has the meaning set forth on page 21 of this Prospectus.
"Auction Procedures" means the procedures for conducting Auctions set forth
in "Appendix D" to the SAI.
"Available Shares of Preferred Stock" has the meaning specified in
Paragraph 3(d)(i) of the Auction Procedures.
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or if applicable, the Auction Agent) as a holder
of shares of Preferred Stock or a Broker-Dealer that holds shares of Preferred
Stock for its own account.
"Bid" has the meaning specified in Paragraph 3(b)(i) of the Auction
Procedures.
"Bidder" has the meaning specified in Paragraph 3(b)(i) of the Auction
Procedures.
"Board of Directors" or "Board" means the Fund's Board of Directors and, to
the extent permitted by law, any committee thereof.
"Broker-Dealer" means any broker-dealer, or other entity permitted by law
to perform the functions required of a Broker-Dealer in the Auction Procedures,
that has been selected by the Fund and has entered into a Broker-Dealer
Agreement with the Auction Agent that remains effective.
"Broker-Dealer Agreement" means an agreement entered into between the
Auction Agent and a Broker-Dealer, including PaineWebber Incorporated, pursuant
to which such Broker-Dealer agrees to follow the Auction Procedures.
"Business Day" means a day on which the NYSE is open for trading and which
is not a Saturday, Sunday or other day on which banks in New York City are
authorized or obligated by law to close.
"Cede" means Cede & Co., the nominee of DTC, and in whose name the shares
of Preferred Stock initially will be registered.
"Charter" means the Fund's Articles of Incorporation, as amended.
"Commercial Paper Dealers" means PaineWebber Incorporated and such other
commercial paper dealer or dealers as the Fund from time to time may appoint or,
in lieu thereof, their respective affiliates and successors.
"Continuing Directors" has the meaning set forth on page 44 of this
Prospectus.
"Cure Date" has the meaning set forth on page 34 of this Prospectus.
"Date of Original Issue" means, with respect to each share of Preferred
Stock, the date on which such share first is issued by the Fund.
"Deposit Securities" means cash and municipal obligations rated at least A2
(having a remaining maturity of 12 months or less), P-1, VMIG-1 or MIG-1 by
Moody's or A (having a remaining maturity of 12 months or less), A-1+ or SP-1+
by S&P.
"Discount Factor" means a S&P Discount Factor.
"Discounted Value" of any asset of the Fund means with respect to an S&P
Eligible Asset, the quotient of the market value thereof divided by the
applicable S&P Discount Factor.
"Dividend Payment Date" means any date on which dividends on shares of
Preferred Stock are payable as provided under "Description of Preferred Stock--
Dividends--General."
"Dividend Periods" means any of the Initial Dividend Period, 28-Day
Dividend Periods or the Special Dividend Periods. If the Fund changes the 28-Day
Dividend Period to seven days, then 7-Day Dividend Periods will be substituted
for 28-Day Dividend Periods.
"Dreyfus" means The Dreyfus Corporation, the Fund's investment adviser and
administrator.
"DTC" means The Depository Trust Company.
"Existing Holder" means a Broker-Dealer or any such other person as may be
permitted by the Fund that is listed as the holder of record of shares of
Preferred Stock in the records of the Auction Agent.
"Fitch" means Fitch IBCA, Inc. or its successors.
"Fund" means Dreyfus Strategic Municipal Bond Fund, Inc., a Maryland
corporation that is the issuer of the shares of Preferred Stock.
"Hold Order" has the meaning specified in Paragraph 3(b)(i) of the Auction
Procedures.
"Initial Dividend Payment Date" means , 1999 for Series A Preferred Stock,
, 1999 for Series B Preferred Stock and , 1999 for Series C Preferred Stock.
"Initial Dividend Period" means, with respect to the shares of Preferred
Stock, the period from and including the Date of Original Issue to but excluding
the Initial Dividend Payment Date of the shares of Preferred Stock.
"Initial Margin" means the amount of cash or securities deposited with a
broker as a margin payment at the time of purchase or sale of a financial
futures contract.
"Interest Equivalent" means a yield on a 360-day basis of a discount basis
security which is equal to the yield on an equivalent interest-bearing security.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
"Investment Advisers Act" means the Investment Advisers Act of 1940, as
amended from time to time.
"Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time.
"Investment Company Act Preferred Stock Asset Coverage" has the meaning set
forth on page 32 of this Prospectus.
"Investment Company Act Cure Date" has the meaning set forth on page 32 of
this Prospectus.
"IRS" means the United States Internal Revenue Service.
"Long Term Dividend Period" has the meaning specified in the definition of
"Special Dividend Period."
"Mandatory Redemption Price" has the meaning set forth on page 34 of this
Prospectus.
"Marginal Tax Rate" means the maximum marginal federal individual income
tax rate applicable to an individual's or a corporation's ordinary income,
whichever is greater.
"Maximum Applicable Rate" has the meaning specified under "Description of
Preferred Stock--The Auction--Orders by Beneficial Owners, Potential Beneficial
Owners, Existing Holders and Potential Holders" of this Prospectus.
"Maximum Potential Additional Dividend Liability" has the meaning set forth
under "Preferred Stock Basic Maintenance Amount" below.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Non-Call Period" has the meaning set forth under "Specific Redemption
Provisions" below.
"Non-Payment Period" has the meaning set forth on page 30 of this
Prospectus.
"Non-Payment Period Rate" has the meaning set forth on page 30 of this
Prospectus.
"Normal Dividend Payment Date" has the meaning set forth on page 28 of this
Prospectus.
"Notice of Revocation" has the meaning set forth on page 29 of this
Prospectus.
"Notice of Special Dividend Period" has the meaning set forth on page 29 of
this Prospectus.
"Optional Redemption Price" has the meaning set forth on page 34 of this
Prospectus.
"Order" has the meaning specified in Paragraph 3(b)(i) of the Auction
Procedures.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of shares of Preferred Stock but
that wishes to purchase such shares, or that is a Beneficial Owner that wishes
to purchase additional shares of Preferred Stock.
"Potential Holder" means any Broker-Dealer or any such other person as may
be permitted by the Fund, including any Existing Holder, who may be interested
in acquiring shares of Preferred Stock (or, in the case of an Existing Holder,
additional shares of Preferred Stock).
"Preferred Stock" means shares of preferred stock, par value $.001 per
share, of the Fund.
"Preferred Stock Basic Maintenance Amount." The Preferred Stock Basic
Maintenance Amount as of any Valuation Date is defined as the dollar amount
equal to (i) the sum of (A) the product of the number of shares of Preferred
Stock outstanding on such Valuation Date multiplied by the sum of $25,000 and
any applicable redemption premium attributable to the designation of a Premium
Call Period; (B) the aggregate amount of cash dividends (whether or not earned
or declared) that will have accumulated for each share of Preferred Stock
outstanding to (but not including) the end of the current Dividend Period that
follows such Valuation Date in the event the then-current Dividend Period will
end within 49 calendar days of such Valuation Date or through the 49th day after
such Valuation Date in the event the then-current Dividend Period for the shares
of Preferred Stock will not end within 49 calendar days of such Valuation Date;
(C) in the event the then-current Dividend Period will end within 49 calendar
days of such Valuation Date, the aggregate amount of cash dividends that would
accumulate at the Maximum Applicable Rate applicable to a Dividend Period of 28
or fewer days on any shares of Preferred Stock outstanding from the end of such
Dividend Period through the 49th day after such Valuation Date, multiplied by
the S&P Volatility Factor determined from time to time by S&P (except that if
such Valuation Date occurs during a Non-Payment Period, the cash dividend for
purposes of calculation would accumulate at the then-current Non-Payment Period
Rate); (D) the amount of anticipated Fund expenses for the 90 days subsequent to
such Valuation Date; (E) the amount of the Fund's Maximum Potential Additional
Dividend Liability as of such Valuation Date; and (F) any current liabilities as
of such Valuation Date to the extent not reflected in any of (i) (A) through (i)
(E) (including, without limitation, and immediately upon determination, any
amounts due and payable by the Fund pursuant to repurchase agreements and any
amounts payable for municipal obligations purchased as of such Valuation Date)
less (ii) either (A) the Discounted Value of any Fund assets, or (B) the face
value of any of the Fund's assets if such assets mature prior to or on the date
of redemption of the shares of Preferred Stock or payment of a liability and are
either securities issued or guaranteed by the United States Government or
Deposit Securities, in both cases irrevocably deposited by the Fund for the
payment of the amount needed to redeem the shares of Preferred Stock subject to
redemption or to satisfy any of (i) (B) through (i) (F). For purposes of the
foregoing, "Maximum Potential Additional Dividend Liability," as of any
Valuation Date, means the aggregate amount of Additional Dividends that would be
due if the Fund were to make Retroactive Taxable Allocations, with respect to
any fiscal year, estimated based upon dividends paid and the amount of
undistributed realized net capital gains and other taxable income earned by the
Fund, as of the end of the calendar month immediately preceding such Valuation
Date and assuming such Additional Dividends are fully taxable.
"Preferred Stock Basic Maintenance Cure Date" has the meaning set forth on
page 33 of this Prospectus.
"Preferred Stock Basic Maintenance Report" has the meaning set forth on
page 33 of this Prospectus.
"Premium Call Period" has the meaning set forth under "Specific Redemption
Provisions" below.
"Rating Agency" means a nationally recognized statistical rating
organization.
"Reference Rate" has the meaning set forth on page 4 of this Prospectus.
"Representative" means PaineWebber Incorporated or its successors.
"Request for Special Dividend Period" has the meaning set forth on page 28
of this Prospectus.
"Response" has the meaning set forth on page 29 of this Prospectus.
"Retroactive Taxable Allocation" has the meaning set forth on page 31 of
this Prospectus.
"RIC" means regulated investment company under the Internal Revenue Code.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., or its successors.
"S&P Discount Factor" has the meaning set forth on page 15 of the SAI.
"S&P Eligible Assets" has the meaning set forth on page 15 of the SAI.
"S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the Preferred Stock Basic
Maintenance Cure Date, that the Fund has under the Charter to cure any failure
to maintain, as of such Valuation Date, a Discounted Value for its portfolio at
least equal to the Preferred Stock Basic Maintenance Amount.
"S&P Volatility Factor" means 277% or such other potential dividend rate
increase factor as S&P advises the Fund in writing is applicable.
"Securities Depository" means The Depository Trust Company and its
successors and assigns or any successor securities depository selected by the
Fund that agrees to follow the procedures required to be followed by such
securities depository in connection with the shares of Preferred Stock.
"Sell Order" has the meaning specified in Paragraph 3(b)(i) of the Auction
Procedures.
"Short Term Dividend Period" has the meaning specified in the definition of
"Special Dividend Period" below.
"Special Dividend Period" means a Dividend Period consisting of a specified
number of days (other than 28), evenly divisible by seven and not fewer than
seven nor more than 364 (a "Short Term Dividend Period") or a Dividend Period
consisting of a specified period of one whole year or more but not greater than
five years (a "Long Term Dividend Period").
"Specific Redemption Provisions" means, with respect to a Special Dividend
Period, either, or any combination of, (i) a period (a "Non-Call Period")
determined by the Fund's Board of Directors, after consultation with the Auction
Agent and the Broker-Dealers, during which the shares of Preferred Stock subject
to such Dividend Period shall not be subject to redemption at the option of the
Fund and (ii) a period (a "Premium Call Period"), consisting of a number of
whole years and determined by the Fund's Board of Directors, after consultation
with the Auction Agent and the Broker-Dealers, during each year of which the
shares of Preferred Stock subject to such Dividend Period shall be redeemable at
the Fund's option at a price per share equal to $25,000 plus accumulated but
unpaid dividends plus a premium expressed as a percentage of $25,000, as
determined by the Fund's Board of Directors after consultation with the Auction
Agent and the Broker-Dealers.
"Submission Deadline" has the meaning specified in Paragraph 3(a)(x) of the
Auction Procedures.
"Submitted Bid" has the meaning specified in Paragraph 3(d)(i) of the
Auction Procedures.
"Submitted Hold Order" has the meaning specified in Paragraph 3(d)(i) of
the Auction Procedures.
"Submitted Order" has the meaning specified in Paragraph 3(d)(i) of the
Auction Procedures.
"Submitted Sell Order" has the meaning specified in Paragraph 3(d)(i) of
the Auction Procedures.
"Subsequent Dividend Period" means each Dividend Period after the Initial
Dividend Period.
"Substitute Rating Agency" and "Substitute Rating Agencies" shall mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by
PaineWebber Incorporated, or its respective affiliates and successors, after
consultation with the Fund, to act as a substitute rating agency or substitute
rating agencies, as the case may be, to determine the credit ratings of the
shares of Preferred Stock.
"Sufficient Clearing Bids" has the meaning specified in Paragraph 3(d)(i)
of the Auction Procedures.
"Taxable Equivalent of the Short Term Municipal Obligations Rate" on any
date means 90% of the quotient of (A) the per annum rate expressed on an
interest equivalent basis equal to the Kenny S&P 30-day High Grade Index (the
"Kenny Index"), or any successor index made available for the Business Day
immediately preceding such date but in any event not later than 8:30 a.m., New
York City time, on such date by Kenny Information Systems Inc. or any successor
thereto, based upon 30-day yield evaluations at par of bonds the interest on
which is excludable for federal income tax purposes under the Internal Revenue
Code of "high grade" component issuers selected by Kenny Information Systems
Inc. or any such successor from time to time in its discretion, which component
issuers shall include, without limitation, issuers of general obligation bonds
but shall exclude any bonds the interest on which constitutes a Preference Item,
divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a decimal);
provided, however, that if the Kenny Index is not made so available by 8:30
a.m., New York City time, on such date by Kenny Information Systems Inc. or any
successor, the Taxable Equivalent of the Short Term Municipal Obligations Rate
shall mean the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the most recent Kenny Index so made available for any
preceding Business Day, divided by (B) 1.00 minus the marginal tax rate noted
above (expressed as a decimal). The Fund may not utilize a successor index to
the Kenny Index unless S&P provides the Fund with written confirmation that the
use of such successor index will not adversely affect the then-current S&P
rating of the shares of Preferred Stock.
"Taxable Investments" has the meaning set forth on page 14 of this
Prospectus.
"28-Day Dividend Period" means a Dividend Period consisting of 28 days. If
the Fund changes the 28-Day Dividend Period to seven days, then 7-Day Dividend
Periods will be substituted for 28-Day Dividend Periods.
"Underwriting Agreement" has the meaning set forth on page 45 of this
Prospectus.
"U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent of
the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York in its Composite 3:30 p.m. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on
any date means the Interest Equivalent of the yield as calculated by reference
to the arithmetic average of the bid price quotations of the actively traded
Treasury Bill with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by bid price quotations as of any time on
the Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the Auction
Agent.
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated by
reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 p.m. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related Dividend
Period, as determined by the bid price quotations as of any time on the Business
Day immediately preceding such date, obtained from at least three recognized
primary U.S. Government securities dealers selected by the Auction Agent.
"Valuation Date" has the meaning set forth on page 33 of this Prospectus.
"Variation Margin" means, in connection with an outstanding financial
futures contract owned or sold by the Fund, the amount of cash or securities
paid to or received from a broker (subsequent to the Initial Margin payment)
from time to time as the price of such financial futures contract fluctuates.
"Winning Bid Rate" has the meaning specified in Paragraph 3(d)(i) of the
Auction Procedures.
<PAGE>
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Dreyfus Strategic Municipal Bond Fund, Inc.
2,480 Shares Series A
2,480 Shares Series B
2,480 Shares Series C
Auction Preferred Stock
Liquidation Preference $25,000 Per Share
[LOGO] Dreyfus
---------------
PROSPECTUS
---------------
PaineWebber Incorporated
----------------
September , 1999
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<PAGE>
SUBJECT TO COMPLETION, SEPTEMBER 17, 1999
STATEMENT OF ADDITIONAL INFORMATION
_______________, 1999
DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
200 Park Avenue
New York, NY 10166
(800) 334-6899
AUCTION PREFERRED STOCK
TABLE OF CONTENTS
PAGE
General Information..........................................................2
Additional Information About Certain Portfolio Securities and
Investment Techniques.......................................................2
Investment Restrictions.....................................................13
Rating Agency Guidelines....................................................15
Management of the Fund......................................................20
Ownership of Fund Shares....................................................31
Portfolio Trading...........................................................31
Repurchase of Shares........................................................32
Taxation....................................................................33
Financial Statements........................................................36
Appendix A: Ratings of Municipal Obligations..............................A-1
Appendix B: Tax Equivalent Yield Table....................................B-1
Appendix C: Settlement Procedures.........................................C-1
Appendix D: Auction Procedures............................................D-1
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY THE
PROSPECTUS OF DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC. (THE "FUND") DATED
SEPTEMBER __, 1999, AS SUPPLEMENTED FROM TIME TO TIME, WHICH IS INCORPORATED
HEREIN BY REFERENCE. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN
CONJUNCTION WITH THE PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE
BY CONTACTING YOUR FINANCIAL INTERMEDIARY OR CALLING THE FUND AT 1-800-334-6899.
<PAGE>
Capitalized terms used in this Statement of Additional Information and
not otherwise defined have the meanings given them in the Fund's Prospectus.
[Left Side Margin on Cover Page]
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. THE FUND'S SHARES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE FUND'S SHARES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
- -------------------------------------------------------------------------------
GENERAL INFORMATION
The Fund is a diversified, closed-end management investment company
registered under the Investment Company Act. The Fund's investment adviser is
The Dreyfus Corporation ("Dreyfus"). The Fund's investment objective is to
maximize current income exempt from Federal income tax to the extent believed by
Dreyfus to be consistent with the preservation of capital.
ADDITIONAL INFORMATION ABOUT CERTAIN PORTFOLIO SECURITIES
AND INVESTMENT TECHNIQUES
CERTAIN PORTFOLIO SECURITIES
The following information supplements and should be read in
conjunction with the Fund's Prospectus.
MUNICIPAL OBLIGATIONS. The Fund will invest at least 80% of the value
of its net assets (except when maintaining a temporary defensive position) in
municipal obligations. Municipal obligations are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multistate agencies or authorities, the interest from which, in the opinion of
bond counsel to the issuer, is exempt from Federal income tax. Municipal
obligations generally include debt obligations issued to obtain funds for
various public purposes as well as certain industrial development bonds issued
by or on behalf of public authorities. Municipal obligations are classified as
general obligation bonds, revenue bonds and notes. General obligation bonds are
secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable from the revenue
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source, but not
from the general taxing power. Tax exempt industrial development bonds, in most
cases, are revenue bonds that do not carry the pledge of the credit of the
issuing municipality, but generally are guaranteed by the corporate entity on
whose behalf they are issued. Notes are short-term instruments which are
obligations of the issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other revenues.
Municipal obligations include municipal lease/purchase agreements which are
similar to installment purchase contracts for property or equipment issued by
municipalities. Municipal obligations bear fixed, floating or variable rates of
interest, which are determined in some instances by formulas under which the
municipal obligation's interest rate will change directly or inversely to
changes in interest rates or an index, or multiples thereof, in many cases
subject to a maximum and minimum. Certain municipal obligations are subject to
redemption at a date earlier than their stated maturity pursuant to call
options, which may be separated from the related municipal obligation and
purchased and sold separately.
The yields on municipal obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the municipal obligations market, size of a particular
offering, maturity of the obligation, and rating of the issue.
CERTAIN TAX EXEMPT OBLIGATIONS. The Fund may purchase floating and variable rate
demand notes and bonds, which are tax exempt obligations ordinarily having
stated maturities in excess of one year, but which permit the holder to demand
payment of principal at any time or at specified intervals. Variable rate demand
notes include master demand notes which are obligations that permit the Fund to
invest fluctuating amounts at varying rates of interest, pursuant to direct
arrangements between the Fund, as lender, and the borrower. These obligations
permit daily changes in the amount borrowed. Because these obligations are
direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there generally
is no established secondary market for these obligations, although they are
redeemable at face value, plus accrued interest. Accordingly, where these
obligations are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Each obligation purchased by
the Fund will meet the quality criteria established for the purchase of
municipal obligations.
TAX EXEMPT PARTICIPATION INTERESTS. The Fund may purchase from financial
institutions participation interests in municipal obligations (such as
industrial development bonds and municipal lease/purchase agreements). A
participation interest gives the Fund an undivided interest in the municipal
obligation in the proportion that the Fund's participation interest bears to the
total principal amount of the municipal obligation. These instruments may have
fixed, floating or variable rates of interest. If the participation interest is
unrated, it will be backed by an irrevocable letter of credit or guarantee of a
bank that the Fund's Board has determined meet prescribed quality standards for
banks, or the payment obligation otherwise will be collateralized by U.S.
Government securities. For certain participation interests, the Fund will have
the right to demand payment, on not more than seven days' notice, for all or any
part of the Fund's participation interest in the municipal obligation, plus
accrued interest. As to these instruments, the Fund intends to exercise its
right to demand payment only upon a default under the terms of the municipal
obligation, as needed to provide liquidity to meet redemptions, or to maintain
or improve the quality of its investment portfolio. Municipal lease obligations
or installment purchase contract obligations (collectively, "lease obligations")
have special risks not ordinarily associated with municipal obligations.
Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a lease
obligation ordinarily is backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease obligations are secured by the
leased property, disposition of the property in the event of foreclosure might
prove difficult. The staff of the SEC currently considers certain lease
obligations to be illiquid. Determination as to the liquidity of such securities
is made in accordance with guidelines established by the Fund's Board. Pursuant
to such guidelines, the Board has directed Dreyfus to monitor carefully the
Fund's investment in such securities with particular regard to: (1) the
frequency of trades and quotes for the lease obligation; (2) the number of
dealers willing to purchase or sell the lease obligation and the number of other
potential buyers; (3) the willingness of dealers to undertake to make a market
in the lease obligation; (4) the nature of the marketplace trades, including the
time needed to dispose of the lease obligation, the method of soliciting offers
and the mechanics of transfer; and (5) such other factors concerning the trading
market for the lease obligation as Dreyfus may deem relevant. In addition, in
evaluating the liquidity and credit quality of a lease obligation that is
unrated, the Fund's Board has directed Dreyfus to consider: (a) whether the
lease can be cancelled; (b) what assurance there is that the assets represented
by the lease can be sold; (c) the strength of the lessee's general credit (e.g.,
its debt, administrative, economic, and financial characteristics); (d) the
likelihood that the municipality will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to the
operations of the municipality (e.g., the potential for an "event of
nonappropriation"); (e) the legal recourse in the event of failure to
appropriate; and (f) such other factors concerning credit quality as Dreyfus may
deem relevant.
TENDER OPTION BONDS. The Fund may purchase tender option bonds. A tender option
bond is a municipal obligation (generally held pursuant to a custodial
arrangement) having a relatively long maturity and bearing interest at a fixed
rate substantially higher than prevailing short-term tax exempt rates, that has
been coupled with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which such institution grants the
security holders the option, at periodic intervals, to tender their securities
to the institution and receive the face value thereof. As consideration for
providing the option, the financial institution receives periodic fees equal to
the difference between the municipal obligation's fixed coupon rate and the
rate, as determined by a remarketing or similar agent at or near the
commencement of such period, that would cause the securities, coupled with the
tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term tax exempt rate. Dreyfus, on
behalf of the Fund, will consider on an ongoing basis the creditworthiness of
the issuer of the underlying municipal obligations, of any custodian and of the
third party provider of the tender option. In certain instances and for certain
tender option bonds, the option may be terminable in the event of a default in
payment of principal or interest on the underlying municipal obligations and for
other reasons.
The Fund will purchase tender option bonds only when it is satisfied
that the custodial and tender option arrangements, including the fee payment
arrangements, will not adversely affect the tax exempt status of the underlying
municipal obligations and that payment of any tender fees will not have the
effect of creating taxable income for the Fund. Based on the tender option bond
agreement, the Fund expects to be able to value the tender option bond at par;
however, the value of the instrument will be monitored to assure that it is
valued at fair value.
CUSTODIAL RECEIPTS. The Fund may purchase custodial receipts representing the
right to receive certain future principal and interest payments on municipal
obligations which underlie the custodial receipts. A number of different
arrangements are possible. In a typical custodial receipt arrangement, an issuer
or a third party owner of municipal obligations deposits such obligations with a
custodian in exchange for two classes of custodial receipts. The two classes
have different characteristics, but, in each case, payments on the two classes
are based on payments received on the underlying municipal obligations. One
class has the characteristics of a typical auction rate security, where at
specified intervals its interest rate is adjusted, and ownership changes, based
on an auction mechanism. This class's interest rate generally is expected to be
below the coupon rate of the underlying municipal obligations and generally is
at a level comparable to that of municipal obligations of similar quality and
having a maturity equal to the period between interest rate adjustments. The
second class bears interest at a rate that exceeds the interest rate typically
borne by a security of comparable quality and maturity; this rate also is
adjusted, but in this case inversely to changes in the rate of interest of the
first class. In no event will the aggregate interest paid with respect to the
two classes exceed the interest paid by the underlying municipal obligations.
The value of the second class and similar securities should be expected to
fluctuate more than the value of a municipal obligation of comparable quality
and maturity and their purchase by the Fund should increase the volatility of
its net asset value and, thus, its price per share. These custodial receipts are
sold in private placements. The Fund also may purchase directly from issuers,
and not in a private placement, municipal obligations having characteristics
similar to custodial receipts. These securities may be issued as a part of a
multi-class offering and the interest rate on certain classes may be subject to
a cap or floor.
STAND-BY COMMITMENTS. The Fund may acquire "stand-by commitments" with respect
to municipal obligations held in its portfolio. Under a stand-by commitment, the
Fund obligates a broker, dealer or bank to repurchase, at the Fund's option,
specified securities at a specified price and, in this respect, stand-by
commitments are comparable to put options. The exercise of a stand-by
commitment, therefore, is subject to the ability of the seller to make payment
on demand. The Fund will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The Fund may pay for stand-by commitments if such action is
deemed necessary, thus increasing to a degree the cost of the underlying
municipal obligation and similarly decreasing such security's yield to
investors. Gains realized in connection with stand-by commitments will be
taxable. The Fund also may acquire call options on specific municipal
obligations. The Fund generally would purchase these call options to protect the
Fund from the issuer of the related municipal obligation redeeming, or other
holder of the call option from calling away, the municipal obligation before
maturity. The sale by the Fund of a call option that it owns on a specific
municipal obligation could result in the receipt of taxable income by the Fund.
RATINGS OF MUNICIPAL OBLIGATIONS. Under normal market conditions, at least 80%
of the value of the Fund's net assets will consist of municipal obligations
considered investment grade by Moody's, S&P or Fitch (the "Rating Agencies") in
the case of bonds, and in the two highest rating categories of a Rating Agency
in the case of short-term obligations having or deemed to have maturities of
less than one year. The Fund may invest the remainder of its net assets in
municipal obligations which, in the case of bonds, are considered below
investment grade by the Rating Agencies, including those rated no lower than C,
but it currently is the intention of the Fund to invest such remainder of its
assets primarily in bonds rated no lower than Ba by Moody's and BB by S&P and
Fitch. The Fund also may invest in securities which, while not rated, are
determined by Dreyfus to be of comparable quality to the rated securities in
which the Fund may invest; for purposes of the 80% requirement described in this
paragraph, such unrated securities will be considered to have the rating so
determined.
The average distribution of investments (at value) in municipal
obligations by ratings for the fiscal year ended November 30, 1998, computed on
a monthly basis, was as follows:
PERCENTAGE
FITCH or MOODY'S or S&P OF VALUE
AAA Aaa AAA 16.3%
AA Aa AA 11.9%
A A A 6.0%
BBB Baa BBB 24.8%
BB Ba BB 8.1%
B B B 1.8%
Not Rated Not Rated Not Rated 36.1%
-------
100.00%
=======
Subsequent to its purchase by the Fund, an issue of rated municipal
obligations may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require the sale of such
municipal obligations by the Fund, but Dreyfus will consider such event in
determining whether the Fund should continue to hold the municipal obligations.
To the extent that the ratings given by the Rating Agencies for municipal
obligations may change as a result of changes in such organizations or their
rating systems, the Fund will attempt to use comparable ratings as standards for
its investments in accordance with the investment policies contained in the
Prospectus and this Statement of Additional Information.
The ratings of the Rating Agencies represent their opinions as to the quality of
the municipal obligations which they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute standards
of quality. Although these ratings may be an initial criterion for selection of
portfolio investments, Dreyfus also will evaluate these securities and the
creditworthiness of the issuers of such securities.
ZERO COUPON SECURITIES. The Fund may invest in zero coupon securities
which are debt securities issued or sold at a discount from their face value
which do not entitle the holder to any periodic payment of interest prior to
maturity or a specified redemption date (or cash payment date). The amount of
the discount varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of the security and perceived
credit quality of the issuer. Zero coupon securities also may take the form of
debt securities that have been stripped of their unmatured interest coupons, the
coupons themselves and receipts or certificates representing interests in such
stripped debt obligations and coupons. The market prices of zero coupon
securities generally are more volatile than the market prices of securities that
pay interest periodically and are likely to respond to a greater degree to
changes in interest rates than non-zero coupon securities having similar
maturities and credit qualities. Federal income tax law requires the holder of a
zero coupon security or of certain pay-in-kind bonds to accrue income with
respect to these securities prior to the receipt of cash payments. To maintain
its qualification as a regulated investment company and avoid liability for
Federal income taxes, the Fund may be required to distribute such income accrued
with respect to these securities and may have to dispose of portfolio securities
under disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
TAXABLE INVESTMENTS. From time to time, on a temporary basis other
than for temporary defensive purposes (but not to exceed 20% of the value of the
Fund's net assets) or for temporary defensive purposes, the Fund may invest in
taxable short-term investments ("Taxable Investments") consisting of: notes of
issuers having, at the time of purchase, a quality rating within the two highest
grades of Moody's, S&P or Fitch; obligations of the U.S. Government, its
agencies or instrumentalities; commercial paper rated not lower than P-2 by
Moody's, A-2 by S&P or F-2 by Fitch; certificates of deposit of U.S. domestic
banks, including foreign branches of domestic banks, with assets of $1 billion
or more; time deposits; bankers' acceptances and other short-term bank
obligations; and repurchase agreements in respect of any of the foregoing.
Dividends paid by the Fund that are attributable to income earned by the Fund
from Taxable Investments will be taxable to investors. See "Taxation." Under
normal market conditions, the Fund anticipates that not more than 5% of the
value of its total assets will be invested in any one category of Taxable
Investments.
INVESTMENT TECHNIQUES
The following information supplements and should be read in
conjunction with the Fund's Prospectus. The Fund's use of certain of the
investment techniques described below may give rise to taxable income. The
Fund's ability to use some of these techniques, such as investing in futures,
engaging in options transactions and lending portfolio securities is limited as
a condition to S&P's rating shares of the Fund's Preferred Stock "AAA." See
"Rating Agency Guidelines."
LENDING PORTFOLIO SECURITIES. The Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to borrow
securities to complete certain transactions. The Fund continues to be entitled
to payments in amounts equal to the interest or other distributions payable on
the loaned securities, which affords the Fund an opportunity to earn interest on
the amount of the loan and on the loaned securities' collateral. Loans of
portfolio securities may not exceed 30% of the value of the Fund's total assets,
and the Fund will receive collateral consisting of cash, U.S. Government
securities or irrevocable letters of credit which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Such loans are terminable by the Fund at any time upon
specified notice. The Fund might experience risk of loss if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement with
the Fund. In connection with its securities lending transactions, the Fund may
return to the borrower or a third party which is unaffiliated with the Fund, and
which is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned. The rating agency
guidelines prohibit the Fund from lending portfolio securities. See "Rating
Agency Guidelines."
DERIVATIVES. The Fund may invest in, or enter into, derivatives, such
as options and futures, for a variety of reasons, including to hedge certain
market risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide a
cheaper, quicker or more specifically focused way for the Fund to invest than
"traditional" securities would. The rating agency guidelines for the Preferred
Stock limit the use of derivatives. See "Rating Agency Guidelines."
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular derivative and the
portfolio as a whole. Derivatives permit the Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities. However, derivatives may entail investment
exposures that are greater than their cost would suggest, meaning that a small
investment in derivatives could have a large potential impact on the Fund's
performance.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter derivatives.
Exchange-traded derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such derivatives. This guarantee usually
is supported by a daily payment system (i.e., variation margin requirements)
operated by the clearing agency in order to reduce overall credit risk. As a
result, unless the clearing agency defaults, there is relatively little
counterparty credit risk associated with derivatives purchased on an exchange.
By contrast, no clearing agency guarantees over-the-counter derivatives.
Therefore, each party to an over-the-counter derivative bears the risk that the
counterparty will default. Accordingly, Dreyfus will consider the
creditworthiness of counterparties to over-the-counter derivatives in the same
manner as it would review the credit quality of a security to be purchased by
the Fund. Over-the-counter derivatives are less liquid than exchange-traded
derivatives since the other party to the transaction may be the only investor
with sufficient understanding of the derivative to be interested in bidding for
it.
FUTURES TRANSACTIONS--IN GENERAL. The Fund may enter into futures contracts in
U.S. domestic markets, such as the Chicago Board of Trade. Engaging in these
transactions involves risk of loss to the Fund which could adversely affect the
value of the Fund's net assets. Although the Fund intends to purchase or sell
futures contracts only if there is an active market for such contracts, no
assurance can be given that a liquid market will exist for any particular
contract at any particular time. Many futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit or trading
may be suspended for specified periods during the trading day. Futures contract
prices could move to the limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions and
potentially subjecting the Fund to substantial losses.
Successful use of futures by the Fund also is subject to Dreyfus's
ability to predict correctly movements in the direction of the relevant market,
and, to the extent the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the securities being hedged and
the price movements of the futures contract. For example, if the Fund uses
futures to hedge against the possibility of a decline in the market value of
securities held in its portfolio and the prices of such securities instead
increase, the Fund will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. The Fund may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, the Fund may be required to segregate permissible
liquid assets to cover its obligations relating to its transactions in
derivatives. To maintain this required cover, the Fund may have to sell
portfolio securities at disadvantageous prices or times since it may not be
possible to liquidate a derivative position at a reasonable price. In addition,
the segregation of such assets will have the effect of limiting the Fund's
ability otherwise to invest those assets.
SPECIFIC FUTURES TRANSACTIONS. The Fund may purchase and sell interest
rate futures contracts. An interest rate future obligates the Fund to purchase
or sell an amount of a specific debt security at a future date at a specific
price.
OPTIONS--IN GENERAL. The Fund may purchase call and put options and may write
(i.e., sell) covered call and put option contracts. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, the
underlying security or securities at the exercise price at any time during the
option period, or at a specific date. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security or securities at the exercise price at any time during the
option period, or at a specific date.
A covered call option written by the Fund is a call option with
respect to which the Fund owns the underlying security or otherwise covers the
transaction by segregating cash or other securities. A put option written by the
Fund is covered when, among other things, the Fund segregates cash or liquid
securities having a value equal to or greater than the exercise price of the
option to fulfill the obligation undertaken. The principal reason for writing
covered call and put options is to realize, through the receipt of premiums, a
greater return than would be realized on the underlying securities alone. The
Fund receives a premium from writing covered call or put options which it
retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow, or other unforeseen events, at times have rendered
certain of the clearing facilities inadequate and resulted in the institution of
special procedures, such as trading rotations, restrictions on certain types of
orders or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Successful use by the Fund of options will be subject to Dreyfus's
ability to predict correctly movements in interest rates. To the extent
Dreyfus's predictions are incorrect, the Fund may incur losses.
FUTURE DEVELOPMENTS. The Fund may take advantage of opportunities in
the area of options and futures contracts and options on futures contracts and
any other derivatives which are not presently contemplated for use by the Fund
or which are not currently available but which may be developed, to the extent
such opportunities are both consistent with the Fund's investment objective and
legally permissible for the Fund. Before entering into such transactions or
making any such investment, the Fund will provide investors with appropriate
notice.
FORWARD COMMITMENTS. The Fund may purchase or sell municipal
obligations and other securities on a forward commitment, when-issued or delayed
delivery basis, which means that delivery and payment take place a number of
days after the date of the commitment to purchase. The payment obligation and
the interest rate receivable on a forward commitment or when-issued security are
fixed when the Fund enters into the commitment, but the Fund does not make
payment until it receives delivery from the counterparty. The Fund will commit
to purchase such securities only with the intention of actually acquiring the
securities, but the Fund may sell these securities before the settlement date if
it is deemed advisable. The Fund will segregate permissible liquid assets at
least equal at all times to the amount of the Fund's purchase commitments. No
additional purchase commitments will be made if more than 20% of the Fund's net
assets would be so committed.
Municipal obligations and other securities purchased on a forward
commitment or when-issued basis are subject to changes in value (generally
changing in the same way, i.e., appreciating when interest rates decline and
depreciating when interest rates rise) based upon the public's perception of the
creditworthiness of the issuer and changes, real or anticipated, in the level of
interest rates. Securities purchased on a when-issued basis may expose the Fund
to risks because they may experience such fluctuations before their actual
delivery. Purchasing securities on a forward commitment or when-issued basis can
involve the additional risk that the yield available in the market when the
delivery takes place actually may be higher than that obtained in the
transaction itself. Purchasing securities on a forward commitment or when-issued
basis when the Fund is fully or almost fully invested may result in greater
potential fluctuation in the value of the Fund's net assets and its net asset
value per share.
INVESTMENT CONSIDERATION AND RISKS
INVESTING IN MUNICIPAL OBLIGATIONS. The Fund may invest more than 25%
of the value of its total assets in municipal obligations which are related in
such a way that an economic, business or political development or change
affecting one such security also would affect the other securities; for example,
securities the interest upon which is paid from revenues of similar types of
projects, or securities whose issuers are located in the same state. As a
result, the Fund may be subject to greater risk as compared to a fund that does
not follow this practice.
Certain municipal lease/purchase obligations in which the Fund may
invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease/purchase obligations are secured by the leased
property, disposition of the leased property in the event of foreclosure might
prove difficult. In evaluating the credit quality of a municipal lease/purchase
obligation that is unrated, Dreyfus will consider, on an ongoing basis, a number
of factors including the likelihood that the issuing municipality will
discontinue appropriating funding for the leased property.
Certain provisions in the Internal Revenue Code relating to the
issuance of municipal obligations may reduce the volume of municipal obligations
qualifying for Federal tax exemption. One effect of these provisions could be to
increase the cost of the municipal obligations available for purchase by the
Fund and thus reduce available yield. Shareholders should consult their tax
advisers concerning the effect of these provisions on an investment in the Fund.
Proposals that may restrict or eliminate the income tax exemption for interest
on municipal obligations may be introduced in the future. If any such proposal
were enacted that would reduce the availability of municipal obligations for
investment by the Fund so as to adversely affect Fund shareholders, the Fund
would reevaluate its investment objective and policies and submit possible
changes in the Fund's structure to shareholders for their consideration. If
legislation were enacted that would treat a type of municipal obligation as
taxable, the Fund would treat such security as a permissible Taxable Investment
within the applicable limits set forth herein.
LOWER RATED BONDS. The Fund may invest up to 20% of its net assets in
higher yielding (and, therefore, higher risk) debt securities, such as those
rated below investment grade by the Rating Agencies (commonly known as junk
bonds). They may be subject to greater risks with respect to the issuing entity
and to greater market fluctuations than certain lower yielding, higher rated
municipal obligations. See "Appendix" for a general description of the Rating
Agencies' ratings of municipal obligations. Although ratings may be useful in
evaluating the safety of interest and principal payments, they do not evaluate
the market value risk of these bonds. The Fund will rely on Dreyfus's judgment,
analysis and experience in evaluating the creditworthiness of an issuer.
You should be aware that the market values of many of these bonds tend
to be more sensitive to economic conditions than are higher rated securities.
These bonds generally are considered by the Rating Agencies to be, on balance,
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation and generally will
involve more credit risk than securities in the higher rating categories.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold only
to a limited number of dealers or institutional investors. To the extent a
secondary trading market for these bonds does exist, it generally is not as
liquid as the secondary market for higher rated securities. The lack of a liquid
secondary market may have an adverse impact on market price and yield and the
Fund's ability to dispose of particular issues when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Fund to obtain accurate market quotations for purposes of valuing the Fund's
portfolio and calculating its net asset value. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of these securities. In such cases, judgment may play a
greater role in valuation because less reliable, objective data may be
available.
These bonds may be particularly susceptible to economic downturns. It
is likely that any economic recession would disrupt severely the market for such
securities and have an adverse impact on the value of such securities, and could
adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon which would increase the incidence of default
for such securities.
The Fund may acquire these bonds during an initial offering. Such
securities may involve special risks because they are new issues. The Fund has
no arrangement with any persons concerning the acquisition of such securities,
and Dreyfus will review carefully the credit and other characteristics pertinent
to such new issues.
The credit risk factors pertaining to lower rated securities also
apply to lower rated zero coupon bonds and pay-in-kind bonds, in which the Fund
may invest up to 5% of its net assets. Zero coupon securities and pay-in-kind or
delayed interest bonds carry an additional risk in that, unlike bonds which pay
interest throughout the period to maturity, the Fund will realize no cash until
the cash payment date unless a portion of such securities are sold and, if the
issuer defaults, the Fund may obtain no return at all on its investment. See
"Taxation."
SIMULTANEOUS INVESTMENTS. Investment decisions for the Fund are made
independently from those of other investment companies advised by Dreyfus. If,
however, such other investment companies desire to invest in, or dispose of, the
same securities as the Fund, available investments or opportunities for sales
will be allocated equitably to each investment company. In some cases, this
procedure may adversely affect the size of the position obtained for or disposed
of by the Fund or the price paid or received by the Fund.
INVESTMENT RESTRICTIONS
The Fund's investment objective, its policy to invest at least 80% of
its net assets in municipal obligations and the following investment
restrictions have been adopted by the Fund as fundamental policies that cannot
be changed without the affirmative vote of the holders of a majority (as defined
in the Investment Company Act) of the Fund's outstanding voting securities,
voting together as a single class and of the Fund's outstanding shares of
Preferred Stock and any other preferred stock, voting as a separate class. All
other investment policies or practices are considered by the Fund not to be
fundamental and accordingly may be changed without shareholder approval. For
purposes of the Investment Company Act, "majority" means (a) 67% or more of the
Fund's outstanding voting securities present at a meeting, if the holders of
more than 50% of the Fund's outstanding voting securities are present or
represented by proxy, or (b) more than 50% of the Fund's outstanding voting
securities, whichever is less. The Fund may not:
1. Purchase securities other than municipal obligations and Taxable
Investments or as provided in Investment Restriction Nos. 7 and 12 or otherwise
in the Fund's Prospectus.
2. Borrow money, except to the extent permitted under the Investment
Company Act. For purposes of this investment restriction, the entry into
options, futures contracts, including those relating to indexes, and options on
futures contracts or indexes shall not constitute borrowing.
3. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with writing covered put and call
options and the purchase of securities on a when-issued or delayed-delivery
basis and collateral and initial or variation margin arrangements with respect
to options, futures contracts, including those relating to indexes, and options
on futures contracts or indexes.
4. Sell securities short or purchase securities on margin, except for
such short-term credits as are necessary for the clearance of transactions, but
the Fund may make margin deposits in connection with transactions in options,
futures and options on futures.
5. Underwrite any issue of securities, except to the extent that the
sale of portfolio securities by the Fund may be deemed to be an underwriting.
6. Purchase, hold or deal in real estate or oil and gas interests, but
the Fund may purchase and sell securities that are secured by real estate or
interests therein.
7. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to indexes, and options on futures
contracts or indexes, as described in the Fund's Prospectus.
8. Lend any funds or other assets except through the purchase of all
or a portion of securities or obligations of the type in which the Fund may
invest; however, the Fund may lend its portfolio securities in an amount not to
exceed 30% of the value of its total assets. Any loans of portfolio securities
will be made according to guidelines established by the SEC and the Fund's Board
of Directors.
9. Issue any senior security (as such term is defined in Section 18(f)
of the Investment Company Act) other than preferred stock, except as permitted
in Investment Restriction Nos. 2, 3, 4 and 7.
10. Invest more than 5% of its assets in the securities of any one
issuer, except that up to 25% of the value of the Fund's total assets may be
invested, and securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities may be purchased, without regard to such
limitation.
11. Invest more than 25% of its total assets in the securities of
issuers in any single industry; provided that there shall be no such limitation
on the purchase of municipal obligations and obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
12. Purchase securities of other investment companies except (a) in
the open market where no commission except the ordinary broker's commission is
paid, which purchases are limited to a maximum of (i) 3% of the total voting
stock of any one investment company, (ii) 5% of the Fund's net assets with
respect to any one investment company and (iii) 10% of the Fund's net assets in
the aggregate, or (b) those received as part of a merger, sale of assets or
consolidation.
Notwithstanding Investment Restriction No. 11, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as an
"industry."
While not a fundamental policy, regulations of the Commodity Futures
Trading Commission currently restrict the sum of initial margin and option
premiums on commodity contracts to 5% of total assets. The regulations of the
Commodity Futures Trading Commission do not limit, and the Fund is not otherwise
limited in, the amount of variation margin the Fund may pay.
If a percentage restriction set forth above is adhered to at the time
an investment is made, a later change in percentage resulting from a change in
values or assets will not constitute a violation of such restriction.
RATING AGENCY GUIDELINES
S&P AAA Rating Guidelines. The Discounted Value of the Fund's S&P
Eligible Assets is calculated on each Valuation Date. See in the Prospectus
"Description of Preferred Stock--Asset Maintenance--Preferred Stock Basic
Maintenance Amount." S&P Eligible Assets include cash, Receivables for Municipal
Obligations Sold and municipal obligations eligible for consideration under
S&P's current guidelines. For purposes of calculating the Discounted Value of
the Fund's portfolio under current S&P guidelines, the fair market value of
municipal obligations eligible for consideration under such guidelines must be
discounted by the applicable S&P Discount Factor set forth in the table below.
The Discounted Value of a municipal obligation eligible for consideration under
S&P guidelines is the fair market value thereof divided by the S&P Discount
Factor. The S&P Discount Factor used to discount a particular municipal
obligation will be determined by reference to (a) the rating by S&P on such
municipal obligation and (b) the S&P Exposure Period. The S&P Exposure Period is
the maximum period of time following a Valuation Date, including the Valuation
Date and the Preferred Stock Basic Maintenance Cure Date, that the Fund has to
cure any failure to maintain, as of such Valuation Date, a Discounted Value for
its portfolio at least equal to the Preferred Stock Basic Maintenance Amount.
S&P Discount Factors applicable to municipal obligations for a range
of S&P Exposure Periods are set forth below:
<TABLE>
<CAPTION>
S&P Discount Factors Rating Category
Exposure Period AAA AA A BBB UNRATED*
<S> <C> <C> <C> <C> <C>
45 Business Days................................... 190% 195% 210% 250% 220%
25 Business Days................................... 170 175 190 230 220
10 Business Days................................... 155 160 175 215 220
7 Business Days.................................... 150 155 170 210 220
3 Business Days.................................... 130 135 150 190 220
- -----------------
* Eligible Assets not rated by S&P or rated less than BBB by S&P and not
rated at least the equivalent of an "A" rating by another Rating Agency.
</TABLE>
Since the S&P Exposure Period currently applicable to the Fund is
three Business Days, the S&P Discount Factors currently applicable to municipal
obligations eligible for consideration under S&P guidelines will be determined
by reference to the factors set forth opposite the exposure period line entitled
"3 Business Days." Notwithstanding the foregoing, (i) the S&P Discount Factor
for short-term municipal obligations will be 115%, so long as such municipal
obligations are rated A-1+ or SP-1+ by S&P and mature or have a demand feature
exercisable in 30 days or less, 120% if such Municipal Obligations are rated A-1
or SP-1 by S&P and mature or have a demand feature exercisable within 30 days or
less, or 125% if such municipal obligations are not rated by S&P but are rated
VMIG-1, P-1 or MIG-1 by Moody's; provided, however, such short-term municipal
obligations rated by Moody's but not rated by S&P having a demand feature
exercisable in 30 days or less must be backed by a letter of credit, liquidity
facility or guarantee from a bank or other financial institution having a
short-term rating of at least A-1+ from S&P; and further provided that such
short-term municipal obligations rated by Moody's but not rated by S&P may
comprise no more than 50% of short-term municipal obligations that qualify as
S&P Eligible Assets; (ii) no S&P Discount Factor will be applied to cash,
options or to Receivables for Municipal Obligations Sold; and (iii) except as
set forth in clause (i) above, in the case of any municipal obligation that is
not rated by S&P but qualifies as a S&P Eligible Asset pursuant to clause (1)(c)
of the following paragraph, such municipal obligation will be deemed to have a
S&P rating one full rating category lower than the S&P rating category that is
the equivalent of the rating category in which such municipal obligation is
placed by another Rating Agency. "Receivables for Municipal Obligations Sold,"
for purposes of calculating S&P Eligible Assets as of any Valuation Date, means
the book value of Receivables for Municipal Obligations Sold as of or before
such Valuation Date if the receivables are due within five Business Days of the
Valuation Date. For purposes of the foregoing, Anticipation Notes rated SP-1+
or, if not rated by S&P, rated VMIG-1 by Moody's, which do not mature or have a
demand feature exercisable in 30 days and which do not have a long-term rating,
will be considered to be short-term municipal obligations. In calculating the
Discounted Value of the Corporation's portfolion (1) the S&P Discount Factors
will be applied to futures and Inverse Floaters and (2) a Discount Factor of
388% will be applied to Municipal Obligations rated AAA by S&P which are not
interest bearing or do not pay interest at least semi-annually.
The S&P guidelines impose certain minimum issue size, issuer and
geographical diversification and other requirements for purposes of determining
S&P Eligible Assets:
(1) To be considered S&P Eligible Assets, municipal obligations
must:
(a) be interest bearing and pay interest at least
semi-annually;
(b) be payable with respect to principal and interest in
U.S. dollars;
(c) be publicly rated BBB or higher by S&P or (except in the
case of Anticipation Notes that are grant anticipation notes or
bond anticipation notes, which must be rated by S&P to be
included in S&P Eligible Assets), if not rated by S&P but rated
by another Rating Agency, be rated at least A by such agency;
(d) not be private placements (except in the case of inverse
floaters);
(e) not be subject to a covered call or covered put option
written by the Fund; and
(f) be part of an issue with an original issue size of at
least $20 million or, if of an issue with an original issue size
below $20 million (but in no event below $10 million), be issued
by an issuer with a total of at least $50 million of securities
outstanding.
(2) Municipal obligations (excluding escrow bonds described
below) of any one issuer or guarantor (excluding bond insurers) will
be considered S&P Eligible Assets only to the extent the fair market
value of such obligations does not exceed 10% of the aggregate fair
market value of the S&P Eligible Assets, provided that 2% is added to
the applicable S&P Discount Factor for every 1% by which the fair
market value of such municipal obligations exceeds 5% of the aggregate
fair market value of the S&P Eligible Assets, and provided that
municipal obligations (excluding escrow bonds) not rated or rated less
than BBB by S&P or not rated at least A by another Rating Agency with
respect to any one issuer or guarantor (excluding bond insurers) will
be considered S&P Eligible Assets only to the extent the fair market
value of such municipal obligations does not exceed 5% of the
aggregate fair market value of S&P Eligible Assets.
(3) Municipal obligations not rated at least BBB by S&P or not
rated by S&P, or not rated at least A by another Rating Agency, will
be considered S&P Eligible Assets only to the extent the fair market
value of such municipal obligations does not exceed 20% of the
aggregate fair market value of S&P Eligible Assets; provided however,
that if the fair market value of such municipal obligations exceeds
20% of the aggregate fair market value of S&P Eligible Assets, a
portion of such municipal obligations (selected by the Fund) will not
be considered S&P Eligible Assets, so that the fair market value of
such municipal obligations (excluding such portion) does not exceed
20% of the aggregate fair market value of S&P Eligible Assets.
(4) Municipal Obligations not rated at least BBB by S&P or not
rated by S&P, but rated at least A by another Rating Agency, will
be considered S&P Eligible Assets only to the extent the fair market
value of such Municipal Obligations does not exceed 50% of the
aggregate fair market value of S&P Eligible Assets; provided however,
that if the fair market value of such Municipal Obligations exceeds
50% of the aggregate fair market value of S&P Eligible Assets, a
portion of such Municipal Obligations (selected by the Fund) will not
be considered S&P Eligible Assets, so that the fair market value of
such Municipal Obligations (excluding such portion) does not exceed
50% of the aggregate fair market value of S&P Eligible Assets.
(5) Long-term municipal obligations (excluding escrow bonds)
issued by issuers in any one state or territory will be considered S&P
Eligible Assets only to the extent the fair market value of such
municipal obligations does not exceed 25% of the aggregate fair market
value of S&P Eligible Assets.
(6) Municipal obligations which are not interest bearing or do
not pay interest at least semi-annually will be considered S&P
Eligible Assets if rated AAA by S&P.
Escrow bonds (defeased bonds) may comprise 100% of the Fund's S&P
Eligible Assets. Escrow bonds are municipal obligations that (i) have been
determined to be legally defeased in accordance with S&P's legal defeasance
criteria, (ii) have been determined to be economically defeased in accordance
with S&P's economic defeasance criteria and assigned a rating of AAA by S&P,
(iii) are not rated by S&P but have been determined to be legally defeased by
Moody's, or (iv) have been determined to be economically defeased by Moody's and
assigned a rating no lower than the rating that is Moody's equivalent of S&P's
AAA rating.
Inverse floaters will qualify as S&P Eligible Assets provided that the
ratio of aggregate dollar amount of floating rate instruments to inverse
floating rate instruments issued by the same issuer does not exceed a ratio of
one-to-one at their time of original issuance. Leveraged inverse floaters will
not qualify as S&P Eligible Assets unless the leveraged bond has only one reset
remaining before its maturity.
The Fund may include municipal obligations as S&P Eligible Assets
pursuant to guidelines and restrictions to be established by S&P, provided that
S&P advises the Fund in writing that such action will not adversely affect its
then-current rating on the shares of Preferred Stock. As discussed herein, the
Fund may engage in options or futures transactions. For so long as any shares of
Preferred Stock are rated by S&P, the Fund will not purchase or sell financial
futures contracts, write, purchase or sell options on financial futures
contracts or write put options (except covered put options) or call options
(except covered call options) on portfolio securities unless it receives written
confirmation from S&P that engaging in such transactions will not impair the
ratings then assigned to the shares of Preferred Stock by S&P, except that the
Fund may purchase or sell financial futures contracts based on the Bond Buyer
Municipal Bond Index (the "Municipal Index") or United States Treasury Bonds or
Notes ("Treasury Bonds") and write, purchase or sell put and call options on
such contracts (collectively "S&P Hedging Transactions"), subject to the
following limitations:
(i) the Fund will not engage in any S&P Hedging Transaction based
on the Municipal Index (other than transactions that terminate a
financial futures contract or option held by the Fund by the Fund's
taking an opposite position thereto ("Closing Transactions")), that
would cause the Fund at the time of such transaction to own or have
sold the least of (A) more than 1,000 outstanding financial futures
contracts based on the Municipal Index, (B) outstanding financial
futures contracts based on the Municipal Index exceeding in number 25%
of the quotient of the fair market value of the Fund's total assets
divided by $1,000 or (C) outstanding financial futures contracts based
on the Municipal Index exceeding in number 10% of the average number
of daily traded financial futures contracts based on the Municipal
Index in the 30 days preceding the time of effecting such transaction
as reported by THE WALL STREET JOURNAL;
(ii) the Fund will not engage in any S&P Hedging Transaction
based on Treasury Bonds (other than Closing Transactions) that would
cause the Fund at the time of such transaction to own or have sold the
lesser of (A) outstanding financial futures contracts based on
Treasury Bonds and on the Municipal Index exceeding in number 25% of
the quotient of the fair market value of the Fund's total assets
divided by $100,000 ($200,000 in the case of the two-year United
States Treasury Note) or (B) outstanding financial futures contracts
based on Treasury Bonds exceeding in number 10% of the average number
of daily traded financial futures contracts based on Treasury Bonds in
the 30 days preceding the time of effecting such transaction as
reported by THE WALL STREET JOURNAL;
(iii) the Fund will engage in Closing Transactions to close out
any outstanding financial futures contract that the Fund owns or has
sold or any outstanding option thereon owned by the Fund in the event
(A) the Fund does not have S&P Eligible Assets with an aggregate
Discounted Value equal to or greater than the Preferred Stock Basic
Maintenance Amount on two consecutive Valuation Dates and (B) the Fund
is required to pay Variation Margin on the second such Valuation Date;
(iv) the Fund will engage in a Closing Transaction to close out
any outstanding financial futures contract or option thereon in the
month before the delivery month under the terms of such financial
futures contract or option thereon unless the Fund holds the
securities deliverable under such terms; and
(v) when the Fund writes a financial futures contract or an
option thereon, it will either segregate an amount of cash, cash
equivalents or high grade (rated A or better by S&P) fixed-income
securities that, together with the amount of Initial Margin and
Variation Margin held in the account of or on behalf of the Fund's
broker with respect to such financial futures contract or option,
equals the fair market value of the financial futures contract or
option, or, in the event the Fund writes a financial futures contract
or option thereon that requires delivery of an underlying security, it
will hold such underlying security in its portfolio.
For purposes of determining whether the Fund has S&P Eligible Assets
with a Discounted Value that equals or exceeds the Preferred Stock Basic
Maintenance Amount, the Discounted Value of cash or securities held for the
payment of Initial Margin or Variation Margin will be zero and the aggregate
Discounted Value of S&P Eligible Assets will be reduced by an amount equal to
(i) 30% of the aggregate settlement value, as marked to market, of any
outstanding financial futures contracts based on the Municipal Index that are
owned by the Fund plus (ii) 25% of the aggregate settlement value, as marked to
market, of any outstanding financial futures contracts based on Treasury Bonds
which contracts are owned by the Fund.
For so long as the shares of Preferred Stock are rated by S&P, the
Fund, unless it has received written confirmation from S&P that such action
would not impair the ratings then assigned to the shares of Preferred Stock by
S&P, will not (i) borrow money except for the purpose of clearing transactions
in portfolio securities (which borrowings under any circumstances will be
limited to the lesser of $10 million and an amount equal to 5% of the fair
market value of the Fund's assets at the time of such borrowings and which
borrowings will be repaid within 60 days and not be extended or renewed and will
not cause the aggregate Discounted Value of S&P Eligible Assets to be less than
the Preferred Stock Basic Maintenance Amount), (ii) engage in short sales of
securities, (iii) lend any securities, (iv) issue any class or series of stock
ranking prior to or on a parity with the shares of Preferred Stock with respect
to the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of the Fund, (v) reissue any shares of Preferred Stock
previously purchased or redeemed by the Fund, (vi) merge or consolidate into or
with any other corporation or entity, (vii) change the Fund's pricing service or
(vii) engage in reverse repurchase agreements.
For so long as the shares of Preferred Stock are rated by S&P, the
Fund will not purchase or sell financial futures contracts, write, purchase or
sell options on financial futures contracts or write put options (except covered
put options) or call options (except covered call options) on portfolio
securities unless it receives written confirmation from S&P that engaging in
such transactions will not impair the ratings then assigned to the shares of
Preferred Stock by S&P, except that the Fund may engage in S&P Hedging
Transactions subject to the limitations described herein.
<PAGE>
MANAGEMENT OF THE FUND
INVESTMENT ADVISER AND ADMINISTRATOR. Dreyfus serves as the Fund's
investment adviser and administrator. Dreyfus is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon").
Dreyfus provides investment management services pursuant to an
investment advisory agreement dated August 24, 1994 with the Fund (the
"Investment Advisory Agreement"), which is subject to annual approval by (i) the
Fund's Board or (ii) vote of a majority (as defined in the Investment Company
Act) of the outstanding voting securities of the Fund, provided that in either
event the continuance also is approved by a majority of the Board members who
are not "interested persons" (as defined in the Investment Company Act) of the
Fund or Dreyfus, by vote cast in person at a meeting called for the purpose of
voting on such approval. The Investment Advisory Agreement was approved by
shareholders on August 24, 1994, and was last approved by the Fund's Board,
including a majority of the Board members who are not "interested persons" of
any party to the Investment Advisory Agreement, at a meeting held on April 26,
1999. The Investment Advisory Agreement is terminable without penalty, on 60
days' notice, by the Fund's Board or by a vote of the holders of a majority of
the Fund's outstanding voting shares, or, upon not less than 90 days' notice, by
Dreyfus. The Investment Advisory Agreement will terminate automatically in the
event of its assignment (as defined in the Investment Company Act).
The following persons are officers and/or directors of Dreyfus:
Christopher M. Condron, Chairman of the Board and Chief Executive Officer;
Stephen E. Canter, President, Chief Operating Officer, Chief Investment Officer
and a director; Thomas F. Eggers, Vice Chairman--Institutional; Lawrence S.
Kash, Vice Chairman and a director; J. David Officer, Vice Chairman and a
director; Ronald P. O'Hanley III, Vice Chairman; William T. Sandalls, Jr.,
Executive Vice President; Mark N. Jacobs, Vice President, General Counsel and
Secretary; Diane P. Durnin, Vice President--Product Development; Patrice M.
Kozlowski, Vice President--Corporate Communications; Mary Beth Leibig, Vice
President--Human Resources; Andrew S. Wasser, Vice President--Information
Systems; Theodore A. Schachar, Vice President; Wendy Strutt, Vice President;
Richard Terres, Vice President; William H. Maresca, Controller; James Bitetto,
Assistant Secretary; Steven F. Newman, Assistant Secretary; and Mandell L.
Berman, Burton C. Borgelt, Steven G. Elliott, Martin C. McGuinn, Richard W. Sabo
and Richard F. Syron, directors.
Dreyfus manages the Fund's investments in accordance with the stated
policies of the Fund, subject to the approval of the Fund's Board. Dreyfus is
responsible for investment decisions, and provides the Fund with portfolio
managers who are authorized by the Board to execute purchases and sales of
securities. The Fund's portfolio managers are A. Paul Disdier, Joseph P. Darcy,
Richard J. Moynihan, Jill C. Shaffro, Samuel J. Weinstock and Monica S.
Wieboldt. Dreyfus also maintains a research department with a professional staff
of portfolio managers and securities analysts who provide research services for
the Fund as well as for other funds advised by Dreyfus.
Dreyfus serves as the Fund's administrator pursuant to an
administration agreement with the Fund dated November 1, 1995 (the
"Administration Agreement"), pursuant to which Dreyfus, subject to the overall
authority of the Fund's Board of Directors in accordance with Maryland law,
generally assists in all aspects of the Fund's administration and operation.
Among other things, Dreyfus provides to the Fund statistical and research data,
clerical help and accounting, data processing, bookkeeping, internal auditing
and certain other services (including calculation of the net asset value of the
Fund's shares) required by the Fund, prepares reports to shareholders of the
Fund's common stock and prepares tax returns and reports to and filings with the
SEC and state Blue Sky authorities. Dreyfus bears all expenses in connection
with the performance of these services.
The Administration Agreement continues in effect from year to year so
long as such continuance is approved at least annually by the Fund's Board. The
Administration Agreement is terminable without penalty, on 60 days' notice, by
the Fund's Board, by a vote of the holders of a majority of the Fund's
outstanding voting shares or by Dreyfus. The Administration Agreement will
terminate automatically in the event of its assignment. The Administration
Agreement provides that, in the absence of willful misfeasance, bad faith or
gross negligence of Dreyfus's obligations or duties to the Fund under such
Agreement, Dreyfus will not be liable to the Fund for any loss incurred.
EXPENSES. All expenses incurred in the operation of the Fund are borne
by the Fund, except to the extent specifically assumed by Dreyfus. The expenses
borne by the Fund include: taxes, interest, loan commitment fees, interest and
distributions paid on securities sold short, brokerage fees and commissions, if
any, and other expenses in any way related to the execution, recording and
settlement of portfolio securities transactions, fees of Board members who are
not officers, directors, employees or holders of 5% or more of the outstanding
voting securities of Dreyfus, SEC fees, state Blue Sky qualification fees,
advisory and administration fees, charges of custodians, transfer and dividend
disbursing agents' fees, certain insurance premiums, industry association fees,
outside auditing and legal expenses, expenses of listing, and maintaining the
listing of, the Fund's common stock on any stock exchange, costs incurred in the
offering of any preferred stock of the Fund, costs of independent pricing
services, costs of maintaining the Fund's corporate existence, expenses of
reacquiring shares of common stock and/or any preferred stock of the Fund,
expenses in connection with the Fund's Dividend Reinvestment Plan, costs of
maintaining the required books and accounts, costs attributable to investor
services (including, without limitation, telephone and personnel expenses),
costs of shareholders' reports and meetings, costs of preparing, printing and
mailing share certificates, proxy statements and prospectuses, and any
extraordinary expenses.
Dreyfus maintains office facilities on behalf of the Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. Dreyfus also may make such advertising and promotional
expenditures, using its own resources, as it from time to time deemed
appropriate.
As compensation for Dreyfus's services under the Investment Advisory
Agreement, the Fund has agreed to pay Dreyfus a monthly fee at the annual rate
of 0.50% of the value of the Fund's average weekly net assets. For the fiscal
years ended November 30, 1996, 1997 and 1998, the investment advisory fees
payable by the Fund amounted to $2,161,268, $2,200,532, and $2,257,767,
respectively. The Fund has agreed to pay Dreyfus, Boston Safe Deposit and Trust
Company and First Data Investor Services Group, Inc. for administration, custody
and transfer agency services, respectively, a monthly fee at the aggregate
annual rate of 0.25% of the value of the Fund's average weekly net assets. For
the fiscal years ended November 30, 1996, 1997 and 1998, such fees payable by
the Fund amounted to $1,080,634, $1,100,266, and $1,128,883, respectively. All
fees and expenses are accrued and deducted before the declaration of dividends
to investors.
DIRECTORS AND OFFICERS. Directors and officers of the Fund, together
with information as to their principal business operations during at least the
last five years, are shown below.
<TABLE>
<CAPTION>
Principal Occupations
During the
Name, Address and Age Position with the Fund Past Five Years
- ----------------------- ------------------------ --------------------
<S> <C> <C>
Joseph S. DiMartino Chairman of the Since January 1995, he has been Chairman of the
200 Park Avenue Board Board of various funds in the Dreyfus Family of
New York, NY 10166 Funds. He also is a director of The Noel
Age: 55 Group, Inc., a venture capital company (for which,
from February 1995 until November 1997, he was
Chairman of the Board), Career Blazers, Inc.
(formerly, Staffing Resources, Inc.), a
temporary placement agency, HealthPlan
Services Corporation, a provider of marketing,
administrative and risk management services to
health and other benefit programs, Carlyle Industries,
Inc. (formerly, Belding Heminway Company, Inc.), a
button packager and distributor, and Century Business
Services, Inc. (formerly, International Alliances
Services, Inc.), a provider of various outsourcing
functions for small and medium sized companies. For
more than five years prior to January 1995, he was
President, a director and, until August 1994, Chief
Operating Officer of Dreyfus and Executive Vice President
and a director of Dreyfus Service Corporation, a
wholly-owned subsidiary of Dreyfus. From August 1994 until
December 31, 1994, he was a director of Mellon.
David W. Burke Director Board member of various funds in the Dreyfus Family of
Box 654 Funds. Chairman of the Broadcasting Board of Governors,
Eastham, MA 02642 an independent board within the United States Information
Age: 63 Agency, from August 1994 to November 1998. From August
1994 to December 1994, Mr. Burke was a consultant to
Dreyfus, and from October 1990 to August 1994, he was
Vice President and Chief Administrative Officer of Dreyfus.
From 1977 to 1990, Mr. Burke was involved in the
management of national television news, as Vice
President and Executive Vice President of ABC
News, and subsequently as President of CBS News.
Hodding Carter, III Director Since February 1998, he has been President and Chief
Knight Foundation Executive Officer of the John S. and James L. Knight
1 South Biscayne Boulevard Foundation. From 1985 to 1998, he was President and
Suite 3800 Chairman of MainStreet TV, a television production company.
Miami, FL 33131 From 1995 to 1998, he was Knight Professor of Public
Age: 63 Affairs Journalism at the University of Maryland. From 1980
to 1991 he was "OpEd" Columnist for The Wall Street
Journal. From 1985 to 1986, he was editor and chief
correspondent of "Capitol Journal," a weekly Public
Broadcasting System ("PBS") series on Congress. From 1981
to 1984, he was anchorman and chief correspondent for
PBS' "Inside Story," a regularly scheduled half-hour
critique of press performance. From 1977 to July 1,
1980, Mr. Carter served as Assistant Secretary of State
for Public Affairs and as Department of State spokesman.
Ehud Houminer Director Since July 1991, he has been Professor and Executive-in-
c/o Columbia Business Residence at the Columbia Business School, Columbia
School University. Since January 1996, he has been Principal of
Columbia University Lear, Yavitz, and Associates, a management
Uris Hall, Room 526 consultant firm. He also is a director of Avnet Inc. and
New York, NY 10027 SuperSol, Inc.
Age: 58
Richard C. Leone Director President of The Century Foundation (formerly, The
41 East 70th Street Twentieth Century Fund, Inc.), a tax exempt research
New York, NY 10021 foundation engaged in the studies of economic, foreign
Age: 58 policy and domestic issues. Mr. Leone also is a director
of Dynex, Inc. From April 1990 to March 1994, he was
Chairman, and from April 1988 to March 1994, a Commissioner
of The Port Authority of New York and New Jersey.
From January 1986 to January 1989, he was Managing Director of
Dillon, Reed & Co., Inc.
Hans C. Mautner Director Vice Chairman and a Director of Simon Property, Group,
305 East 47th Street Inc., a real estate investment company and also a Director
New York, NY 10017 of Cornerstone Properties. From 1977 to 1998, he was
Age: 61 Chairman, Trustee and Chief Executive Officer of Corporate
Property Investors, which merged into Simon Property
Group, Inc. in September 1998. Since January 1986,
he has been a Director of Julius Baer Investment
Management, Inc., a wholly-owned subsidiary of Julius
Baer Securities, Inc.
Robin A. Pringle Director Since March 1996, she has been President of the Boisi Family
621 South Plymouth Court Foundation, a private family foundation located
Chicago, IL 60605 in New York City devoted to youths and higher
Age: 35 education. Also, she has been Assistant
to the Chief Executive Officer of The Beacon Group,
LLC, a private equity firm and advisory
partnership. Since 1993, she has been Vice President, and
from March 1992 to October 1993, she was Executive
Director of One-to-One Partnership, Inc., a national
non-profit organization that seeks to promote
mentoring and economic empowerment for at-risk youths.
From June 1986 to February 1992, she was an investment
banker with Goldman, Sachs & Co.
John E. Zuccotti Director Since November 1996, he has been Chairman and Chief
One Liberty Plaza Executive Officer of World Financial Properties, Inc. Mr.
New York, NY 10006 Properties, Inc. Mr. Zuccotti also is a
Age: 61 Director of Starrett Housing Corporation, a construction,
development and management of real estate properties
corporation and Capstone Pharmacy Services, Inc. From
1990 to November 1996, he was President and Chief
Executive Officer of Olympia & York Companies (U.S.A.)
and a member of its Board of Directors since the inception
of the Board on July 27, 1993. From 1986 to 1990, he was a
partner in the law firm of Brown & Wood, and from 1978
to 1986, he was a partner in the law firm of Tufo &
Zuccotti. He was First Deputy Mayor of the City of New
York from December 1975 to June 1977, and Chairman of the
City Planning Commission for the City of New York
from 1973 to 1975.
Marie E. Connolly President and President, Chief Executive Officer, Chief Compliance
200 Park Avenue Treasurer Officer and a Director of Premier Mutual Fund
New York, NY 10166 Services, Inc., and Funds Distributor,
Age: 41 Inc., the ultimate parent of which is Boston
Institutional Group, Inc., and an officer of other investment
companies advised or administered by Dreyfus.
Margaret W. Chambers Vice President and Senior Vice President and General Counsel of Funds Distributor,
200 Park Avenue Secretary Inc., and an officer of other investment companies advised or
New York, NY 10166 administered by Dreyfus. From August 1996 to March 1998,
Age: 38 she was Vice President and Assistant General
Counsel for Loomis, Sayles & Company, L.P. From January
1986 to July 1996, she was an associate with the law firm of
Ropes & Gray.
Frederick C. Dey Vice President and Vice President, New Business Development of Funds Distributor,
60 State Street Assistant Treasurer Inc. since September 1994, and an officer of other investment
Boston, MA 02109 and Assistant Secretary companies advised or administered by Dreyfus.
Age: 37
Stephanie D. Pierce Vice President, Vice President of Premier Mutual Fund Services, Inc.
200 Park Avenue Assistant Secretary and and Funds Distributor, Inc., and an officer of other
New York, NY 10166 Assistant Treasurer investment companies advised or administered by
Age: 30 Dreyfus. From April 1997 to March 1998, she was employed as
a Relationship Manager with Citibank, N.A. From
August 1995 to April 1997, she was an Assistant Vice
President with Hudson Valley Bank, and from September
1990 to August 1995, she was Second Vice President with Chase
Manhattan Bank.
John P. Covino Vice President and Vice President and Treasury Group Manager of Treasury
60 State Street Assistant Treasurer Servicing and Administration of Funds Distributor, Inc.,
Boston, MA 02109 since December 1998, and an officer of other investment
Age: 35 companies advised or administered by Dreyfus. From December
1995 to November 1998, he was employed by Fidelity Investments
where he held multiple positions in their
Institutional Brokerage Group. Prior to joining
Fidelity, he was employed by SunGard Brokerage Systems.
Mary A. Nelson Vice President and Vice President of Premier Mutual Fund Services, Inc.
200 Park Avenue Assistant Treasurer and Funds Distributor, Inc., and an officer of other
New York, NY 10166 investment companies advised or administered by Dreyfus.
Age: 34 From September 1989 to July 1994, she was an Assistant
Vice President and Client Manager for The Boston Company, Inc.
George A. Rio Vice President and Executive Vice President and Client Service Director of Funds
60 State Street Assistant Treasurer Distributor, Inc., and an officer of other investment companies
Boston, MA 02109 advised or administered by Dreyfus. From June 1995 to March 1998,
Age: 43 he was Senior Vice President and Senior Key Account Manager
for Putnam Mutual Funds. From May 1994 to June 1995, he was
Director of Business Development for First Data
Corporation. From September 1983 to May 1994, he was
Senior Vice President and Manager of Client
Services and Director of Internal Audit at The Boston
Company, Inc.
Joseph F. Tower, III Vice President and Senior Vice President, Treasurer, Chief Financial Officer
200 Park Avenue Assistant Treasurer and a Director of Premier Mutual Fund Services, Inc. and
New York, NY 10166 Funds Distributor, Inc., and an officer of other
Age: 36 investment companies advised or
administered by Dreyfus. From July
1988 to August 1994, he was employed by
The Boston Company, Inc. where he held
various management positions in the
Corporate Finance and Treasury areas.
Douglas C. Conroy Vice President and Assistant Vice President of Funds Distributor, Inc.,
200 Park Avenue Assistant Secretary and an officer of other investment companies
New York, NY 10166 advused or Dreyfus. From April 1993 to January
Age: 29 1995, he was a Senior Fund Accountant for
Investors Bank & Trust Company.
Karen Jacoppo-Wood Vice President and Vice President and Senior Counsel of Funds Distributor,
60 State Street Assistant Secretary Inc., since February 1997, and an officer of
Boston, MA 02109 other investment companies advised or
Age: 32 administered by Dreyfus. From June
1994 to January 1996, she was
Manager of SEC Registration at
Scudder, Stevens & Clark, Inc. Prior to
June 1994, she was a senior paralegal at
The Boston Company Advisors, Inc.
Christopher J. Kelley Vice President and Vice President and Senior Associate General
200 Park Avenue Assistant Secretary Counsel of Premier Mutuakl Fund Services, Inc.
New York, NY 10166 and Funds Distributor, Inc., and an officer of other
Age: 33 investment companies advised or administered by
Dreyfus. From April 1994 to July 1996, he was Assistant
Counsel at Forum Financial Group. From October 1992 to
March 1994, he was employed by Putnam Investments in legal
and compliance capacities.
Kathleen M. Morrissey Vice President and Vice President and Assistant Secretary of Funds Distributor,
200 Park Avenue Assistant Secretary Inc., and an officer of other investment companies advised or
New York, NY 10166 administered by Dreyfus. From July 1994 to November
Age: 26 1995, she was a Fund Accountant for Investors Bank &
Trust Company.
Elba Vasquez Vice President and Assistant Vice President of Funds Distributor, Inc., and an
200 Park Avenue Assistant Secretary officer of other investment companies advised or administered by
New York, NY 10166 Dreyfus. From March 1990 to May 1996, she was employed by
Age: 32 U.S. Trust Company of New York. As an officer of U.S.
Trust, she held various sales and marketing positions.
</TABLE>
The Fund has as audit committee comprised of its Board members who are
not "interested persons" (as defined in the Investment Company Act) of the Fund
(which currently is comprised of all of the Fund's Board members), the function
of which is to routinely review financial statements and other audit-related
matters as they arise throughout the year. The Fund has no standing nominating
or compensation committee or any committee performing similar functions. The
Fund typically pays the Directors an annual retainer and a per meeting fee and
reimburses them for their expenses. The Chairman of the Board receives an
additional 25% in annual retainer and per meeting fees. The Fund does not pay
any other remuneration to its Directors and officers and the Fund has no bonus,
pension, profit-sharing or retirement plan.
The aggregate amount of compensation paid to each Director by the Fund
for its fiscal year ended November 30, 1998, and the aggregate amount of
compensation paid to each such Director by all other funds in the Dreyfus Family
of Funds for which such Director is a Board member (the number of which is set
forth in parenthesis next to each Director's total compensation)* for the year
ended December 31, 1998, was as follows:
<TABLE>
<CAPTION>
Aggregate Total Compensation from
Compensation the Fund and Fund Complex
Name of Director and Fund from the Fund** Paid to Director
- ------------------------------------------------------ ----------------------- -----------------------------
<S> <C> <C>
Joseph S. DiMartino $7,500 $619,660 (187)
David W. Burke $6,000 $233,500 (62)
Hodding Carter III $4,500 $ 32,500 (7)
Ehud Houminer $6,000 $ 62,250 (21)
Richard C. Leone $5,500 $ 35,500 (7)
Hans C. Mautner $4,500 $ 29,500 (7)
Robin A. Pringle $5,500 $ 38,500 (7)
John E. Zuccotti $5,000 $ 32,500 (7)
</TABLE>
- -------------------
* Represents the number of separate portfolios comprising the investment
companies in the Fund Complex, including the Fund, for which the
Director is a Board member.
** Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $1,098 for all Directors as a group.
OWNERSHIP OF FUND SHARES
As of September 1, 1999, the Board members and officers of the Fund as
a group owned less than 1% of the outstanding shares of the Fund.
As of September 1, 1999, no shareholders owned of record 5% or more of
the outstanding shares of the Fund.
PORTFOLIO TRADING
Portfolio securities ordinarily are purchased from and sold to parties
acting as either principal or agent. Newly-issued securities ordinarily are
purchased directly from the issuer or from an underwriter; other purchases and
sales usually are placed with those dealers from which it appears that the best
price or execution will be obtained. Usually no brokerage commissions, as such,
are paid by the Fund for such purchases and sales, although the price paid
usually includes an undisclosed compensation to the dealer acting as agent. The
prices paid to underwriters of newly-issued securities usually include a
concession paid by the issuer to the underwriter, and purchases of after-market
securities from dealers ordinarily are executed at a price between the bid and
asked price.
Transactions are allocated to various dealers by the Fund's portfolio
managers in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected for research, statistical or
other services to enable Dreyfus to supplement its own research and analysis
with the views and information of other securities firms, and also may be
selected based upon their sales of shares of funds advised by Dreyfus or its
affiliates.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by Dreyfus in advising other funds it
advises and, conversely, research services furnished to Dreyfus by brokers in
connection with other funds Dreyfus advises may be used by Dreyfus in advising
the Fund. Although it is not possible to place a dollar value on these services,
it is Dreyfus's opinion that the receipt and study of such services should not
reduce the expenses of its research department.
Generally, the Fund will not purchase securities for short-term
trading profits. However, the Fund may dispose of securities without regard to
the time they have been held when such actions, for defensive or other reasons,
appear advisable to Dreyfus. (The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities for the
particular fiscal year by the monthly average of the value of the portfolio
securities owned by the Fund during the particular fiscal year. For purposes of
determining this rate, all securities whose maturities at the time of
acquisition are one year or less are excluded.) The annual rate of the Fund's
total portfolio turnover for the years ended November 30, 1998, 1997 and 1996,
was 6.33%, 2.95% and 13.47%, respectively.
The Fund paid no brokerage commissions during the fiscal years ended
November 30, 1998, 1997, and 1996.
REPURCHASE OF SHARES
So long as any shares of the Fund's preferred stock are outstanding,
the Fund may not purchase, redeem or otherwise acquire any shares of its common
stock unless (i) all accrued preferred stock dividends have been paid and (ii)
at the time of such purchase, redemption or acquisition, the net asset value of
the Fund's portfolio (determined after deducting the acquisition price of the
common stock) is at least 200% of the liquidation value of the outstanding
preferred stock (expected to equal the original purchase price per share plus
any accrued and unpaid dividends thereon).
Subject to its investment limitations, the Fund may borrow to finance
the repurchase of its shares. Interest on any borrowing to finance share
repurchase transactions or the accumulation of cash by the Fund in anticipation
of share repurchases or tenders will reduce the Fund's net income. Any share
repurchase or tender offer that might be approved by the Board of Directors
would have to comply with the Securities and Exchange Act of 1934 and the
Investment Company Act and the rules and regulations thereunder.
It is the Board's announced policy, which may be changed by the Board,
not to authorize repurchases of shares of the Fund's common stock or a tender
offer if (1) such purchases would (a) result in the delisting of the Fund's
common stock from the New York Stock Exchange or (b) impair the Fund's status as
a regulated investment company under the Internal Revenue Code (which would make
the Fund a taxable entity, causing the Fund's income to be taxed at the
corporate level in addition to the taxation of shareholders who receive
dividends or distributions from the Fund); (2) the Fund would not be able to
liquidate portfolio securities in a manner which is orderly and consistent with
the Fund's investment objective and policies in order to repurchase shares; or
(3) there is, in the Board's judgment, any (a) legal action or proceeding
instituted or threatened challenging such transactions or otherwise materially
adversely affecting the Fund, (b) suspension of or limitation on prices for
trading securities generally on the NYSE, (c) declaration of a banking
moratorium by Federal or state authorities or any suspension of payment by banks
in the United States or New York State in which the Fund invests, which is
material to the Fund, (d) limitation imposed by Federal or state authorities on
the extension of credit by lending institutions materially adversely affecting
the Fund, (e) commencement of war, armed hostilities or other international or
national calamity directly or indirectly involving the United States which is
material to the Fund, or (f) other event or condition which would have a
material adverse effect on the Fund or its remaining shareholders if shares were
repurchased. The Board of Directors may modify these conditions in light of
circumstances existing at the time.
The repurchase by the Fund of its shares of common stock at prices
below net asset value will result in an increase in the net asset value of those
shares that remain outstanding. However, there can be no assurance that share
repurchases or tenders at or below net asset value will result in the shares of
common stock trading at a price equal to their net asset value. Nevertheless,
the fact that the shares of common stock may be the subject of repurchase or
tender offers at net asset value from time to time, or that the Fund may be
converted to an open-end investment company, may reduce any spread between
market price and net asset value that might otherwise exist.
Before deciding whether to take any action in response to a discount
from net asset value, the Board would consider all relevant factors, including
the extent and duration of the discount, the liquidity of the Fund's portfolio,
the impact of any action that might be taken on the Fund or its shareholders,
and market considerations. Based on these considerations, even if shares of the
common stock should trade at a discount, the Board of Directors may determine
that, in the interest of the Fund and its shareholders, no action should be
taken.
TAXATION
The Fund has qualified and intends to continue to so qualify as a
registered investment company (RIC) under the Internal Revenue Code.
Accordingly, the Fund intends to satisfy certain requirements relating to
sources of its income and diversification of its assets and to distribute
substantially all of its net investment income (including tax-exempt income) and
net capital gains in accordance with the timing requirements imposed by the
Internal Revenue Code, so as to maintain its RIC status. By doing so, the Fund
will avoid any federal income tax on any income and gains it distributes to its
shareholders. If the Fund failed to qualify as a RIC for any taxable year, it
would be taxed on the full amount of its taxable income for that year without
being able to deduct the distributions it makes to its shareholders and the
shareholders would treat all distributions, including those that otherwise would
qualify as "exempt-interest dividends" (described below), as dividends (that is,
ordinary income) to the extent of the Fund's earnings and profits.
To avoid incurring a federal excise tax obligation, the Fund must
distribute (or be deemed to have distributed) each calendar year at least an
amount equal to the sum of (i) 98% of its ordinary income (not including
tax-exempt income) for that year, (ii) 98% of its capital gain net income (which
is the excess of its realized capital gains over its realized capital losses),
generally computed on the basis of the one-year period ending on November 30 of
that year, after reduction by any available capital loss carryforwards and (iii)
100% of certain other amounts.
The Fund's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. The Fund may be required to liquidate securities that it might
otherwise have continued to hold in order to generate cash to enable it to
distribute that income to Fund shareholders and thereby remain qualified for
treatment as a RIC and avoid imposition of the income and excise taxes described
above.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Internal Revenue Code. In order for the Fund to be able to pay
exempt-interest dividends, at least 50% of the Fund's total assets at the close
of each quarter of its taxable year must consist of obligations the interest on
which is exempt from regular federal income tax under Internal Revenue Code
Section 103(a). The portion of exempt-interest dividends attributable to
interest on certain municipal obligations is treated as a tax preference item
for purposes of the AMT. Furthermore, exempt-interest dividends are included in
determining what portion, if any, of a person's social security and railroad
retirement benefits will be includible in gross income subject to regular
federal income tax. Shareholders are required to report exempt-interest
dividends on their federal income tax returns.
The Fund will designate distributions made to holders of shares of
common stock and to holders of shares of preferred stock, including the shares
of Preferred Stock, in accordance with each class's proportionate share of each
item of Fund income (such as tax-exempt interest, net capital gains and other
taxable income).
A portion of exempt-interest dividends paid by the Fund will not be
tax-exempt to any shareholder who is a "substantial user" of the facilities
financed by tax-exempt obligations held by the Fund or "related persons" of such
substantial users.
Any recognized gain or other income attributable to market discount on
long-term tax-exempt municipal obligations (i.e., obligations with a term of
more than one year) other than, in general, at their original issue, is taxable
as ordinary income. Such an obligation generally is treated as acquired at a
market discount if purchased after its original issue at a price less than (i)
the stated principal amount payable at maturity, in the case of an obligation
that does not have original issue discount, or (ii) in the case of an obligation
that does have original issue discount, the sum of the issue price and any
original issue discount that accrued before the obligation was purchased,
subject to a de minimis exclusion.
Some of the Fund's investment practices are subject to special
provisions of the Internal Revenue Code that, among other things, may defer the
use of certain losses of the Fund and affect the holding period of the
securities held by the Fund and the character of the gains or losses realized by
the Fund. These provisions also may require the Fund to recognize income or gain
without receiving cash with which to make distributions in the amounts necessary
to satisfy the requirements for maintaining RIC status and for avoiding income
and excise taxes. The Fund will monitor its transactions and may make certain
tax elections in order to mitigate the effect of these rules and prevent
disqualification of the Fund as a RIC.
On a sale or exchange of shares of Preferred Stock, the holder will
recognize taxable gain or loss equal to the difference between the holder's
adjusted basis for the shares of Preferred Stock and the amount realized. Any
such gain or loss will be treated as capital gain or loss if the shares of
Preferred Stock are capital assets in the holder's hands and as long-term
capital gain or loss if the shares of Preferred Stock are held for more than one
year. Any loss realized on the sale or exchange of shares of Preferred Stock
held by a shareholder for six months or less will be disallowed to the extent
the shareholder has received exempt-interest dividends with respect to those
shares of Preferred Stock, and any such loss that exceeds the disallowed amount
will be treated as a long-term capital loss to the extent of any distribution of
net capital gain with respect to those shares of Preferred Stock. In addition, a
loss realized on a sale of shares of Preferred Stock will be disallowed to the
extent the shareholder acquires other shares of Preferred Stock within the
period beginning 30 days before, and ending 30 days after, the sale.
Taxable dividends (including capital gain dividends) payable by the
Fund to individuals and certain other non-corporate shareholders who have not
provided the Fund with their correct taxpayer identification number ("TIN") and
certain certifications required by the Internal Revenue Service ("IRS"), as well
as shareholders with respect to whom the Fund has received certain notifications
from the IRS are subject to "backup" withholding of federal income tax at a rate
of 31%. An individual's TIN is generally his or her social security number.
Taxable distributions to individuals and certain other non-corporate
shareholders, including those who have not provided their correct taxpayer
identification number and other required certifications, may be subject to
"backup" federal income tax withholding at the rate of 31%.
Investments in shares of Preferred Stock are not appropriate for
non-U.S. investors or as a Retirement Plan investment.
The exemption of interest income for federal income tax purposes does
not necessarily result in exemption under the income or other tax laws of any
state or local taxing authority. Shareholders of the Fund may be exempt from
state and local taxes on distributions of tax-exempt interest income derived
from obligations of the state and/or municipalities of the state in which they
are resident, but taxable generally on income derived from obligations of other
jurisdictions. The Fund will report annually to shareholders the percentages
representing the proportionate ratio of its net tax-exempt income earned in each
state.
The foregoing discussion does not address the special tax rules
applicable to certain classes of investors, such as non-U.S. investors,
insurance companies and financial institutions. Shareholders should consult
their own tax advisers with respect to special tax rules that may apply to their
particular situations, as well as the state or local tax consequences of
investing in the Fund and any proposed tax law changes.
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS. Ernst & Young LLP are the Fund's independent
auditors providing audit and tax return preparation services and assistance and
consultation in connection with the review of various SEC filings. The address
of Ernst & Young LLP is 787 Seventh Avenue, New York, New York 10019. The
financial statements for the year ended November 30, 1998 incorporated by
reference in this SAI have been so incorporated and the financial highlights
included in the Prospectus have been so included, in reliance upon the report of
Ernst & Young LLP given on their authority as experts in auditing and
accounting.
INCORPORATION BY REFERENCE. The Fund's Annual Report for the fiscal
year ended November 30, 1998 and Semi-Annual Report for the six-month period
ended May 31, 1999 (the "Reports"), which either accompany this SAI or have
previously been provided to the person to whom this SAI is being sent, are
incorporated herein by reference with respect to all information. The Fund will
furnish, without charge, a copy of the Reports upon written request to Dreyfus
Strategic Municipal Bond Fund, Inc., 200 Park Avenue, New York, New York 10166;
or upon phone request by calling (800) 334-6899.
<PAGE>
APPENDIX A
RATINGS OF MUNICIPAL OBLIGATIONS
Description of certain S&P, Moody's and Fitch ratings:
S&P
MUNICIPAL ISSUE RATINGS DEFINITIONS
An S&P issue credit rating is a current opinion of the creditworthiness of an
obligor with respect to a specific financial obligation, a specific class of
financial obligations, or a specific financial program. It takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation. The issue credit rating is not a
recommendation to purchase, sell, or hold a financial obligation, inasmuch as it
does not comment as to market price or suitability for a particular investor.
Issue credit ratings are based on current information furnished by the obligors
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any credit rating and may, on occasion, rely
on unaudited financial information. Credit ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
Issue credit ratings can be either long term or short term. Short-term ratings
are generally assigned to those obligations considered short term in the
relevant market. In the U.S., for example, that means obligations with an
original maturity of no more than 365 days--including commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an obligor
with respect to put features on long-term obligations. The result is a dual
rating, in which the short-term ratings address the put feature, in addition to
the usual long-term rating. Medium-term notes are assigned long-term ratings.
LONG-TERM ISSUE CREDIT RATINGS
Issue credit ratings are based in varying degrees, on the following
considerations:
o Likelihood of payment--capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;
o Nature of and provisions of the obligation; and
o Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk. As such,
they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above.
AAA
An obligation rated 'AAA' has the highest rating assigned by S&P. The obligor's
capacity to meet its financial commitment on the obligation is extremely strong.
AA
An obligation rated 'AA' differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A
An obligation rated 'A' is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB
An obligation rated 'BBB' exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC, AND C
Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB
An obligation rated 'BB' is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions, which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B
An obligation rated 'B' is more vulnerable to nonpayment than obligations rated
'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC
An obligation rated 'CCC' is currently vulnerable to nonpayment and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC
An obligation rated 'CC' is currently highly vulnerable to nonpayment.
C
The 'C' rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D
An obligation rated 'D' is in payment default. The 'D' rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-)
The ratings from 'AA' to 'CCC' may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
c
The 'c' subscript is used to provide additional information to investors that
the bank may terminate its obligation to purchase tendered bonds if the
long-term credit rating of the issuer is below an investment-grade level and/or
the issuer's bonds are deemed taxable.
p
The letter 'p' indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project financed by the debt being
rated and indicates that payment of debt service requirements is largely or
entirely dependent upon the successful, timely completion of the project. This
rating, however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of or the risk of default upon
failure of such completion. The investor should exercise his own judgment with
respect to such likelihood and risk.
*
Continuance of the ratings is contingent upon S&P receipt of an executed copy of
the escrow agreement or closing documentation confirming investments and cash
flows.
r
The 'r' highlights derivative, hybrid, and certain other obligations that S&P
believes may experience high volatility or high variability in expected returns
as a result of noncredit risks. Examples of such obligations are securities with
principal or interest return indexed to equities, commodities, or currencies;
certain swaps and options; and interest-only and principal-only mortgage
securities. The absence of an 'r' symbol should not be taken as an indication
that an obligation will exhibit no volatility or variability in total return.
N.R.
Not rated.
Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS
Under present commercial bank regulations issued by the Comptroller of the
Currency, bonds rated in the top four categories ('AAA', 'AA', 'A', 'BBB',
commonly known as investment-grade ratings) generally are regarded as eligible
for bank investment. Also, the laws of various states governing legal
investments impose certain rating or other standards for obligations eligible
for investment by savings banks, trust companies, insurance companies, and
fiduciaries in general.
SHORT-TERM ISSUE CREDIT RATINGS
NOTES
An S&P note ratings reflects the liquidity factors and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment:
o Amortization schedule--the larger the final maturity relative to other
maturities, the more likely it will be treated as a note; and
o Source of payment--the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.
Note rating symbols are as follows:
SP-1
Strong capacity to pay principal and interest. An issue determined to possess a
very strong capacity to pay debt service is given a plus (+) designation.
SP-2
Satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
SP-3
Speculative capacity to pay principal and interest.
ISSUER CREDIT RATING DEFINITIONS
An S&P Issuer Credit Rating is a current opinion of an obligor's overall
financial capacity (its creditworthiness) to pay its financial obligations. This
opinion focuses on the obligor's capacity and willingness to meet its financial
commitments as they come due It does not apply to any specific financial
obligation, as it does not take into account the nature of and provisions of the
obligation, its standing in bankruptcy or liquidation, statutory preferences, or
the legality and enforceability of the obligation. In addition, it does not take
into account the creditworthiness of the guarantors, insurers, or other forms of
credit enhancement on the obligation. The Issuer Credit Rating is not a
recommendation to purchase, sell or hold a financial obligation issued by an
obligor, as it does not comment on market price or suitability for a particular
investor.
CREDITWATCH AND RATING OUTLOOKS
An S&P rating evaluates default risk over the life of a debt issue,
incorporating an assessment of all future events to the extent they are known or
considered likely. But S&P also recognizes the potential for future performance
to differ from initial expectations. Rating outlooks and CreditWatch listings
address this possibility by focusing on the scenarios that could result in a
rating change.
CreditWatch highlights potential changes in ratings of bonds, short-term, and
other fixed-income securities. Issues appear on CreditWatch when an event or
deviation from an expected trend has occurred or is expected and additional
information is necessary to take a rating action. Such rating reviews normally
are completed within 90 days, unless the outcome of a specific event is pending.
A listing does not mean a rating change is inevitable. However, in some cases,
it is certain that a rating change will occur and only the magnitude of the
change is unclear.
Wherever possible, a range of alternative ratings that could result is shown.
CreditWatch is not intended to include all issues under review, and rating
changes will occur without the issue appearing on CreditWatch. An issuer cannot
automatically appeal a CreditWatch listing, but analysts are sensitive to issuer
concerns and the fairness of the process.
A rating outlook is assigned to all long-term debt issues--except for structured
finance--and also assesses potential for change. Outlooks have a longer time
frame than CreditWatch listings and incorporate trends or risks with less
certain implications for credit quality. An outlook is not necessarily a
precursor of a rating change or a CreditWatch listing.
CreditWatch designations and outlooks may be "positive," which indicates a
rating may be raised, or "negative," which indicates a rating may be lowered.
"Developing" is used for those unusual situations in which future events are so
unclear that the rating potentially may be raised or lowered. "Stable" is the
outlook assigned when ratings are not likely to be changed, but should not be
confused with expected stability of the company's financial performance.
COMMERCIAL PAPER
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from 'A' for the
highest-quality obligations to 'D' for the lowest. These categories are as
follows:
A-1
This designation indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2
Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
'A-1'.
A-3
Issues carrying this designation have an adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B
Issues rated 'B' are regarded as having only speculative capacity for timely
payment.
C
This rating is assigned to short-term debt obligations with a doubtful capacity
for payment.
D
Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments of principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
VARIABLE-RATE DEMAND BONDS
S&P assigns "dual" ratings to all debt issues that have a put option or demand
feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and interest
as due, and the second rating addresses only the demand feature. The long-term
debt rating symbols are used for bonds to denote the long-term maturity and the
commercial paper rating symbols for the put option (for example, 'AAA/A-1+').
With short-term demand debt, note rating symbols are used with the commercial
paper rating symbols (for example, 'SP-1+/A-1+').
Moody's
MUNICIPAL BOND RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
<PAGE>
B
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca
Bonds which are rated Ca present obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and in
the categories below B. The modifier 1 indicates a ranking for the security in
the higher end of a rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of a rating
category.
MUNICIPAL NOTE RATINGS
Moody's ratings for state municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand feature is
not rated, as NR. Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with no
or limited legal recourse to the issuer in the event the demand is not met.
Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's
assigns a MIG or VMIG rating, all categories define an investment grade
situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
COMMERCIAL PAPER RATING
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be evidenced
by leading market positions in well established industries, high rates of return
on funds employed, conservative capitalization structures with moderate reliance
on debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a wide range of financial markets and assured sources of alternative
liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Fitch
MUNICIPAL BOND RATINGS
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The ratings take
into consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if
not remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA category covering 12-36 months.
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+
EXCEPTIONALLY STRONG CREDIT QUALITY. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
VERY STRONG CREDIT QUALITY. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2
GOOD CREDIT QUALITY. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
<PAGE>
APPENDIX B
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must
earn at various income brackets to produce after-tax yields equivalent to those
of tax-exempt bonds yielding from 4% to 6% under the regular federal income tax
law and tax rates applicable to individuals for 1999.
<TABLE>
<CAPTION>
Marginal A Federal Tax-Exempt Yield of:
Taxable Income* Income Tax 4.00% 4.50% 5.00% 5.50% 6.00%
SINGLE RETURN Joint Return Bracket Is Equitable to a Fully Taxable Yield of:
- ------------- ------------ ----------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Up to $25,750 Up to $43,050 15.00% 4.71% 5.29% 5.88% 6.47% 7.06%
$25,751 - $62,450 $43,051 - $104,050 28.00 5.56 6.25 6.94 7.64 8.33
$62,451 - $130,250 $104,051 - $158,550 31.00 5.80 6.52 7.25 7.97 8.70
$130,251 - $283,150 $158,551 - $283,150 36.00 6.25 7.03 7.81 8.59 9.38
Over $283,150 Over $283,150 39.60 6.62 7.45 8.28 9.11 9.93
</TABLE>
- ---------------
* Net amounts subject to federal personal income tax after deductions
and exemptions.
The above indicated federal income tax brackets do not take into
account the effect of a reduction in the deductibility of itemized deductions
for individual taxpayers with adjusted gross income in excess of $126,600. The
tax brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $126,600 and joint filers
with adjusted gross income in excess of $189,950. The effective tax brackets and
equivalent taxable yields of those taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield. No assurance can be given that the Fund will
achieve any specific tax-exempt yield. While it is expected that the Fund will
invest principally in obligations the interest from which is exempt from federal
income tax, other income received by the Fund may be taxable. The table does not
take into account state or local taxes, if any, payable on Fund distributions.
The interest earned on certain "private activity bonds," while exempt from
federal income tax, is treated as a tax preference item which could subject the
recipient to the federal alternative minimum tax ("AMT"). The illustrations
assume that the AMT is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax-equivalent yields
set forth above. Investors should consult their tax advisers for additional
information.
<PAGE>
APPENDIX C
SETTLEMENT PROCEDURES
The following summary of Settlement Procedures sets forth the
procedures expected to be followed in connection with the settlement of each
Auction and will be incorporated by reference in the Auction Agent Agreement and
each Broker-Dealer Agreement. Nothing contained in this Appendix C constitutes a
representation by the Fund that in each Auction each party referred to herein
actually will perform the procedures described herein to be performed by the
party. Capitalized terms used herein shall have the respective meanings
specified in the glossary of the Fund's Prospectus or Appendix D hereto, as the
case may be.
(a) On each Auction Date, the Auction Agent shall notify by telephone
or through the Auction Agent's Processing System the Broker-Dealers that
participated in the Auction held on such Auction Date and submitted an Order on
behalf of any Beneficial Owner or Potential Beneficial Owner of:
(i) the Applicable Rate fixed for the next succeeding Dividend
Period;
(ii) whether Sufficient Clearing Bids existed for the
determination of the Applicable Rate;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer")
submitted a Bid or a Sell Order on behalf of a Beneficial Owner, the number of
shares, if any, of shares of preferred stock to be sold by such Beneficial
Owner;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted
a Bid on behalf of a Potential Beneficial Owner, the number of shares, if any,
of shares of preferred stock to be purchased by such Potential Beneficial Owner;
(v) if the aggregate number of shares of preferred stock to be
sold by all Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid
or a Sell Order exceeds the aggregate number of shares of preferred stock to be
purchased by all Potential Beneficial Owners on whose behalf such Broker-Dealer
submitted a Bid, the name or names of one or more Buyer's Broker-Dealers (and
the name of the Agent Member, if any, of each such Buyer's Broker-Dealer)
acting for one or more purchasers of such excess number of shares of preferred
stock and the number of such shares to be purchased from one or more Beneficial
Owners on whose behalf such Broker-Dealer acted by one or more Potential
Beneficial Owners on whose behalf each of such Buyer's Broker-Dealers acted;
(vi) if the aggregate number of shares of preferred stock to be
purchased by all Potential Beneficial Owners on whose behalf such Broker-Dealer
submitted a Bid exceeds the aggregate number of shares of preferred stock to be
sold by all Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid
or a Sell Order, the name or names of one or more Seller's Broker-Dealers (and
the name of the Agent Member, if any, of each such Seller's Broker-Dealer)
acting for one or more sellers of such excess number of shares of preferred
stock and the number of such shares to be sold to one or more Potential
Beneficial Owners on whose behalf such Broker-Dealer acted by one or more
Beneficial Owners on whose behalf each of such Seller's Broker-Dealers acted;
and
(vii) the Auction Date of the next succeeding Auction with
respect to the shares of preferred stock.
(b) On each Auction Date, each Broker-Dealer that submitted an Order
on behalf of any Beneficial Owner or Potential Beneficial Owner shall:
(i) in the case of a Broker-Dealer that is a Buyer's
Broker-Dealer, instruct each Potential Beneficial Owner on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in part, to
instruct such Potential Beneficial Owner's Agent Member to pay to such
Broker-Dealer (or its Agent Member) through the Securities Depository the amount
necessary to purchase the number of shares of preferred stock to be purchased
pursuant to such Bid against receipt of such shares and advise such Potential
Beneficial Owner of the Applicable Rate for the next succeeding Dividend Period;
(ii) in the case of a Broker-Dealer that is a Seller's
Broker-Dealer, instruct each Beneficial Owner on whose behalf such Broker-Dealer
submitted a Sell Order that was accepted, in whole or in part, or a Bid that was
accepted, in whole or in part, to instruct such Beneficial Owner's Agent Member
to deliver to such Broker-Dealer (or its Agent Member) through the Securities
Depository the number of shares of preferred stock to be sold pursuant to such
Order against payment therefor and advise any such Beneficial Owner that will
continue to hold shares of preferred stock of the Applicable Rate for the next
succeeding Dividend Period;
(iii) advise each Beneficial Owner on whose behalf such
Broker-Dealer submitted a Hold Order of the Applicable Rate for the next
succeeding Dividend Period;
(iv) advise each Beneficial Owner on whose behalf such
Broker-Dealer submitted an Order of the Auction Date for the next succeeding
Auction; and
(v) advise each Potential Beneficial Owner on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in part, of the
Auction Date for the next succeeding Auction.
(c) On the basis of the information provided to it pursuant to (a)
above, each Broker-Dealer that submitted a Bid or a Sell Order on behalf of a
Potential Beneficial Owner or a Beneficial Owner shall, in such manner and at
such time or times as in its sole discretion it may determine, allocate any
funds received by it pursuant to (b)(i) above and any shares of preferred stock
received by it pursuant to (b)(ii) above among the Potential Beneficial Owners,
if any, on whose behalf such Broker-Dealer submitted Bids, the Beneficial
Owners, if any, on whose behalf such Broker-Dealer submitted Bids that were
accepted or Sell Orders, and any Broker-Dealer or Broker-Dealers identified to
it by the Auction Agent pursuant to (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Beneficial Owner and Beneficial Owner shall
instruct its Agent Member as provided in (b)(i) or (ii) above, as the case may
be;
(ii) each Seller's Broker-Dealer which is not an Agent Member of
the Securities Depository shall instruct its Agent Member to (A) pay through the
Securities Depository to the Agent Member of the Beneficial Owner delivering
shares to such Broker-Dealer pursuant to (b)(ii) above the amount necessary to
purchase such shares against receipt of such shares, and (B) deliver such shares
through the Securities Depository to a Buyer's Broker-Dealer (or its Agent
Member) identified to such Seller's Broker-Dealer pursuant to (a)(v) above
against payment therefor; and
(iii) each Buyer's Broker-Dealer which is not an Agent Member of
the Securities Depository shall instruct its Agent Member to (A) pay through the
Securities Depository to a Seller's Broker-Dealer (or its Agent Member)
identified pursuant to (a)(vi) above the amount necessary to purchase the shares
to be purchased pursuant to (b)(i) above against receipt of such shares, and (B)
deliver such shares through the Securities Depository to the Agent Member of the
purchaser thereof against payment therefor.
(e) On the day after the Auction Date:
(i) each Bidder's Agent Member referred to in (d)(i) above shall
instruct the Securities Depository to execute the transactions described in
(b)(i) or (ii) above, and the Securities Depository shall execute such
transactions;
(ii) each Seller's Broker-Dealer or its Agent Member shall
instruct the Securities Depository to execute the transactions described in
(d)(ii) above, and the Securities Depository shall execute such transactions;
and
(iii) each Buyer's Broker-Dealer or its Agent Member shall
instruct the Securities Depository to execute the transactions described in
(d)(iii) above, and the Securities Depository shall execute such transactions.
(f) If a Beneficial Owner selling shares of preferred stock in an
Auction fails to deliver such shares (by authorized book-entry), a Broker-Dealer
may deliver to the Potential Beneficial Owner on behalf of which it submitted a
Bid that was accepted a number of whole shares of preferred stock that is less
than the number of shares that otherwise was to be purchased by such Potential
Beneficial Owner. In such event, the number of shares of preferred stock to be
so delivered shall be determined solely by such Broker-Dealer. Delivery of such
lesser number of shares shall constitute good delivery. Notwithstanding the
foregoing terms of this paragraph (f), any delivery or non-delivery of shares
which shall represent any departure from the results of an Auction, as
determined by the Auction Agent, shall be of no effect unless and until the
Auction Agent shall have been notified of such delivery or non-delivery in
accordance with the provisions of the Auction Agent Agreement and the
Broker-Dealer Agreements.
<PAGE>
APPENDIX D
AUCTION PROCEDURES
The following procedures will be set forth in Article FIRST, paragraph
3 of the Fund's Articles Supplementary relating to the shares of Preferred Stock
and will be incorporated by reference in the Auction Agent Agreement and each
Broker-Dealer Agreement. The terms not defined below are defined in the
Prospectus, except that the term "Corporation" means the Fund. Nothing contained
in this Appendix D constitutes a representation by the Fund that in each Auction
each party referred to herein will actually perform the procedures described
herein to be performed by such party.
PARAGRAPH 3(a). CERTAIN DEFINITIONS.
As used in this Paragraph 3, the following terms shall have the
following meanings, unless the context otherwise requires:
(i) "Auction Date" shall mean the first Business Day preceding the
first day of a Dividend Period.
(ii) "Available Preferred Stock" shall have the meaning specified in
Paragraph 3(d)(i) below.
(iii) "Bid" shall have the meaning specified in Paragraph 3(b)(i)
below.
(iv) "Bidder" shall have the meaning specified in Paragraph 3(b)(i)
below.
(v) "Hold Order" shall have the meaning specified in Paragraph 3(b)(i)
below.
(vi) "Maximum Applicable Rate" for any Dividend Period will be the
Applicable Percentage of the Reference Rate. The Applicable Percentage will be
determined based on (i) the credit rating assigned on such date to such shares
by S&P (or if S&P shall not make such rating available, the equivalent of such
rating by a Substitute Rating Agency), and (ii) whether the Fund has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend that net capital gains or other taxable income
will be included in such dividend on shares of Preferred Stock as follows:
<TABLE>
<CAPTION>
APPLICABLE PERCENTAGE OF APPLICABLE PERCENTAGE OF
S&P CREDIT RATINGS REFERENCE RATE--NO NOTIFICATION REFERENCE RATE--NOTIFICATION
- ------------------- --------------------------------- -------------------------------
<S> <C> <C>
AA- or Higher 110% 150%
A- to A+ 125% 160%
BBB- to BBB+ 150% 250%
Below BBB- 200% 275%
</TABLE>
<PAGE>
The Corporation shall take all reasonable action necessary to enable
S&P to provide a rating for the shares of Preferred Stock. If S&P shall not make
such a rating available, PaineWebber Incorporated or its affiliates and
successors, after consultation with the Corporation, shall select a nationally
recognized statistical rating organization to act as a Substitute Rating Agency.
(vii) "Order" shall have the meaning specified in Paragraph 3(b)(i)
below.
(viii) "Preferred Stock" shall mean the shares of preferred stock
being auctioned pursuant to Paragraph 3.
(ix) "Sell Order" shall have the meaning specified in Paragraph
3(b)(i) below.
(x) "Submission Deadline" shall mean 1:00 p.m., New York City time, on
any Auction Date or such other time on any Auction Date as may be specified by
the Auction Agent from time to time as the time by which each Broker-Dealer must
submit to the Auction Agent in writing all Orders obtained by it for the Auction
to be conducted on such Auction Date.
(xi) "Submitted Bid" shall have the meaning specified in Paragraph
3(d)(i) below.
(xii) "Submitted Hold Order" shall have the meaning specified in
Paragraph 3(d)(i) below.
(xiii) "Submitted Order" shall have the meaning specified in Paragraph
3(d)(i) below.
(xiv) "Submitted Sell Order" shall have the meaning specified in
Paragraph 3(d)(i) below.
(xv) "Sufficient Clearing Bids" shall have the meaning specified in
Paragraph 3(d)(i) below.
(xvi) "Winning Bid Rate" shall have the meaning specified in Paragraph
3(d)(i) below.
PARAGRAPH 3(b). ORDERS BY BENEFICIAL OWNERS, POTENTIAL BENEFICIAL OWNERS,
EXISTING HOLDERS AND POTENTIAL HOLDERS.
(i) Unless otherwise permitted by the Corporation, Beneficial Owners
and Potential Beneficial Owners may only participate in Auctions through their
Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as Existing Holders in respect of shares
subject to Orders submitted or deemed submitted to them by Beneficial Owners and
as Potential Holders in respect of shares subject to Orders submitted to them by
Potential Beneficial Owners. A Broker-Dealer also may hold shares of Preferred
Stock in its own account as a Beneficial Owner. A Broker-Dealer may thus submit
Orders to the Auction Agent as a Beneficial Owner or a Potential Beneficial
Owner and therefore participate in an Auction as an Existing Holder or Potential
Holder on behalf of both itself and its customers. On or prior to the Submission
Deadline on each Auction Date:
(A) each Beneficial Owner may submit to its Broker-Dealer
information as to:
(1) the number of outstanding shares of Preferred Stock, if
any, held by such Beneficial Owner which such Beneficial Owner desires to
continue to hold without regard to the Applicable Rate for the next succeeding
Dividend Period;
(2) the number of outstanding shares of Preferred Stock, if
any, held by such Beneficial Owner which such Beneficial Owner desires to
continue to hold, provided that the Applicable Rate for the next succeeding
Dividend Period shall not be less than the rate per annum specified by such
Beneficial Owner; and/or
(3) the number of outstanding shares of Preferred Stock, if
any, held by such Beneficial Owner which such Beneficial Owner offers to sell
without regard to the Applicable Rate for the next succeeding Dividend Period;
and
(B) each Broker-Dealer, using a list of Potential Beneficial
Owners that shall be maintained in good faith for the purpose of conducting a
competitive Auction, shall contact Potential Beneficial Owners, including
persons that are not Beneficial Owners, on such list to determine the number of
outstanding shares of Preferred Stock, if any, which each such Potential
Beneficial Owner offers to purchase, provided that the Applicable Rate for the
next succeeding Dividend Period shall not be less than the rate per annum
specified by such Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this Paragraph 3(b)(i) is hereinafter
referred to as an "Order," and each Beneficial Owner and each Potential
Beneficial Owner placing an Order, including a Broker-Dealer acting in such
capacity for its own account, is hereinafter referred to as a "Bidder"; an Order
containing the information referred to in clause (A)(1) of this Paragraph
3(b)(i) is hereinafter referred to as a "Hold Order"; an Order containing the
information referred to in clause (A)(2) or (B) of this Paragraph 3(b)(i) is
hereinafter referred to as a "Bid"; and an Order containing the information
referred to in clause (A)(3) of this Paragraph 3(b)(i) is hereinafter referred
to as a "Sell Order." Inasmuch as a Broker-Dealer participates in an Auction as
an Existing Holder or a Potential Holder only to represent the interests of a
Beneficial Owner or Potential Beneficial Owner, whether it be its customers or
itself, all discussion herein relating to the consequences of an Auction for
Existing Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented.
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of outstanding shares of Preferred Stock
specified in such Bid if the Applicable Rate determined on such Auction Date
shall be less than the rate per annum specified in such Bid; or
(2) such number or a lesser number of outstanding shares of
Preferred Stock to be determined as set forth in Paragraph 3(e)(i)(D) if the
Applicable Rate determined on such Auction Date shall be equal to the rate per
annum specified therein; or
(3) a lesser number of outstanding shares of Preferred Stock
to be determined as set forth in Paragraph 3(e)(ii)(C) if such specified rate
per annum shall be higher than the Maximum Applicable Rate and Sufficient
Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of outstanding shares of Preferred Stock
specified in such Sell Order; or
(2) such number or a lesser number of outstanding shares of
Preferred Stock to be determined as set forth in Paragraph 3(e)(ii)(C) if
Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable
offer to purchase:
(1) the number of outstanding shares of Preferred Stock
specified in such Bid if the Applicable Rate determined on such Auction Date
shall be higher than the rate per annum specified in such Bid; or
(2) such number or a lesser number of outstanding shares of
Preferred Stock to be determined as set forth in Paragraph 3(e)(i)(E) if the
Applicable Rate determined on such Auction Date shall be equal to the rate per
annum specified therein.
PARAGRAPH 3(c). SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION
AGENT.
(i) Each Broker-Dealer shall submit in writing or through the Auction
Agent's Auction Processing System to the Auction Agent prior to the Submission
Deadline on each Auction Date all Orders obtained by such Broker-Dealer,
designating itself (unless otherwise permitted by the Corporation) as an
Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
shares subject to Orders submitted to it by Potential Beneficial Owners, and
specifying with respect to each Order:
(A) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Corporation);
(B) the aggregate number of outstanding shares of Preferred Stock
that are the subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of outstanding shares of Preferred Stock, if
any, subject to any Hold Order placed by such Existing Holder;
(2) the number of outstanding shares of Preferred Stock, if
any, subject to any Bid placed by such Existing Holder and the rate per annum
specified in such Bid; and
(3) the number of outstanding shares of Preferred Stock, if
any, subject to any Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate per
annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more than
three figures to the right of the decimal point, the Auction Agent shall round
such rate up to the next highest one-thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the outstanding shares of
Preferred Stock held by an Existing Holder are not submitted to the Auction
Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold
Order (in the case of an Auction relating to a Dividend Period which is not a
Special Dividend Period) and a Sell Order (in the case of an Auction relating to
a Special Dividend Period) to have been submitted on behalf of such Existing
Holder covering the number of outstanding shares of Preferred Stock held by such
Existing Holder and not subject to Orders submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering in
the aggregate more than the number of outstanding shares of Preferred Stock held
by such Existing Holder are submitted to the Auction Agent, such Orders shall be
considered valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder
shall be considered valid up to and including the number of outstanding shares
of Preferred Stock held by such Existing Holder; provided that if more than one
Hold Order is submitted on behalf of such Existing Holder and the number of
shares of Preferred Stock subject to such Hold Orders exceeds the number of
outstanding shares of Preferred Stock held by such Existing Holder, the number
of shares of Preferred Stock subject to each of such Hold Orders shall be
reduced pro rata so that such Hold Orders, in the aggregate, cover exactly the
number of outstanding shares of Preferred Stock held by such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall be
considered valid, in the ascending order of their respective rates per annum if
more than one Bid is submitted on behalf of such Existing Holder, up to and
including the excess of the number of outstanding shares of Preferred Stock held
by such Existing Holder over the number of shares of Preferred Stock subject to
any Hold Order referred to in Paragraph 3(c)(iv)(A) above (and if more than one
Bid submitted on behalf of such Existing Holder specifies the same rate per
annum and together they cover more than the remaining number of shares that can
be the subject of valid Bids after application of Paragraph 3(c)(iv)(A) above
and of the foregoing portion of this Paragraph 3(c)(iv)(B) to any Bid or Bids
specifying a lower rate or rates per annum, the number of shares subject to each
of such Bids shall be reduced pro rata so that such Bids, in the aggregate,
cover exactly such remaining number of shares); and the number of shares, if
any, subject to Bids not valid under this Paragraph 3(c)(iv)(B) shall be treated
as the subject of a Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid up to and including
the excess of the number of outstanding shares of Preferred Stock held by such
Existing Holder over the number of shares of Preferred Stock subject to Hold
Orders referred to in Paragraph 3(c)(iv)(A) and Bids referred to in Paragraph
3(c)(iv)(B); provided that if more than one Sell Order is submitted on behalf of
any Existing Holder and the number of shares of Preferred Stock subject to such
Sell Orders is greater than such excess, the number of shares of Preferred Stock
subject to each of such Sell Orders shall be reduced pro rata so that such Sell
Orders, in the aggregate, cover exactly the number of shares of Preferred Stock
equal to such excess.
(v) If more than one Bid is submitted on behalf of any Potential
Holder, each Bid submitted shall be a separate Bid with the rate per annum and
number of shares of Preferred Stock therein specified.
(vi) Any Order submitted by a Beneficial Owner or a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date shall be
irrevocable.
PARAGRAPH 3(d). DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID
RATE AND APPLICABLE RATE.
(i) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted to it by
the Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as
a "Submitted Order") and shall determine:
(A) the excess of the total number of outstanding shares of
Preferred Stock over the number of outstanding shares of Preferred Stock that
are the subject of Submitted Hold Orders (such excess being hereinafter referred
to as the "Available Preferred Stock");
(B) from the Submitted Orders whether the number of outstanding
shares of Preferred Stock that are the subject of Submitted Bids by Potential
Holders specifying one or more rates per annum equal to or lower than the
Maximum Applicable Rate exceeds or is equal to the sum of:
(1) the number of outstanding shares of Preferred Stock that
are the subject of Submitted Bids by Existing Holders specifying one or more
rates per annum higher than the Maximum Applicable Rate; and
(2) the number of outstanding shares of Preferred Stock that
are subject to Submitted Sell Orders (if such excess or such equality exists
(other than because the number of outstanding shares of Preferred Stock in
clauses (1) and (2) above are each zero because all of the outstanding shares of
Preferred Stock are the subject of Submitted Hold Orders), such Submitted Bids
by Potential Holders hereinafter being referred to collectively as "Sufficient
Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per annum
specified in the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying the
Winning Bid Rate and all other submitted Bids from Existing Holders specifying
lower rates per annum were rejected, thus entitling such Existing Holders to
continue to hold the shares of Preferred Stock that are the subject of such
Submitted Bids; and
(2) each Submitted Bid from Potential Holders specifying the
Winning Bid Rate and all other Submitted Bids from Potential Holders specifying
lower rates per annum were accepted, thus entitling the Potential Holders to
purchase the shares of Preferred Stock that are the subject of such Submitted
Bids, would result in the number of shares subject to all Submitted Bids
specifying the Winning Bid Rate or a lower rate per annum being at least equal
to the Available Preferred Stock.
(ii) Promptly after the Auction Agent has made the determinations
pursuant to Paragraph 3(d)(i), the Auction Agent shall advise the Corporation of
the Maximum Applicable Rate and, based on such determinations, the Applicable
Rate for the next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate
for the next succeeding Dividend Period shall be equal to the Winning Bid Rate;
<PAGE>
(B) if Sufficient Clearing Bids do not exist (other than because
all of the outstanding shares of Preferred Stock are the subject of Submitted
Hold Orders), that the Applicable Rate for the next succeeding Dividend Period
shall be equal to the Maximum Applicable Rate; or
(C) if all of the outstanding shares of Preferred Stock are the
subject of Submitted Hold Orders, that the Dividend Period next succeeding the
Auction automatically shall be the same length as the immediately preceding
Dividend Period, and the Applicable Rate for the next succeeding Dividend Period
shall be equal to 40% of the Reference Rate (or 60% of such rate if the Fund has
provided notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend that net capital gains or other taxable income
will be included in such dividend on shares of Preferred Stock) on the date of
the Auction.
PARAGRAPH 3(e). ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND
SUBMITTED SELL ORDERS AND ALLOCATION OF SHARES.
Based on the determinations made pursuant to Paragraph 3(d)(i), the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the
Auction Agent shall take such other action as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of Paragraph 3(e)(iii) and Paragraph 3(e)(iv), Submitted Bids and
Submitted Sell Orders shall be accepted or rejected in the following order of
priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be
accepted and the Submitted Bid of each of the Existing Holders specifying any
rate per annum that is higher than the Winning Bid Rate shall be accepted, thus
requiring each such Existing Holder to sell the outstanding shares of Preferred
Stock that are the subject of such Submitted Sell Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holder specifying
any rate per annum that is lower than the Winning Bid Rate shall be rejected,
thus entitling each such Existing Holder to continue to hold the outstanding
shares of Preferred Stock that are the subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders specifying
any rate per annum that is lower than the Winning Bid Rate shall be accepted;
(D) the Submitted Bid of each of the Existing Holders specifying
a rate per annum that is equal to the Winning Bid Rate shall be rejected, thus
entitling each such Existing Holder to continue to hold the outstanding shares
of Preferred Stock that are the subject of such Submitted Bid, unless the number
of outstanding shares of shares of Preferred Stock subject to all such Submitted
Bids shall be greater than the number of outstanding shares of Preferred Stock
("Remaining Shares") equal to the excess of the Available Preferred Stock over
the number of outstanding shares of Preferred Stock subject to Submitted Bids
described in Paragraph 3(e)(i)(B) and Paragraph 3(e)(i)(C), in which event the
Submitted Bids of each such Existing Holder shall be accepted, and each such
Existing Holder shall be required to sell outstanding shares of Preferred Stock,
but only in an amount equal to the difference between (1) the number of
outstanding shares of Preferred Stock then held by such Existing Holder subject
to such Submitted Bid and (2) the number of shares of Preferred Stock obtained
by multiplying (x) the number of Remaining Shares by (y) a fraction the
numerator of which shall be the number of outstanding shares of Preferred Stock
held by such Existing Holder subject to such Submitted Bid and the denominator
of which shall be the sum of the numbers of outstanding shares of Preferred
Stock subject to such Submitted Bids made by all such Existing Holders that
specified a rate per annum equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders specifying
a rate per annum that is equal to the Winning Bid Rate shall be accepted, but
only in an amount equal to the number of outstanding shares of Preferred Stock
obtained by multiplying (x) the difference between the Available Preferred Stock
and the number of outstanding shares of Preferred Stock subject to Submitted
Bids described in Paragraph 3(e)(i)(B), Paragraph 3(e)(i)(C) and Paragraph
3(e)(i)(D) by (y) a fraction the numerator of which shall be the number of
outstanding shares of Preferred Stock subject to such Submitted Bid and the
denominator of which shall be the sum of the number of outstanding shares of
Preferred Stock subject to such Submitted Bids made by all such Potential
Holders that specified rates per annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than
because all of the outstanding shares of Preferred Stock are subject to
Submitted Hold Orders), subject to the provisions of Paragraph 3(e)(iii),
Submitted Orders shall be accepted or rejected as follows in the following order
of priority and all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable Rate shall be
rejected, thus entitling such Existing Holder to continue to hold the
outstanding shares of Preferred Stock that are the subject of such Submitted
Bid;
(B) the Submitted Bid of each Potential Holder specifying any
rate per annum that is equal to or lower than the Maximum Applicable Rate shall
be accepted, thus requiring such Potential Holder to purchase the outstanding
shares of Preferred Stock that are the subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any
rate per annum that is higher than the Maximum Applicable Rate shall be accepted
and the Submitted Sell Orders of each Existing Holder shall be accepted, in both
cases only in an amount equal to the difference between (1) the number of
outstanding shares of Preferred Stock then held by such Existing Holder subject
to such Submitted Bid or Submitted Sell Order and (2) the number of shares of
Preferred Stock obtained by multiplying (x) the difference between the Available
Preferred Stock and the aggregate number of outstanding shares of Preferred
Stock subject to Submitted Bids described in Paragraph 3(e)(ii)(A) and Paragraph
3(e)(ii)(B) by (y) a fraction the numerator of which shall be the number of
outstanding shares of Preferred Stock held by such Existing Holder subject to
such Submitted Bid or Submitted Sell Order and the denominator of which shall be
the number of outstanding shares of Preferred Stock subject to all such
Submitted Bids and Submitted Sell Orders.
(iii) If, as a result of the procedures described in Paragraph 3(e)(i)
or Paragraph 3(e)(ii), any Existing Holder would be entitled or required to
sell, or any Potential Holder would be entitled or required to purchase, a
fraction of a share of Preferred Stock on any Auction Date, the Auction Agent
shall, in such manner as in its sole discretion it shall determine, round up or
down the number of shares of Preferred Stock to be purchased or sold by any
Existing Holder or Potential Holder on such Auction Date so that each
outstanding share of Preferred Stock purchased or sold by each Existing Holder
or Potential Holder on such Auction Date shall be a whole share of Preferred
Stock.
(iv) If, as a result of the procedures described in Paragraph 3(e)(i),
any Potential Holder would be entitled or required to purchase less than a whole
share of Preferred Stock on any Auction Date, the Auction Agent, in such manner
as in its sole discretion it shall determine, shall allocate shares of Preferred
Stock for purchase among Potential Holders so that only whole shares of
Preferred Stock are purchased on such Auction Date by any Potential Holder, even
if such allocation results in one or more of such Potential Holders not
purchasing any shares of Preferred Stock on such Auction Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell Orders
on behalf of Existing Holders or Potential Holders, the aggregate number of the
outstanding shares of Preferred Stock to be purchased and the aggregate number
of outstanding shares of Preferred Stock to be sold by such Potential Holders
and Existing Holders and, to the extent that such aggregate number of
outstanding shares to be purchased and such aggregate number of outstanding
shares to be sold differ, the Auction Agent shall determine to which other
Broker-Dealer or Broker-Dealers acting for one or more purchasers such
Broker-Dealer shall deliver, or from which other Broker-Dealer or Broker-Dealers
acting for one or more sellers such Broker-Dealer shall receive, as the case may
be, outstanding shares of Preferred Stock.
<PAGE>
PARAGRAPH 3(f). MISCELLANEOUS.
The Corporation may interpret the provisions of this Paragraph 3 to
resolve any inconsistency or ambiguity, remedy any formal defect or make any
other change or modification that does not substantially adversely affect the
rights of Beneficial Owners of shares of Preferred Stock. A Beneficial Owner or
an Existing Holder (A) may sell, transfer or otherwise dispose of shares of
Preferred Stock only pursuant to a Bid or Sell Order in accordance with the
procedures described in this Paragraph 3 or to or through a Broker-Dealer,
provided that in the case of all transfers other than pursuant to Auctions such
Beneficial Owner or Existing Holder, its Broker-Dealer, if applicable, or its
Agent Member advises the Auction Agent of such transfer and (B) except as
otherwise required by law, shall have the ownership of the shares of Preferred
Stock held by it maintained in book entry form by the Securities Depository in
the account of its Agent Member, which in turn will maintain records of such
Beneficial Owner's beneficial ownership. Neither the Corporation nor any
Affiliate shall submit an Order in any Auction. Any Beneficial Owner that is an
Affiliate shall not sell, transfer or otherwise dispose of shares of Preferred
Stock to any person other than the Corporation. All of the outstanding shares of
Preferred Stock of a series shall be represented by a single certificate
registered in the name of the nominee of the Securities Depository unless
otherwise required by law or unless there is no Securities Depository. If there
is no Securities Depository, at the Corporation's option and upon its receipt of
such documents as it deems appropriate, any shares of Preferred Stock may be
registered in the stock register in the name of the Beneficial Owner thereof and
such Beneficial Owner thereupon will be entitled to receive certificates
therefor and required to deliver certificates thereof or upon transfer or
exchange thereof.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS:
Included in Part A of the Registration Statement:
Financial Highlights for each of the 10 years ended November 30,
1998 and for the period from December 1, 1998 to May 31, 1999
Included in Part B of the Registration Statement:
Incorporated by reference to Registrant's most recent Semi-Annual
and Annual Reports to Shareholders dated May 31, 1999 and
November 30, 1998, respectively:
Portfolio of Investments, November 30, 1998 (audited) and May
31, 1999 (unaudited)
Statement of Net Assets, November 30, 1998 (audited) and May
31, 1999 (unaudited)
Statement of Operations for the year ended November 30, 1998
(audited) and for the period ended May 31, 1999 (unaudited)
Statement of Changes in Net Assets for the two years ended
November 30, 1998 (audited) and for the period ended May 31,
1999 (unaudited)
(2) EXHIBITS:
a. Articles of Incorporation, as amended, including the
Articles Supplementary Establishing and Fixing the Rights
and Preferences of the Series A, Series B and Series C
Auction Preferred Stock
b. By-Laws
c. Not applicable
d.1 Form of Auction Agency Agreement, including form of
request and acceptance letter relating thereto
d.2 Form of Broker-Dealer Agreement, including form of
request and acceptance letter related thereto
d.3 Form of Letter of Representation to The Depository Trust
Company relating to the Series A, Series B and Series C
Auction Preferred Stock
e. Dividend Reinvestment Plan
f. Not applicable
g. Investment Advisory Agreement
h. Form of Underwriting Agreement
i. Not applicable
j. Custody Agreement
k. Administration Argeement
l. Opinion and consent of Stroock & Stroock & Lavan LLP
m. Not applicable
n. Consent of Ernst & Young LLP*
o. Not applicable
p. Not applicable
q. Not applicable
s. Power of Attorney
- --------------------------
* Previously filed.
ITEM 25. MARKETING ARRANGEMENTS
See Form of Underwriting Agreement to be filed by amendment.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the approximate expenses
incurred in connection with the offerings of Registrant:
Registration Fees. ......................................$ 51,708
Rating Agency Fees.......................................$ 30,000
Costs of Printing and Engraving .........................$ 20,000
Accounting Fees..........................................$ 10,000
Legal Fees...............................................$100,000
Total.......................................$201,708
- ----------------
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Not applicable.
<PAGE>
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
as of
July 14, 1999
Common Stock,
par value $0.001 per share 3,842
Auction Preferred Stock,
par value $0.001 per share -0-
ITEM 29. INDEMNIFICATION
Reference is made to Article SEVENTH of the Registrant's Articles of
Incorporation which are incorporated by reference to Exhibit 24(2)(a)
and to Section 2-418 of the Maryland General Corporation Law. The
application of these provisions is limited by Article VIII of the
Registrant's By-Laws, as amended, incorporated by reference to
Exhibit 24(2)(b), and by the following undertaking set forth in the
rules promulgated by the Securities and Exchange Commission:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in such Act and is, therefore,
unenforceable. In the event that a claim of indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in such Act and will be
governed by the final adjudication of such issue.
Reference is also made to the Underwriting Agreement which is
incorporated by reference to Exhibit 24(2)(h).
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
The Dreyfus Corporation ("Dreyfus") and subsidiary companies comprise
a financial service organization whose business consists primarily of
providing investment management services as the investment adviser and
manager for sponsored investment companies registered under the
Investment Company Act of 1940 and as an investment adviser to
institutional and individual accounts. Dreyfus also serves as sub-
investment adviser to and/or administrator of other investment
companies. Dreyfus Service Corporation, a wholly-owned subsidiary of
Dreyfus, serves primarily as a registered broker-dealer of shares of
investment companies sponsored by Dreyfus and of other investment
companies for which Dreyfus acts as investment adviser, sub-investment
adviser or administrator. Dreyfus Investment Advisors, Inc., another
wholly-owned subsidiary, provides investment management services to
various pension plans, institutions and individuals.
<TABLE>
<CAPTION>
Officers and Directors of Investment Adviser
<S> <C> <C> <C>
Name and Position
With Dreyfus Other Businesses Position Held Dates
Christopher M. Condron Franklin Portfolio Associates, LLC* Director 1/97 - Present
Chairman of the Board and
Chief Executive Officer
TBCAM Holdings, Inc.* Director 10/97 - Present
President 10/97 - 6/98
Chairman 10/97 - 6/98
The Boston Company Director 1/98 - Present
Asset Management, LLC* Chairman 1/98 - 6/98
President 1/98 - 6/98
The Boston Company President 9/95 - 1/98
Asset Management, Inc.* Chairman 4/95 - 1/98
Pareto Partners Partner Representative 11/95 - 5/97
271 Regent Street
London, England W1R 8PP
Franklin Portfolio Holdings, Inc.* Director 1/97 - Present
Certus Asset Advisors Corp.** Director 6/95 -Present
Mellon Capital Management Director 5/95 -Present
Corporation***
Mellon Bond Associates, LLP+ Executive Committee 1/98 - Present
Member
Mellon Bond Associates+ Trustee 5/95 -1/98
Mellon Equity Associates, LLP+ Executive Committee 1/98 - Present
Member
Mellon Equity Associates+ Trustee 5/95 - 1/98
Boston Safe Advisors, Inc.* Director 5/95 - Present
President 5/95 - Present
Mellon Bank, N.A. + Director 1/99 - Present
Chief Operating Officer 3/98 - Present
President 3/98 - Present
Vice Chairman 11/94 - 3/98
Mellon Bank Corporation+ Chief Operating Officer 1/99 - Present
President 1/99 - Present
Director 1/98 - Present
Vice Chairman 11/94 - 1/99
The Boston Company, Inc.* Vice Chairman 1/94 - Present
Director 5/93 - Present
Laurel Capital Advisors, LLP+ Exec. Committee 1/98 - 8/98
Member
Laurel Capital Advisors+ Trustee 10/93 - 1/98
Boston Safe Deposit and Trust Director 5/93 -Present
Company*
The Boston Company Financial President 6/89 - Present
Strategies, Inc. * Director 6/89 - Present
Mandell L. Berman Self-Employed Real Estate Consultant, 11/74 - Present
Director 29100 Northwestern Highway Residential Builder and
Suite 370 Private Investor
Southfield, MI 48034
Burton C. Borgelt DeVlieg Bullard, Inc. Director 1/93 - Present
Director 1 Gorham Island
Westport, CT 06880
Mellon Bank Corporation+ Director 6/91 - Present
Mellon Bank, N.A. + Director 6/91 - Present
Dentsply International, Inc. Director 2/81 - Present
570 West College Avenue
York, PA
Quill Corporation Director 3/93 - Present
Lincolnshire, IL
Stephen E. Canter Dreyfus Investment Chairman of the Board 1/97 - Present
President, Chief Operating Advisors, Inc.++ Director 5/95 - Present
Officer, Chief Investment President 5/95 - Present
Officer, and Director
Newton Management Limited Director 2/99 - Present
London, England
Mellon Bond Associates, LLP+ Executive Committee 1/99 - Present
Member
Mellon Equity Associates, LLP+ Executive Committee 1/99 - Present
Member
Franklin Portfolio Associates, LLC* Director 2/99 - Present
Franklin Portfolio Holdings, Inc.* Director 2/99 - Present
The Boston Company Asset Director 2/99 - Present
Management, LLC*
TBCAM Holdings, Inc.* Director 2/99 - Present
Mellon Capital Management Director 1/99 - Present
Corporation***
Founders Asset Management, LLC Member, Board of 12/97 - Present
2930 East Third Ave. Managers
Denver, CO 80206 Acting Chief Executive 7/98 - 12/98
Officer
The Dreyfus Trust Company+++ Director 6/ 95 - Present
Thomas F. Eggers Dreyfus Service Corporation++ Executive Vice President 4/96 - Present
Vice Chairman - Institutional Director 9/96 - Present
and Director
Founders Asset Management, LLC Member, Board of 2/99 - Present
2930 East Third Avenue Managers
Denver, CO 80206
Steven G. Elliott Mellon Bank Corporation+ Senior Vice Chairman 1/99 - Present
Director Chief Financial Officer 1/90 - Present
Vice Chairman 6/92 - 1/99
Treasurer 1/90 - 5/98
Mellon Bank, N.A.+ Senior Vice Chairman 3/98 - Present
Vice Chairman 6/92 - 3/98
Chief Financial Officer 1/90 - Present
Mellon EFT Services Corporation Director 10/98 - Present
Mellon Bank Center, 8th Floor
1735 Market Street
Philadelphia, PA 19103
Mellon Financial Services Director 1/96 - Present
Corporation #1 Vice President 1/96 - Present
Mellon Bank Center, 8th Floor
1735 Market Street
Philadelphia, PA 19103
Boston Group Holdings, Inc.* Vice President 5/93 - Present
APT Holdings Corporation Treasurer 12/87 - Present
Pike Creek Operations Center
4500 New Linden Hill Road
Wilmington, DE 19808
Allomon Corporation Director 12/87 - Present
Two Mellon Bank Center
Pittsburgh, PA 15259
Collection Services Corporation Controller 10/90 - 2/99
500 Grant Street Director 9/88 - 2/99
Pittsburgh, PA 15258 Vice President 9/88 - 2/99
Treasurer 9/88 - 2/99
Mellon Financial Company+ Principal Exec. Officer 1/88 - Present
Chief Financial Officer 8/87 - Present
Director 8/87 - Present
President 8/87 - Present
Mellon Overseas Investments Director 4/88 - Present
Corporation+ Chairman 7/89 - 11/97
President 4/88 - 11/97
Chief Executive Officer 4/88 - 11/97
Mellon International Investment Director 9/89 - 8/97
Corporation+
Mellon Financial Services Treasurer 12/87 - Present
Corporation # 5+
Mellon Financial Markets, Inc.+ Director 1/99 - Present
Mellon Financial Services Director 1/99 - Present
Corporation #17
Fort Lee, NJ
Mellon Mortgage Company Director 1/99 - Present
Houston, TX
Mellon Ventures, Inc. + Director 1/99 - Present
Lawrence S. Kash Dreyfus Investment Director 4/97 - Present
Vice Chairman Advisors, Inc.++
And Director
Dreyfus Brokerage Services, Inc. Chairman 11/97 - Present
401 North Maple Ave. Chief Executive Officer 11/97 - Present
Beverly Hills, CA
Dreyfus Service Corporation++ Director 1/95 - 2/99
President 9/96 - 3/99
Dreyfus Precious Metals, Inc.++ + Director 3/96 - 12/98
President 10/96 - 12/98
Dreyfus Service Director 12/94 - Present
Organization, Inc.++ President 1/97 - Present
Seven Six Seven Agency, Inc. ++ Director 1/97 - Present
Dreyfus Insurance Agency of Chairman 5/97 - Present
Massachusetts, Inc.++++ President 5/97 - Present
Director 5/97 - Present
The Dreyfus Trust Company+++ Chairman 1/97 - 1/99
President 2/97 - 1/99
Chief Executive Officer 2/97 - 1/99
Director 12/94 - Present
The Dreyfus Consumer Credit Chairman 5/97 - Present
Corporation++ President 5/97 - Present
Director 12/94 - Present
Founders Asset Management, LLC Member, Board of 12/97 - Present
2930 East Third Avenue Managers
Denver, CO. 80206
The Boston Company Advisors, Chairman 12/95 - Present
Inc. Chief Executive Officer 12/95 - Present
Wilmington, DE President 12/95 - Present
The Boston Company, Inc.* Director 5/93 - Present
President 5/93 - Present
Mellon Bank, N.A.+ Executive Vice President 6/92 - Present
Laurel Capital Advisors, LLP+ Chairman 1/98 - 8/98
Executive Committee 1/98 - 8/98
Member
Chief Executive Officer 1/98 - 8/98
President 1/98 - 8/98
Laurel Capital Advisors, Inc. + Trustee 12/91 - 1/98
Chairman 9/93 - 1/98
President and CEO 12/91 - 1/98
Boston Group Holdings, Inc.* Director 5/93 - Present
President 5/93 - Present
Martin G. McGuinn Mellon Bank Corporation+ Chairman 1/99 - Present
Director Chief Executive Officer 1/99 - Present
Director 1/98 - Present
Vice Chairman 1/90 - 1/99
Mellon Bank, N. A. + Chairman 3/98 - Present
Chief Executive Officer 3/98 - Present
Director 1/98 - Present
Vice Chairman 1/90 - 3/98
Mellon Leasing Corporation+ Vice Chairman 12/96 - Present
Mellon Bank (DE) National Director 4/89 - 12/98
Association
Wilmington, DE
Mellon Bank (MD) National Director 1/96 - 4/98
Association
Rockville, Maryland
Mellon Financial Vice President 9/86 - 10/97
Corporation (MD)
Rockville, Maryland
J. David Officer Dreyfus Service Corporation++ Executive Vice President 5/98 - Present
Vice Chairman Director 3/99 - Present
And Director
Dreyfus Insurance Agency of Director 5/98 - Present
Massachusetts, Inc.++++
Seven Six Seven Agency, Inc.++ Director 10/98 - Present
Mellon Residential Funding Corp. + Director 4/97 - Present
Mellon Trust of Florida, N.A. Director 8/97 - Present
2875 Northeast 191st Street
North Miami Beach, FL 33180
Mellon Bank, NA+ Executive Vice President 7/96 - Present
The Boston Company, Inc.* Vice Chairman 1/97 - Present
Director 7/96 - Present
Mellon Preferred Capital Director 11/96 - Present
Corporation*
RECO, Inc.* President 11/96 - Present
Director 11/96 - Present
The Boston Company Financial President 8/96 - Present
Services, Inc.* Director 8/96 - Present
Boston Safe Deposit and Trust Director 7/96 - Present
Company* President 7/96 - 1/99
Mellon Trust of New York Director 6/96 - Present
1301 Avenue of the Americas
New York, NY 10019
Mellon Trust of California Director 6/96 - Present
400 South Hope Street
Suite 400
Los Angeles, CA 90071
Mellon Bank, N.A.+ Executive Vice President 2/94 - Present
Mellon United National Bank Director 3/98 - Present
1399 SW 1st Ave., Suite 400
Miami, Florida
Boston Group Holdings, Inc.* Director 12/97 - Present
Dreyfus Financial Services Corp. + Director 9/96 - Present
Dreyfus Investment Services Director 4/96 - Present
Corporation+
Richard W. Sabo Founders Asset Management LLC President 12/98 - Present
Director 2930 East Third Avenue Chief Executive Officer 12/98 - Present
Denver, CO. 80206
Prudential Securities Senior Vice President 07/91 - 11/98
New York, NY Regional Director 07/91 - 11/98
Richard F. Syron American Stock Exchange Chairman 4/94 - Present
Director 86 Trinity Place Chief Executive Officer 4/94 - Present
New York, NY 10006
Ronald P. O'Hanley Franklin Portfolio Holdings, Inc.* Director 3/97 - Present
Vice Chairman
TBCAM Holdings, Inc.* Chairman 6/98 - Present
Director 10/97 - Present
The Boston Company Asset Chairman 6/98 - Present
Management, LLC* Director 1/98 - 6/98
The Boston Company Asset Director 2/97 - 12/97
Management, Inc. *
Boston Safe Advisors, Inc.* Chairman 6/97 - Present
Director 2/97 - Present
Pareto Partners Partner Representative 5/97 - Present
271 Regent Street
London, England W1R 8PP
Mellon Capital Management Director 5/97 -Present
Corporation***
Certus Asset Advisors Corp.** Director 2/97 - Present
Mellon Bond Associates+ Trustee 2/97 - Present
Chairman 2/97 - Present
Mellon Equity Associates+ Trustee 2/97 - Present
Chairman 2/97 - Present
Mellon-France Corporation+ Director 3/97 - Present
Laurel Capital Advisors+ Trustee 3/97 - Present
Mark N. Jacobs Dreyfus Investment Director 4/97 - Present
General Counsel, Advisors, Inc.++ Secretary 10/77 - 7/98
Vice President, and
Secretary The Dreyfus Trust Company+++ Director 3/96 - Present
The TruePenny Corporation++ President 10/98 - Present
Director 3/96 - Present
Dreyfus Service Director 3/97 - Present
Organization, Inc.++
William H. Maresca The Dreyfus Trust Company+++ Director 3/97 - Present
Controller
Dreyfus Service Corporation++ Chief Financial Officer 12/98 - Present
Dreyfus Consumer Credit Corp. ++ Treasurer 10/98 -Present
Dreyfus Investment Treasurer 10/98 - Present
Advisors, Inc. ++
Dreyfus-Lincoln, Inc. Vice President 10/98 - Present
4500 New Linden Hill Road
Wilmington, DE 19808
The TruePenny Corporation++ Vice President 10/98 - Present
Dreyfus Precious Metals, Inc. +++ Treasurer 10/98 - 12/98
The Trotwood Corporation++ Vice President 10/98 - Present
Trotwood Hunters Corporation++ Vice President 10/98 - Present
Trotwood Hunters Site A Corp. ++ Vice President 10/98 - Present
Dreyfus Transfer, Inc. Chief Financial Officer 5/98 - Present
One American Express Plaza,
Providence, RI 02903
Dreyfus Service Assistant Treasurer 3/93 - Present
Organization, Inc.++
Dreyfus Insurance Agency of Assistant Treasurer 5/98 - Present
Massachusetts, Inc.++++
William T. Sandalls, Jr. Dreyfus Transfer, Inc. Chairman 2/97 - Present
Executive Vice President One American Express Plaza,
Providence, RI 02903
Dreyfus Service Corporation++ Director 1/96 - Present
Executive Vice President 2/97 - Present
Chief Financial Officer 2/97-12/98
Dreyfus Investment Director 1/96 - Present
Advisors, Inc.++ Treasurer 1/96 - 10/98
Dreyfus-Lincoln, Inc. Director 12/96 - Present
4500 New Linden Hill Road President 1/97 - Present
Wilmington, DE 19808
Seven Six Seven Agency, Inc.++ Director 1/96 - 10/98
Treasurer 10/96 - 10/98
The Dreyfus Consumer Director 1/96 - Present
Credit Corp.++ Vice President 1/96 - Present
Treasurer 1/97 - 10/98
Dreyfus Partnership President 1/97 - 6/97
Management, Inc.++ Director 1/96 - 6/97
Dreyfus Service Organization, Director 1/96 - 6/97
Inc.++ Executive Vice President 1/96 - 6/97
Treasurer 10/96- Present
Dreyfus Insurance Agency of Director 5/97 - Present
Massachusetts, Inc.++++ Treasurer 5/97- Present
Executive Vice President 5/97 - Present
Diane P. Durnin Dreyfus Service Corporation++ Senior Vice President - 5/95 - 3/99
Vice President - Product Marketing and Advertising
Development Division
Patrice M. Kozlowski None
Vice President - Corporate
Communications
Mary Beth Leibig None
Vice President -
Human Resources
Theodore A. Schachar Dreyfus Service Corporation++ Vice President -Tax 10/96 - Present
Vice President - Tax
Dreyfus Investment Advisors, Inc.++ Vice President - Tax 10/96 - Present
Dreyfus Precious Metals, Inc. +++ Vice President - Tax 10/96 - 12/98
Dreyfus Service Organization, Inc.++ Vice President - Tax 10/96 - Present
Wendy Strutt None
Vice President
Richard Terres None
Vice President
Andrew S. Wasser Mellon Bank Corporation+ Vice President 1/95 - Present
Vice-President -
Information Systems
James Bitetto The TruePenny Corporation++ Secretary 9/98 - Present
Assistant Secretary
Dreyfus Service Corporation++ Assistant Secretary 8/98 - Present
Dreyfus Investment Assistant Secretary 7/98 - Present
Advisors, Inc.++
Dreyfus Service Assistant Secretary 7/98 - Present
Organization, Inc.++
Steven F. Newman Dreyfus Transfer, Inc. Vice President 2/97 - Present
Assistant Secretary One American Express Plaza Director 2/97 - Present
Providence, RI 02903 Secretary 2/97 - Present
Dreyfus Service Secretary 7/98 - Present
Organization, Inc.++ Assistant Secretary 5/98 - 7/98
_______________________________
* The address of the business so indicated is One Boston Place, Boston, Massachusetts, 02108.
** The address of the business so indicated is One Bush Street, Suite 450, San Francisco, California 94104.
*** The address of the business so indicated is 595 Market Street, Suite 3000, San Francisco, California 94105.
+ The address of the business so indicated is One Mellon Bank Center, Pittsburgh, Pennsylvania 15258.
++ The address of the business so indicated is 200 Park Avenue, New York, New York 10166.
+++ The address of the business so indicated is 144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144.
++++ The address of the business so indicated is 53 State Street, Boston, Massachusetts 02109.
</TABLE>
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
Accounts and records of the Fund are maintained at the offices
of The Dreyfus Corporation, 200 Park Avenue, New York, New
York 10166.
Boston Safe Deposit and Trust Company, located at One Boston
Place, Boston, Massachusetts 02108, maintains all records in
its capacity as Custodian for the Registrant's assets. First
Data Investor Services Group, Inc., a subsidiary of First
Data Corporation, located at One Exchange Place, Boston,
Massachusetts 02109, maintains all records required in its
capacity as the Registrant's Transfer Agent, Dividend-Paying
Agent and Registrar.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
(1) Registrant undertakes to suspend offering of its Auction Preferred
Stock until it amends its prospectus if (a) subsequent to the effective date of
its Registration Statement, the net asset value declines more than 10 percent
from its net asset value as of the effective date of the Registration Statement,
or (b) the net asset value increases to an amount greater than its net proceeds
as stated in the prospectus.
(2) Not applicable.
(3) Not applicable.
(4) Not applicable.
(5) (a) For purpose of determining any liability under the Securities
Act of 1933, as amended, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to Rule
497(h) under the Securities Act of 1933, shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(6) The registrant undertakes to send by first class mail or other
means designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, its Statement of Additional Information.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York, on the 20th day of
September, 1999.
DREYFUS STRATEGIC MUNICIPAL BOND FUND,
INC.
By: /s/ MARIE E. CONNOLLY*
------------------------------
Marie E. Connolly, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ MARIE E. CONNOLLY* President and Treasurer September 20, 1999
- ------------------------- (Principal Executive,
Marie E. Connolly Accounting and Financial
Officer
/s/ JOSEPH S. DIMARTINO* Chairman of the Board September 20, 1999
- -------------------------
Joseph S. DiMartino
/s/ DAVID W. BURKE* Board member September 20, 1999
- -------------------------
David W. Burke
/s/ HODDING CARTER, III* Board member September 20, 1999
- -------------------------
Hodding Carter, III
/s/ EHUD HOUMINER* Board member September 20, 1999
- -------------------------
Ehud Houminer
/s/ RICHARD C. LEONE* Board member September 20, 1999
- -------------------------
Richard C. Leone
/s/ HANS C. MAUTNER* Board member September 20, 1999
- -------------------------
Hans C. Mautner
/s/ ROBIN A. PRINGLE* Board member September 20, 1999
- -------------------------
Robin A. Pringle
/s/ JOHN E. ZUCCOTTI* Board member September 20, 1999
- -------------------------
John E. Zuccotti
*By: /s/ Stephanie D. Pierce
-------------------------
Stephanie D. Pierce
as attorney-in-fact
<PAGE>
FORM N-2/A
DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
EXHIBIT INDEX
EXHIBIT NUMBER DOCUMENT DESCRIPTION
(a) Certificate of Incorporation, as amended, including Articles
of Supplementary Establishing and Fixing the Rights and
Performance of the Series A, Series B and Service Auction
Preferred Stock
(b) By-Laws
(d) (1) Form of Auction Agent Agreements, including form of
request and acceptance letter related thereto
(2) Form of Broker-Dealer Agreement, including form of
request and acceptance letter related thereto
(3) Form of Letter of Representation to the Depository Trust
Company relating to the Series A, Series B and Series C
Auction Preferred Stock
(e) Dividend Reinvestment Plan
(g) Investment Advisory Agreement
(h) Form of Underwriting Agreement
(j) Custody Agreement
(k) Administration Agreement
(l) Opinion and Consent of Stroock & Stroock & Lavan LLP
(s) Power of Attorney
- ------------
EXHIBIT (A)
ARTICLES OF INCORPORATION
OF
DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
FIRST: The undersigned, Jonathan M. Petuchowski, whose address is
Seven Hanover Square, New York, New York 10004-2594, being at least eighteen
years of age, hereby forms a corporation under the Maryland General Corporation
Law.
SECOND: The name of the corporation (hereinafter called the
"corporation") is Dreyfus Strategic Municipal Bond Fund, Inc.
THIRD: The corporation is formed for the following purpose or
purposes:
(a) to conduct, operate and carry on the business of an
investment company;
(b) to subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, lend, write
options on, exchange, distribute or otherwise dispose of and deal in
and with securities of every nature, kind, character, type and form,
including without limitation of the generality of the foregoing, all
types of stocks, shares, futures contracts, bonds, debentures, notes,
bills and other negotiable or non-negotiable instruments, obligations,
evidences of interest, certificates of interest, certificates of
participation, certificates, interests, evidences of ownership,
guarantees, warrants, options or evidences of indebtedness issued or
created by or guaranteed as to principal and interest by any state or
local government or any agency or instrumentality thereof, by the
United States Government or any agency, instrumentality, territory,
district or possession thereof, by any foreign government or any
agency, instrumentality, territory, district or possession thereof, by
any corporation organized under the laws of any state, the United
States or any territory or possession thereof or under the laws of any
foreign country, bank certificates of deposit, bank time deposits,
bankers' acceptances and commercial paper; to pay for the same in cash
or by the issue of stock, including treasury stock, bonds or notes of
the corporation or otherwise; and to exercise any and all rights,
powers and privileges of ownership or interest in respect of any and
all such investments of every kind and description, including without
limitation, the right to consent and otherwise act with respect
thereto, with power to designate one or more persons, firms,
associations or corporations to exercise any of said rights, powers
and privileges in respect of any said instruments;
(c) to borrow money or otherwise obtain credit and to secure the
same by mortgaging, pledging or otherwise subjecting as security the
assets of the corporation;
(d) to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in,
shares of stock of the corporation, including shares of stock of the
corporation in fractional denominations, and to apply to any such
repurchase, redemption, retirement, cancellation or acquisition of
shares of stock of the corporation any funds or property of the
corporation whether capital or surplus or otherwise, to the full
extent now or hereafter permitted by the laws of the State of
Maryland;
(e) to conduct its business, promote its purposes and carry on
its operations in any and all of its branches and maintain offices
both within and without the State of Maryland, in any States of the
United States of America, in the District of Columbia and in any other
parts of the world; and
(f) to do all and everything necessary, suitable, convenient, or
proper for the conduct, promotion and attainment of any of the
businesses and purposes herein specified or which at any time may be
incidental thereto or may appear conducive to or expedient for the
accomplishment of any of such businesses and purposes and which might
be engaged in or carried on by a corporation incorporated or organized
under the Maryland General Corporation Law, and to have and exercise
all of the powers conferred by the laws of the State of Maryland upon
corporations incorporated or organized under the Maryland General
Corporation Law.
The foregoing provisions of this Article THIRD shall be construed both
as purposes and powers and each as an independent purpose and power. The
foregoing enumeration of specific purposes and powers shall not be held to limit
or restrict in any manner the purposes and powers of the corporation, and the
purposes and powers herein specified shall, except when otherwise provided in
this Article THIRD, be in no wise limited or restricted by reference to, or
inference from, the terms of any provision of this or any other Article of these
Articles of Incorporation; provided, that the corporation shall not conduct any
business, promote any purpose, or exercise any power or privilege within or
without the State of Maryland which, under the laws thereof, the corporation may
not lawfully conduct, promote, or exercise.
FOURTH: The post office address of the principal office of the
corporation within the State of Maryland, and of the resident agent of the
corporation within the State of Maryland, is The Corporation Trust Incorporated,
32 South Street, Baltimore, Maryland 21202.
FIFTH: (1) The total number of shares of stock which the corporation
has authority to issue is One Hundred and Ten Million (110,000,000), all of
which are of a par value of one tenth of one cent ($.001) each.
(2) The aggregate par value of all the authorized shares of stock is
One Hundred and Ten Thousand Dollars ($110,000).
(3) The board of directors of the corporation is authorized, from time
to time, to fix the price or the minimum price or the consideration or minimum
consideration for, and to issue, the shares of stock of the corporation.
(4) The board of directors of the corporation is authorized, from time
to time, to classify or to reclassify, as the case may be, any unissued shares
of stock of the corporation.
(5) Notwithstanding any provisions of the Maryland General Corporation
Law requiring a greater proportion than a majority of the votes of stockholders
entitled to be cast in order to take or authorize any action, any such action
may be taken or authorized upon the concurrence of a majority of the shares
entitled to vote on the subject matter, except as otherwise provided in these
Articles of Incorporation.
(6) The presence in person or by proxy of the holders of a majority of
the shares of stock of the corporation entitled to vote (without regard to
class) shall constitute a quorum at any meeting of the stockholders, except with
respect to any matter which, under applicable statutes or regulatory
requirements, requires approval by a separate vote of one or more classes of
stock, in which case the presence in person or by proxy of the holders of a
majority of the shares entitled to vote on the matter shall constitute a quorum.
(7) The corporation may issue shares of stock in fractional
denominations to the same extent as its whole shares, and shares in fractional
denominations shall be shares of stock having proportionately to the respective
fractions represented thereby all the rights of whole shares, including, without
limitation, the right to vote, the right to receive dividends and distributions
and the right to participate upon liquidation of the corporation, but excluding
the right to receive a stock certificate evidencing a fractional share.
(8) No holder of any shares of any class of the corporation shall be
entitled as of right to subscribe for, purchase, or otherwise acquire any shares
of any class which the corporation proposes to issue, or any rights or options
which the corporation proposes to issue or to grant for the purchase of shares
of any class or for the purchase of any shares, bonds, securities, or
obligations of the corporation which are convertible into or exchangeable for,
or which carry any rights to subscribe for, purchase, or otherwise acquire
shares of any class of the corporation; and any and all of such shares, bonds,
securities or obligations of the corporation, whether now or hereafter
authorized or created, may be issued, and may be reissued or transferred if the
same have been reacquired, and any and all of such rights and options may be
granted by the Board of Directors to such persons, firms, corporations and
associations, and for such lawful consideration, and on such terms, as the Board
of Directors in its discretion may determine, without first offering the same,
or any thereof, to any said holder.
SIXTH: (1) The number of directors of the corporation, until such
number shall be increased or decreased pursuant to the by-laws of the
corporation, is one. The number of directors shall never be less than the
minimum number prescribed by the Maryland General Corporation Law nor more than
twelve.
(2) The name of the person who shall act as director of the
corporation until the first annual meeting or until his successor is duly chosen
and qualifies is as follows:
Marc N. Jacobs
(3) Beginning with the first annual meeting of stockholders held after
the initial public offering of the shares of the corporation (the "initial
annual meeting"), the board of directors of the corporation shall be divided
into three classes: Class I, Class II and Class III. The term of office of one
class of directors elected at the initial annual meeting shall expire each year.
At the initial annual meeting, directors of Class I shall be elected to hold
office for a term expiring at the next succeeding annual meeting, directors of
Class II shall be elected to hold office for a term expiring at the second
succeeding annual meeting and directors of Class III shall be elected to hold
office for a term expiring at the third succeeding annual meeting. At each
subsequent annual meeting of stockholders, the directors chosen to succeed those
whose terms are expiring shall be identified as being of the same class as the
directors whom they succeed and shall be elected for a term expiring at the time
of the third succeeding annual meeting of stockholders, or thereafter in each
case when their respective successors are elected and qualified. If the number
of directors is changed, any increase or decrease shall be apportioned among the
classes by resolution of the board of directors so as to maintain the number of
directors in each class as nearly equal as possible, but in no case shall a
decrease in the number of directors shorten the term of any incumbent director.
(4) Any vacancy occurring in the board of directors may filled by a
majority of the directors in office. A new directorship resulting from an
increase in the number of directors shall be filled by a majority of the entire
board of directors.
(5) A director of the corporation may be removed from office only by
vote of the holders of at least seventy-five percent (75%) of the outstanding
shares of the corporation entitled to vote in an election of directors.
(6) The initial by-laws of the corporation shall be adopted by the
directors at their organizational meeting or by their informal written action,
as the case may be. Thereafter, the power to make, alter, and repeal the by-laws
of the corporation shall be vested exclusively in the board of directors of the
corporation.
(7) Any determination made in good faith by or pursuant to the
direction of the board of directors, as to: the amount of the assets, debts,
obligations, or liabilities of the corporation or belonging to, or attributable
to any class of shares of the corporation; the amount of any reserves or charges
set up and the propriety thereof; the time of or purpose for creating such
reserves or charges; the use, alteration or cancellation of any reserves or
charges (whether or not any debt, obligation or liability for which such
reserves or charges shall have been created shall have been paid or discharged
or shall be then or thereafter required to be paid or discharged); the value of
any investment or fair value of any other asset of the corporation; the amount
of net investment income; the number of shares of stock outstanding; the
estimated expense in connection with purchases or redemptions of the
corporation's stock; the ability to liquidate investments in orderly fashion;
the extent to which it is practicable to deliver a cross-section of the
portfolio of the corporation in payment for any such shares, or as to any other
matters relating to the issue, sale, purchase, redemption and/or other
acquisition or disposition of investments or shares of the corporation, or the
determination of the net asset value of shares of the corporation shall be final
and conclusive, and shall be binding upon the corporation and all holders of its
shares, past, present and future, and shares of the corporation are issued and
sold on the condition and understanding that any and all such determinations
shall be binding as aforesaid.
SEVENTH: (1) To the fullest extent that limitations on the liability
of directors and officers are permitted by the Maryland General Corporation Law,
no director or officer of the corporation shall have any liability to the
corporation or its stockholders for money damages. This limitation on liability
applies to events occurring at the time a person serves as a director or officer
of the corporation whether or not such person is a director or officer at the
time of any proceeding in which liability is asserted.
(2) The corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors and advancement of expenses to directors is
permitted by the Maryland General Corporation Law. The corporation shall
indemnify and advance expenses to its officers to the same extent as its
directors and to such further extent as is consistent with law. The board of
directors may, through a by-law, resolution or agreement, make further
provisions for indemnification of directors, officers, employees and agents to
the fullest extent permitted by the Maryland General Corporation Law.
(3) No provision of this Article SEVENTH shall be effective to protect
or purport to protect any director or officer of the corporation against any
liability to the corporation or its stockholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
(4) References to the Maryland General Corporation Law in this Article
SEVENTH are to the law as from time to time amended. No amendment to the
Articles of Incorporation of the corporation shall affect any right of any
person under this Article SEVENTH based on any event, omission or proceeding
prior to such amendment.
EIGHTH: (1) Notwithstanding any other provision of these Articles of
Incorporation, the affirmative vote of the holders of at least seventy-five
percent (75%) of the shares entitled to vote shall be required to approve, adopt
or authorize any of the following:
(a) a merger or consolidation or statutory share exchange of the
corporation with or into another corporation;
(b) a sale of all or substantially all of the assets of the
corporation (other than in the regular course of the corporation's
investment activities or in connection with the corporation's
repurchases of or tenders for its shares); or
(c) a liquidation or dissolution of the corporation;
unless such action previously has been approved, adopted or authorized by the
affirmative vote of two-thirds of the total number of Continuing Directors
(defined for this purpose as those directors who either are members of the board
of directors on the date of the closing of the corporation's initial public
offering or subsequently become directors and whode election is approved by a
majority of the Continuing Directors then on the board of directors), in which
case the affirmative vote of a majority of the outstanding shares of the
corporation shall be required.
(2) In addition to the voting requirements imposed by law or by any
other provision of these Articles of Incorporation, the provisions set forth in
this Article EIGHTH and in paragraphs (3) and (5) of Article SIXTH, Article
NINTH and the provision of these Articles of Incorporation setting the maximum
number of directors at twelve, may not be amended, altered or repealed in any
respect, nor may any provisions inconsistent with this Article EIGHTH or with
paragraphs (3) or (5) of Article SIXTH, Article NINTH or said provision relating
to the number of directors be adopted, unless such action is approved by the
affirmative vote of the holders of at least seventy-five percent (75%) of the
outstanding shares of the corporation.
NINTH: Notwithstanding any other provision of these Articles of
Incorporation, prior to the corporation's fiscal year commencing in calendar
year 1994, the affirmative vote of the holders of at least two-thirds of the
outstanding shares of the corporation entitled to be voted on the matter, voting
as a separate class if more than one class of shares is outstanding, shall be
required to approve, adopt or authorize an amendment of these Articles of
Incorporation to make the shares of the corporation redeemable securities (as
defined in the Investment Company Act of 1940), unless such action previously
has been approved, adopted or authorized by the affirmative vote of two-thirds
of the total number of Continuing Directors, in which case the affirmative vote
of a majority of the outstanding shares of the corporation entitled to be voted
on the matter, voting as a separate class if more than one class of shares is
outstanding, shall be required to approve, adopt or authorize such an amendment.
After commencement of the corporation's fiscal year in calendar year 1994, the
affirmative vote of a majority of the outstanding shares of the corporation,
voting as a separate class if more than one class of shares is outstanding,
shall be required to approve, adopt or authorize such an amendment. In the
corporation's fiscal year commencing in calendar year 1994, and in each fiscal
year thereafter, if the corporation's shares have traded on the principal
securities exchange where listed at an average discount from net asset value of
more than 10%, determined on the basis of the discount as of the end of the last
trading day in each week, during the 12 calendar weeks preceding the beginning
of such fiscal year, the corporation will submit to its stockholders at the next
succeeding annual meeting of stockholders a proposal to amend these Articles of
Incorporation to convert the corporation to an open-end investment company.
TENTH: All persons who shall acquire stock or other securities of the
corporation shall acquire the same subject to the provisions of the
corporation's Charter, as from time to time amended.
ELEVENTH: From time to time any of the provisions of the Charter of
the corporation may be amended, altered or repealed, including amendments which
alter the contract rights any class of stock outstanding, and other provisions
authorized by the Maryland General Corporation Law at the time in force may be
added or inserted in the manner and at the time prescribed by said law, and all
rights at any time conferred upon the stockholders of the corporation are
granted subject to the provisions of this Article ELEVENTH.
IN WITNESS WHEREOF, I have adopted and signed these Articles of
Incorporation and do hereby acknowledge that the adoption and signing are my
act.
Dated: September 26, 1989
/S/ JONATHAN M. PETUCHOWSKI
-----------------------
Jonathan M. Petuchowski,
Incorporator
<PAGE>
DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
ARTICLES SUPPLEMENTARY CREATING THREE SERIES OF
AUCTION PREFERRED STOCK
Dreyfus Strategic Municipal Bond Fund, Inc., a Maryland corporation having
its principal Maryland office in the City of Baltimore in the State of Maryland
(the "Corporation"), certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the board of directors of
the Corporation by Article FIFTH of its Articles of Incorporation, the Board of
Directors has classified from the Corporation's capital stock and authorized the
issuance of three series of 2,480 shares each of authorized preferred stock, par
value $.001 per share, liquidation preference $25,000 per share, designated
respectively: Auction Preferred Stock, Series A, Auction Preferred Stock, Series
B and Auction Preferred Stock, Series C.
SECOND: Pursuant to Section 2-411 of the Maryland General Corporation Law
and authority granted by Article II of the Corporation's By-laws, the Board of
Directors of the Corporation has appointed a pricing committee (the "Pricing
Committee") and has authorized such Pricing Committee to fix, consistent with,
and subject to, the authorization referred to in Article FIRST of these Articles
Supplementary, the terms of the shares of Auction Preferred Stock, Series A,
Auction Preferred Stock, Series B and Auction Preferred Stock, Series C.
THIRD: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the shares
of such series of preferred stock are as follows:
DESIGNATION
Series A: A series of 2,480 shares of preferred stock, par value $.001 per
share, liquidation preference $25,000 per share, hereby is designated "Auction
Preferred Stock Series A." Each share of Auction Preferred Stock, Series A shall
be issued on the Date of Original Issue (as herein defined); and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Corporation's Articles of
Incorporation applicable to preferred stock of the Corporation, as are set forth
in these Articles Supplementary. The Auction Preferred Stock, Series A shall
constitute a separate series of preferred stock of the Corporation, and each
share of Auction Preferred Stock, Series A shall be identical.
Series B: A series of 2,000 shares of preferred stock, par value $.001 per
share, liquidation preference $25,000 per share, hereby is designated "Auction
Preferred Stock Series B." Each share of Auction Preferred Stock, Series B shall
be issued on the Date of Original Issue (as herein defined); and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Corporation's Articles of
Incorporation applicable to preferred stock of the Corporation, as are set forth
in these Articles Supplementary. The Auction Preferred Stock, Series B shall
constitute a separate series of preferred stock of the Corporation, and each
share of Auction Preferred Stock, Series B shall be identical.
Series C: A series of 2,480 shares of preferred stock, par value $.001 per
share, liquidation preference $25,000 per share, hereby is designated "Auction
Preferred Stock Series C." Each share of Auction Preferred Stock, Series C shall
be issued on the Date of Original Issue (as herein defined); and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Corporation's Articles of
Incorporation applicable to preferred stock of the Corporation, as are set forth
in these Articles Supplementary. The Auction Preferred Stock, Series C shall
constitute a separate series of preferred stock of the Corporation, and each
share of Auction Preferred Stock, Series C shall be identical.
1. DEFINITIONS.
(a) Capitalized terms not defined in this paragraph 1 shall have the
respective meanings specified in paragraph 10 hereof. Unless the context or use
indicates another or different meaning, the following terms shall have the
following meanings, whether used in the singular or plural:
"'AA' Composite Commercial Paper Rate," on any Valuation Date, means
(i) the Interest Equivalent of the rate on commercial paper placed on behalf of
issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's or the
equivalent of such rating by another nationally recognized statistical rating
organization, as such rate is made available on a discount basis or otherwise by
the Federal Reserve Bank of New York for the Business Day immediately preceding
such date, or (ii) in the event that the Federal Reserve Bank of New York does
not make available such a rate, then the arithmetic average of the Interest
Equivalent of the rate on commercial paper placed on behalf of such issuers, as
quoted on a discount basis or otherwise by PaineWebber Incorporated or its
successors that are Commercial Paper Dealers, to the Auction Agent for the close
of business on the Business Day immediately preceding such date. If one of the
Commercial Paper Dealers does not quote a rate required to determine the "AA"
Composite Commercial Paper Rate, the "AA" Composite Commercial Paper Rate will
be determined on the basis of the quotation or quotations furnished by any
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the Fund to provide such rate or rates not being supplied by the
Commercial Paper Dealer. If the number of Dividend Period days shall be (i) 7 or
more but fewer than 49 days, such rate shall be the Interest Equivalent of the
30-day rate on such commercial paper; (ii) 49 or more but fewer than 70 days,
such rate shall be the Interest Equivalent of the 60-day rate on such commercial
paper; (iii) 70 or more days but fewer than 85 days, such rate shall be the
arithmetic average of the Interest Equivalent of the 60-day and 90-day rates on
such commercial paper; (iv) 85 or more days but fewer than 99 days, such rate
shall be the Interest Equivalent of the 90-day rate on such commercial paper;
(v) 99 or more days but fewer than 120 days, such rate shall be the arithmetic
average of the Interest Equivalent of the 90-day and 120-day rates on such
commercial paper; (vi) 120 or more days but fewer than 141 days, such rate shall
be the Interest Equivalent of the 120-day rate on such commercial paper; (vii)
141 or more days but fewer than 162 days, such rate shall be the arithmetic
average of the Interest Equivalent of the 120-day and 180-day rates on such
commercial paper; and (viii) 162 or more days but fewer than 183 days, such rate
shall be the Interest Equivalent of the 180-day rate on such commercial paper.
"Accountant's Confirmation" has the meaning set forth in paragraph
7(c) of these Articles Supplementary.
"Additional Dividend" has the meaning set forth in paragraph 2(e) of
these Articles Supplementary.
"Adviser" means the Corporation's investment adviser which shall be
The Dreyfus Corporation or any other entity that may serve as the Corporation's
investment adviser.
"Affiliate" means any Person known to the Auction Agent to be
controlled by, in control of, or under common control with, the Corporation.
"Agent Member" means a member of the Securities Depository that will
act on behalf of a Beneficial Owner of one or more shares of APS or a Potential
Beneficial Owner.
"Anticipation Notes" shall mean the following Municipal Obligations:
revenue anticipation notes, tax anticipation notes, tax and revenue anticipation
notes, grant anticipation notes and bond anticipation notes.
"Applicable Percentage" has the meaning set forth in paragraph
10(a)(vii) of these Articles Supplementary.
"Applicable Rate" means the rate per annum at which cash dividends are
payable on the APS or Other APS, as the case may be, for any Dividend Period.
"APS" means, as the case may be, the Auction Preferred Stock.
"APS Basic Maintenance Amount," as of any Valuation Date, means the
dollar amount equal to (i) the sum of (A) the product of the number of shares of
APS and Other APS Outstanding on such Valuation Date multiplied by the sum of
(a) $25,000 and (b) any applicable redemption premium attributable to the
designation of a Premium Call Period; (B) the aggregate amount of cash dividends
(whether or not earned or declared) that will have accumulated for each share of
APS and Other APS Outstanding, in each case, to (but not including) the end of
the current Dividend Period for each series of APS that follows such Valuation
Date in the event the then current Dividend Period will end within 49 calendar
days of such Valuation Date or through the 49th day after such Valuation Date in
the event the then current Dividend Period for each series of APS will not end
within 49 calendar days of such Valuation Date; (C) in the event the then
current Dividend Period will end within 49 calendar days of such Valuation Date,
the aggregate amount of cash dividends that would accumulate at the Maximum
Applicable Rate applicable to a Dividend Period of 28 or fewer days on any
shares of APS and Other APS Outstanding from the end of such Dividend Period
through the 49th day after such Valuation Date, multiplied by the S&P Volatility
Factor, determined from time to time by S&P (except that if such Valuation Date
occurs during a Non-Payment Period, the cash dividend for purposes of
calculation would accumulate at the then current Non-Payment Period Rate); (D)
the amount of anticipated expenses of the Corporation for the 90 days subsequent
to such Valuation Date (including any premiums payable with respect to a
Policy); (E) the amount of the Corporation's Maximum Potential Additional
Dividend Liability as of such Valuation Date; and (F) any current liabilities as
of such Valuation Date to the extent not reflected in any of (i)(A) through
(i)(E) (including, without limitation, and immediately upon determination, any
amounts due and payable by the Corporation pursuant to repurchase agreements and
any amounts payable for Municipal Obligations purchased as of such Valuation
Date) less (ii) either (A) the Discounted Value of any of the Corporation's
assets, or (B) the face value of any of the Corporation's assets if such assets
mature prior to or on the date of redemption of APS or payment of a liability
and are either securities issued or guaranteed by the United States Government
or Deposit Securities, in both cases irrevocably deposited by the Corporation
for the payment of the amount needed to redeem shares of APS subject to
redemption or to satisfy any of (i)(B) through (i)(F).
"APS Basic Maintenance Cure Date," with respect to the failure by the
Corporation to satisfy the APS Basic Maintenance Amount (as required by
paragraph 7(a) of these Articles Supplementary) as of a given Valuation Date,
means the second Business Day following such Valuation Date.
"APS Basic Maintenance Report" means a report signed by any of the
President, Treasurer, any Vice President or any Assistant Treasurer of the
Corporation which sets forth, as of the related Valuation Date, the assets of
the Corporation, the Market Value and the Discounted Value thereof (seriatim and
in aggregate), and the APS Basic Maintenance Amount.
"Articles of Incorporation" means the Articles of Incorporation of the
Corporation, as amended, supplemented and restated from time to time, including
as supplemented by these Articles Supplementary.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means Bankers Trust Company unless and until another
commercial bank, trust company or other financial institution appointed by a
resolution of the Board of Directors of the Corporation or a duly authorized
committee thereof enters into an agreement with the Corporation to follow the
Auction Procedures for the purpose of determining the Applicable Rate and to act
as transfer agent, registrar, dividend disbursing agent and redemption agent for
the APS and Other APS.
"Auction Procedures" means the procedures for conducting Auctions set
forth in paragraph 10 of these Articles Supplementary.
"Beneficial Owner" means a customer of a Broker-Dealer who is listed
on the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a
holder of shares of APS or a Broker-Dealer that holds APS for its own account.
"Board of Directors" or "Board" means the Corporation's Board of
Directors and, to the extent permitted by law, any committee thereof.
"Broker-Dealer" means any broker-dealer, or other entity permitted by
law to perform the functions required of a Broker-Dealer in paragraph 10 of
these Articles Supplementary, that has been selected by the Corporation and has
entered into a Broker-Dealer Agreement with the Auction Agent that remains
effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent
and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the
procedures specified in paragraph 10 of these Articles Supplementary.
"Business Day" means a day on which the New York Stock Exchange is
open for trading and which is not a Saturday, Sunday or other day on which banks
in The City of New York are authorized or obligated by law to close.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" means PaineWebber Incorporated and such
other commercial paper dealer or dealers as the Corporation may from time to
time appoint, or, in lieu of any thereof, their respective affiliates or
successors.
"Common Stock" means the shares of common stock designated as common
stock, par value $.001 per share, of the Corporation.
"Corporation" means Dreyfus Strategic Municipal Bond Fund, Inc., a
Maryland corporation.
"Date of Original Issue" means, with respect to any share of APS or
Other APS, the date on which the Corporation originally issues such share.
"Deposit Securities" means cash and Municipal Obligations rated at
least A2 (having a remaining maturity of 12 months or less), P-1, VMIG-1 or
MIG-1 by Moody's or A (having a remaining maturity of 12 months or less), A-1+
or SP-1+ by S&P.
"Discounted Value" means the quotient of the Market Value thereof
divided by the applicable S&P Discount Factor.
"Dividend Payment Date," with respect to APS, has the meaning set
forth in paragraph 2(b)(i) of these Articles Supplementary and, with respect to
Other APS, has the equivalent meaning.
"Dividend Period" means any of the Initial Dividend Period, 28-Day
Dividend Period or the Special Dividend Period. The Board of Directors may
change the 28-Day Dividend Period to seven days upon prior notice to Holders, in
which case, 7-Day Dividend Period shall be substituted for 28-Day Dividend
Period.
"Escrow Bonds" mean Municipal Obligations that (i) have been
determined to be legally defeased in accordance with S&P's legal defeasance
criteria, (ii) have been determined to be economically defeased in accordance
with S&P's economic defeasance criteria and assigned a rating of AAA by S&P,
(iii) are not rated by S&P but have been determined to be legally defeased by
Moody's, or (iv) have been determined to be economically defeased by Moody's and
assigned a rating no lower than the rating that is Moody's equivalent of S&P's
AAA rating.
"Existing Holder" means a Broker-Dealer or any such other Person as
may be permitted by the Corporation that is listed as the holder of record of
shares of APS in the Share Books.
"Forward Commitment" has the meaning set forth in paragraph 8(c) of
these Articles Supplementary.
"Holder" means a Person identified as a holder of record of shares of
APS in the Stock Register.
"Independent Accountant" means a nationally recognized accountant, or
firm of accountants, that is, with respect to the Corporation, an independent
public accountant or firm of independent public accountants under the Securities
Act of 1933, as amended.
"Initial Dividend Payment Date" means the Initial Dividend Payment
Date as determined by the Board of Directors of the Corporation with respect to
each series of APS or Other APS, as the case may be.
"Initial Dividend Period" has the meaning set forth in paragraph
2(c)(i) of these Articles Supplementary and, with respect to Other APS, has the
equivalent meaning.
"Initial Dividend Rate" means the rate per annum applicable to the
Initial Dividend Period for such series of APS and, with respect to Other APS,
has the equivalent meaning. The Initial Dividend Rate shall be ___% for Series A
APS, ___% for Series B APS and ___% or Series C APS.
"Initial Margin" means the amount of cash or securities deposited with
a broker as a margin payment at the time of purchase or sale of a futures
contract.
"Interest Equivalent" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security.
"Inverse Floaters" mean trust certificates or other instruments
evidencing interests in one or more Municipal Obligations that qualify as S&P
Eligible Assets (and are not part of a private placement of Municipal
Obligations and satisfy the issuer and original issue size requirements of
clause (vii) of the definition of S&P Eligible Assets) the interest rates on
which are adjusted at short term intervals on a basis that is inverse to the
simultaneous readjustment of the interest rates on corresponding floating rate
trust certificates or other instruments issued by the same issuer, provided that
the ratio of the aggregate dollar amount of floating rate instruments to inverse
floating rate instruments issued by the same issuer does not exceed one to one
at their time of original issuance unless the floating rate instruments have
only one reset remaining until maturity.
"Long Term Dividend Period" means a Special Dividend Period consisting
of a specified period of one whole year or more but not greater than five years.
"Mandatory Redemption Price" means $25,000 per share of APS plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) to the date fixed for redemption and excluding Additional Dividends.
"Marginal Tax Rate" means the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate, whichever is greater.
"Market Value" of any asset of the Corporation shall be the market
value thereof determined by the Pricing Service. Market Value of any asset shall
include any interest accrued thereon. The Pricing Service shall value portfolio
securities at the quoted bid prices or the mean between the quoted bid and asked
price or the yield equivalent when quotations are not readily available.
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 Obligations of comparable
quality, type of issue, coupon, maturity and rating; indications as to value
from dealers; and general market conditions. The Pricing Service may employ
electronic data processing techniques and/or a matrix system to determine
valuations. If the Pricing Service is unable to value a security, the security
shall be valued at the lower of two dealer bids obtained by the Corporation from
dealers who are members of the National Association of Securities Dealers, Inc.
and who make a market in the security, at least one of which shall be in
writing. Futures contracts and options are valued at closing prices for such
instruments established by the exchange or board of trade on which they are
traded, or if market quotations are not readily available, are valued at fair
value on a consistent basis using methods determined in good faith by the Board
of Directors.
"Maximum Applicable Rate," with respect to APS, has the meaning set
forth in paragraph 10(a)(vii) of these Articles Supplementary and, with respect
to Other APS, has the equivalent meaning.
"Maximum Potential Additional Dividend Liability," as of any Valuation
Date, means the aggregate amount of Additional Dividends that would be due if
the Corporation were to make Retroactive Taxable Allocations, with respect to
any fiscal year, estimated based upon dividends paid and the amount of
undistributed realized net capital gains and other taxable income earned by the
Corporation, as of the end of the calendar month immediately preceding such
Valuation Date and assuming such Additional Dividends are fully taxable.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Municipal Obligations" means "Municipal Obligations" as defined in
the Corporation's Registration Statement on Form N-2 (File Nos. 333-84123 and
No. 811-05877) relating to the APS on file with the Securities and Exchange
Commission, as such Registration Statement may be amended from time to time, as
well as short term Municipal Obligations and Inverse Floaters.
"Municipal Index" has the meaning set forth in paragraph 8(a) of these
Articles Supplementary.
"1940 Act" means the Investment Company Act of 1940, as amended from
time to time.
"1940 Act APS Asset Coverage" means asset coverage, as defined in
section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding
senior securities of the Corporation which are shares of capital stock,
including all outstanding shares of APS and Other APS (or such other asset
coverage as may in the future be specified in or under the 1940 Act as the
minimum asset coverage for senior securities which are shares of capital stock
of a closed-end investment company as a condition of paying dividends on its
Common Stock).
"1940 Act Cure Date," with respect to the failure by the Corporation
to maintain the 1940 Act APS Asset Coverage (as required by paragraph 6 of these
Articles Supplementary) as of the last Business Day of each month, means the
last Business Day of the following month.
"Non-Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions."
"Non-Payment Period" means any period commencing on and including the
day on which the Corporation shall fail to (i) declare, prior to the close of
business on the second Business Day preceding any Dividend Payment Date, for
payment on or (to the extent permitted by paragraph 2(c)(i) of these Articles
Supplementary) within three Business Days after such Dividend Payment Date to
the Holders as of 12:00 noon, New York City time, on the Business Day preceding
such Dividend Payment Date, the full amount of any dividend on shares of APS
payable on such Dividend Payment Date or (ii) deposit, irrevocably in trust, in
same-day funds, with the Auction Agent by 12:00 noon, New York City time, (A) on
such Dividend Payment Date the full amount of any cash dividend on such shares
payable (if declared) on such Dividend Payment Date or (B) on any redemption
date for any shares of APS called for redemption, the Mandatory Redemption Price
per share of such APS or, in the case of an optional redemption, the Optional
Redemption Price per share, and ending on and including the Business Day on
which, by 12:00 noon, New York City time, all unpaid cash dividends and unpaid
redemption prices shall have been so deposited or shall have otherwise been made
available to Holders in same-day funds; provided that, a Non-Payment Period
shall not end unless the Corporation shall have given at least five days' but no
more than 30 days' written notice of such deposit or availability to the Auction
Agent, all Existing Holders (at their addresses appearing in the Share Books)
and the Securities Depository. Notwithstanding the foregoing, the failure by the
Corporation to deposit funds as provided for by clauses (ii)(A) or (ii)(B) above
within three Business Days after any Dividend Payment Date or redemption date,
as the case may be, in each case to the extent contemplated by paragraph 2(c)(i)
of these Articles Supplementary, shall not constitute a "Non-Payment Period."
"Non-Payment Period Rate" means, initially, 200% of the applicable
Reference Rate (or 275% of such rate if the Corporation has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net
capital gains or other taxable income will be included in such dividend on
shares of APS), provided that the Board of Directors of the Corporation shall
have the authority to adjust, modify, alter or change from time to time the
initial Non-Payment Period Rate if the Board of Directors of the Corporation
determines and S&P (and any Substitute Rating Agency in lieu of S&P in the event
such party shall not rate the APS) advise the Corporation in writing that such
adjustment, modification, alteration or change will not adversely affect its
then-current ratings on the APS.
"Normal Dividend Payment Date" has the meaning set forth in paragraph
2(b)(i) of these Articles Supplementary.
"Notice of Redemption" means any notice with respect to the redemption
of shares of APS pursuant to paragraph 4 of these Articles Supplementary.
"Notice of Revocation" has the meaning set forth in paragraph
2(c)(iii) of these Articles Supplementary.
"Notice of Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.
"Optional Redemption Price" means $25,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or declared) to
the date fixed for redemption and excluding Additional Dividends plus any
applicable redemption premium attributable to the designation of a Premium Call
Period.
"Other APS" means the Auction Rate Preferred Stock of the Corporation,
other than the APS.
"Outstanding" means, as of any date (i) with respect to APS, shares of
APS therefor issued by the Corporation except, without duplication, (A) any
shares of APS theretofore canceled or delivered to the Auction Agent for
cancellation, or redeemed by the Corporation, or as to which a Notice of
Redemption shall have been given and Deposit Securities shall have been
deposited in trust or segregated by the Corporation pursuant to paragraph 4(c)
and (B) any shares of APS as to which the Corporation or any Affiliate thereof
shall be a Beneficial Owner, provided that shares of APS held by an Affiliate
shall be deemed outstanding for purposes of calculating the APS Basic
Maintenance Amount and (ii) with respect to shares of other Preferred Stock, has
the equivalent meaning.
"Parity Shares" means the APS and each other outstanding series of
Preferred Stock the holders of which, together with the holders of the APS,
shall be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to the
full respective preferential amounts to which they are entitled, without
preference or priority one over the other.
"Person" means and includes an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
"Policy" means an insurance policy purchased by the Corporation which
guarantees the payment of principal and interest on specified Municipal
Obligations during the period in which such Municipal Obligations are owned by
the Corporation; provided, however, that, as long as the APS are rated by S&P,
the Corporation will not obtain any Policy unless S&P advises the Corporation in
writing that the purchase of such Policy will not adversely affect its
then-current rating on the APS.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of shares of APS but that wishes to
purchase such shares, or that is a Beneficial Owner that wishes to purchase
additional shares of APS.
"Potential Holder" means any Broker-Dealer or any such other Person as
may be permitted by the Corporation, including any Existing Holder, who may be
interested in acquiring shares of APS (or, in the case of an Existing Holder,
additional shares of APS).
"Preferred Stock" means the preferred shares of capital stock, par
value $.001 per share, of the Corporation, and includes APS and Other APS.
"Premium Call Period" has the meaning set forth under the definition
of "Specific Redemption Provisions."
"Pricing Service" means S&P J.J. Kenny Evaluation Services or any
pricing service designated by the Board of Directors of the Corporation provided
the Corporation obtains written assurance from S&P that such designation will
not impair the rating then assigned by S&P to the APS.
"Quarterly Valuation Date" means the last Business Day of the last
month of each fiscal quarter of the Corporation in each fiscal year of the
Corporation, commencing February 29, 2000.
"Receivables for Municipal Obligations Sold" has the meaning set forth
under the definition of S&P Discount Factor.
"Reference Rate" means: (i) with respect to a Dividend Period or a
Short Term Dividend Period having 28 or fewer days, the higher of the applicable
"AA" Composite Commercial Paper Rate and the Taxable Equivalent of the
Short-Term Municipal Bond Rate, (ii) with respect to any Short Term Dividend
Period having more than 28 but fewer than 183 days, the applicable "AA"
Composite Commercial Paper Rate, (iii) with respect to any Short Term Dividend
Period having 183 or more but fewer than 364 days, the applicable U.S. Treasury
Bill Rate and (iv) with respect to any Long Term Dividend Period, the applicable
U.S. Treasury Note Rate.
"Request for Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.
"Response" has the meaning set forth in paragraph 2(c)(iii) of these
Articles Supplementary.
"Retroactive Taxable Allocation" has the meaning set forth in
paragraph 2(e) of these Articles Supplementary.
"Right", with respect to the APS, has the meaning set forth in
paragraph 2(e) of these Articles Supplementary and, with respect to Other APS,
has the equivalent meaning.
"S&P" means Standard & Poor's, a division of The McGraw-Hill
Companies, Inc., or its successors.
"S&P Discount Factor" means, for purposes of determining the
Discounted Value of any Municipal Obligation which constitutes an S&P Eligible
Asset, the percentage determined by reference to (a) the rating by S&P or
Moody's on such Municipal Obligation and (b) the S&P Exposure Period, in
accordance with the table set forth below:
<TABLE>
<CAPTION>
S&P Discount Factors Rating Category
EXPOSURE PERIOD AAA AA A BBB UNRATED*
<S> <C> <C> <C> <C> <C>
45 Business Days.................................................... 190% 195% 210% 250% 220%
25 Business Days.................................................... 170 175 190 230 220
10 Business Days.................................................... 155 160 175 215 220
7 Business Days..................................................... 150 155 170 210 220
3 Business Days..................................................... 130 135 150 190 220
- -----------------
* Eligible Assets not rated by S&P or rated less than BBB by S&P and not rated
at least the equivalent of an "A" rating by another Rating Agency.
</TABLE>
Notwithstanding the foregoing, (i) the S&P Discount Factor for short-
term Municipal Obligations will be 115%, so long as such Municipal Obligations
are rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable
in 30 days or less, 120% if such Municipal Obligations are rated A-1 or SP-1- by
S&P and mature or have a demand feature exercisable within 30 days or less, or
125% if such Municipal Obligations are not rated by S&P but are rated VMIG-1,
P-1 or MIG-1 by Moody's; provided, however, such short-term Municipal
Obligations rated by Moody's but not rated by S&P having a demand feature
exercisable in 30 days or less must be backed by a letter of credit, liquidity
facility or guarantee from a bank or other financial institution having a
short-term rating of at least A-1+ from S&P; and further provided that such
short-term Municipal Obligations rated by Moody's but not rated by S&P may
comprise no more than 50% of short-term Municipal Obligations that qualify as
S&P Eligible Assets; (ii) no S&P Discount Factor will be applied to cash,
options or to Receivables for Municipal Obligations Sold; and (iii) except as
set forth in clause (i) above, in the case of any Municipal Obligation that is
not rated by S&P but qualifies as a S&P Eligible Asset pursuant to clause (1)(c)
of the following paragraph, such Municipal Obligation will be deemed to have a
S&P rating one full rating category lower than the S&P rating category that is
the equivalent of the rating category in which such Municipal Obligation is
placed by another Rating Agency. "Receivables for Municipal Obligations Sold,"
for purposes of calculating S&P Eligible Assets as of any Valuation Date, means
the book value of Receivables for Municipal Obligations Sold as of or prior to
such Valuation Date if such receivables are due within five Business Days of the
Valuation Date. For purposes of the foregoing, Anticipation Notes rated SP-1+
or, if not rated by S&P, rated VMIG-1 by Moody's, which do not mature or have a
demand feature exercisable in 30 days and which do not have a long-term rating,
shall be considered to be short-term Municipal Obligations. In calculating the
Discounted Value of the Corporation's portfolio (1) the S&P Discount Factors
will be applied to futures and Inverse Floaters and (2) a Discount Factor of
388% will be applied to Municipal Obligations rated AAA by S&P which are not
interest bearing or do not pay interest at least semi-annually.
"S&P Eligible Asset" means cash, Receivables for Municipal Obligations
Sold or a Municipal Obligation that (i) is 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 these bonds are exempt from regular federal income
taxes and are generally exempt from state and local taxes in the state of
issuance), (ii) is interest bearing and pays interest at least semi-annually;
(iii) is payable with respect to principal and interest in United States
Dollars; (iv) is publicly rated BBB or higher by S&P or, except in the case of
Anticipation Notes that are grant anticipation notes or bond anticipation notes,
which must be rated by S&P to be included in S&P Eligible Assets, if not rated
by S&P but rated by another Rating Agency, is rated at least A by such agency;
(v) is not part of a private placement (except in the case of Inverse Floaters);
(vi) is not subject to a covered call or covered put option written by the
Corporation; and (vii) is part of an issue of Municipal Obligations with an
original issue size of at least $20 million or, if of an issue with an original
issue size below $20 million (but in no event below $10 million), is issued by
an issuer with a total of at least $50 million of securities outstanding.
Notwithstanding the foregoing:
(1) Municipal Obligations (excluding Escrow Bonds) of any one issuer
or guarantor (excluding bond insurers) will be considered S&P Eligible
Assets only to the extent the fair market value of such obligations does
not exceed 10% of the aggregate fair market value of the S&P Eligible
Assets, provided that 2% is added to the applicable S&P Discount Factor for
every 1% by which the fair market value of such Municipal Obligations
exceeds 5% of the aggregate fair market value of the S&P Eligible Assets,
and provided that Municipal Obligations (excluding Escrow Bonds) not rated
or rated less than BBB by S&P or not rated at least A by another Rating
Agency with respect to any one issuer or guarantor (excluding bond
insurers) will be considered S&P Eligible Assets only to the extent the
fair market value of such Municipal Obligations does not exceed 5% of the
aggregate fair market value of S&P Eligible Assets;
(2) Municipal Obligations not rated at least BBB by S&P or not rated
by S&P, or not rated at least A by another Rating Agency, will be
considered S&P Eligible Assets only to the extent the fair market value of
such Municipal Obligations does not exceed 20% of the aggregate fair market
value of S&P Eligible Assets; provided however, that if the fair market
value of such Municipal Obligations exceeds 20% of the aggregate fair
market value of S&P Eligible Assets, a portion of such Municipal
Obligations (selected by the Corporation) will not be considered S&P
Eligible Assets, so that the fair market value of such Municipal
Obligations (excluding such portion) does not exceed 20% of the aggregate
fair market value of S&P Eligible Assets;
(3) Municipal Obligations not rated at least BBB by S&P or not rated
by S&P, but rated at least A by another Rating Agency, will be considered
S&P Eligible Assets only to the extent the fair market value of such
Municipal Obligations does not exceed 50% of the aggregate fair market
value of S&P Eligible Assets; provided however, that if the fair market
value of such Municipal Obligations exceeds 50% of the aggregate fair
market value of S&P Eligible Assets, a portion of such Municipal
Obligations (selected by the Corporation) will not be considered S&P
Eligible Assets, so that the fair market value of such Municipal
Obligations (excluding such portion) does not exceed 50% of the aggregate
fair market value of S&P Eligible Assets;
(4) Long-term Municipal Obligations (excluding Escrow Bonds) issued by
issuers in any one state or territory will be considered S&P Eligible
Assets only to the extent the fair market value of such Municipal
Obligations does not exceed 25% of the aggregate fair market value of S&P
Eligible Assets; and
(5) Municipal Obligations which are not interest bearing or do not pay
interest at least semi-annually will be considered S&P Eligible Assets if
rated AAA by S&P.
"S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the APS Basic Maintenance Cure
Date, that the Corporation has under these Articles Supplementary to cure any
failure to maintain, as of such Valuation Date, the Discounted Value for its
portfolio at least equal to the APS Basic Maintenance Amount (as described in
paragraph 7(a) of these Articles Supplementary).
"S&P Hedging Transactions" has the meaning set forth in paragraph 8(a)
of these Articles Supplementary.
"S&P Volatility Factor" means 277% or such other potential dividend
rate increase factor as S&P advises the Corporation in writing is applicable.
"Securities Depository" means The Depository Trust Company or any
successor company or other entity elected by the Corporation as securities
depository for the shares of APS that agrees to follow the procedures required
to be followed by such securities depository in connection with the shares of
APS.
"Service" means the United States Internal Revenue Service.
"Series A APS" means the Auction Preferred Stock, Series A.
"Series B APS" means the Auction Preferred Stock, Series B.
"Series C APS" means Auction Preferred Stock, Series C.
"Short Term Dividend Period" means a Special Dividend Period
consisting of a specified number of days (other than 28 or, if the Corporation
changes the 28-Day Dividend Period to a 7-Day Dividend Period, seven), evenly
divisible by seven and not fewer than seven nor more than 364.
"Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than 28 or, if the Corporation changes the
28-Day Dividend Period to a 7-Day Dividend Period, seven), evenly divisible by
seven and not fewer than seven nor more than 364 or (ii) a specified period of
one whole year or more but not greater than five years (in each case subject to
adjustment as provided in paragraph 2(b)(i)).
"Specific Redemption Provisions" means, with respect to a Special
Dividend Period either, or any combination of, (i) a period (a "Non-Call
Period") determined by the Board of Directors of the Corporation, after
consultation with the Auction Agent and the Broker-Dealers, during which the
shares of APS subject to such Dividend Period shall not be subject to redemption
at the option of the Corporation and (ii) a period (a "Premium Call Period"),
consisting of a number of whole years and determined by the Board of Directors
of the Corporation, after consultation with the Auction Agent and the
Broker-Dealers, during each year of which the shares of APS subject to such
Dividend Period shall be redeemable at the Corporation's option at a price per
share equal to $25,000 plus accumulated but unpaid dividends plus a premium
expressed as a percentage of $25,000, as determined by the Board of Directors of
the Corporation after consultation with the Auction Agent and the
Broker-Dealers.
"Stock Books" means the books maintained by the Auction Agent setting
forth at all times a current list, as determined by the Auction Agent, of
Existing Holders of the APS.
"Stock Register" means the register of Holders maintained on behalf of
the Corporation by the Auction Agent in its capacity as transfer agent and
registrar for the APS.
"Subsequent Dividend Period," with respect to APS, has the meaning set
forth in paragraph 2(c)(i) of these Articles Supplementary and, with respect to
Other APS, has the equivalent meaning.
"Substitute Commercial Paper Dealers" means such Substitute Commercial
Paper Dealer or Dealers as the Corporation may from time to time appoint or, in
lieu of any thereof, their respective affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies" mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by
PaineWebber Incorporated or its affiliates and successors, after consultation
with the Corporation, to act as the substitute rating agency or substitute
rating agencies, as the case may be, to determine the credit ratings of the
shares of APS.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30 Day High Grade Index (the "Kenny
Index") or any successor index, made available for the Business Day immediately
preceding such date but in any event not later than 8:30 A.M., New York City
time, on such date by Kenny Information Systems Inc. or any successor thereto,
based upon 30-day yield evaluations at par of bonds the interest on which is
excludable for regular Federal income tax purposes under the Code of "high
grade" component issuers selected by Kenny Information Systems Inc. or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57(a)(5) of the Code, or successor provisions, for purposes of the
"alternative minimum tax," divided by (B) 1.00 minus the Marginal Tax Rate
(expressed as a decimal); provided, however, that if the Kenny Index is not made
so available by 8:30 A.M., New York City time, on such date by Kenny Information
Systems Inc. or any successor, the Taxable Equivalent of the Short-Term
Municipal Bond Rate shall mean the quotient of (A) the per annum rate expressed
on an interest equivalent basis equal to the most recent Kenny Index so made
available for any preceding Business Day, divided by (B) 1.00 minus the Marginal
Tax Rate (expressed as a decimal). The Corporation may not utilize a successor
index to the Kenny Index unless S&P provides the Corporation with written
confirmation that the use of such successor index will not adversely affect the
then-current S&P rating of the APS.
"Treasury Bonds" has the meaning set forth in paragraph 8(a) of these
Articles Supplementary.
"28-Day Dividend Period" means a Dividend Period consisting of 28
days. If the Corporation changes the 28-Day Dividend Period to seven days, then
7-Day Dividend Periods will be substituted for 28-Day Dividend Periods.
"U.S. Treasury Bill Rate" on any date means (i) the Interest
Equivalent of the rate on the actively traded Treasury Bill with a maturity most
nearly comparable to the length of the related Dividend Period, as such rate is
made available on a discount basis or otherwise by the Federal Reserve Bank of
New York in its Composite 3:30 P.M. Quotations for U.S. Government Securities
report for such Business Day, or (ii) if such yield as so calculated is not
available, the Alternate Treasury Bill Rate on such date. "Alternate Treasury
Bill Rate" on any date means the Interest Equivalent of the yield as calculated
by reference to the arithmetic average of the bid price quotations of the
actively traded Treasury Bill with a maturity most nearly comparable to the
length of the related Dividend Period, as determined by bid price quotations as
of any time on the Business Day immediately preceding such date, obtained from
at least three recognized primary U.S. Government securities dealers selected by
the Auction Agent. "U.S. Treasury Note Rate" on any date means (i) the yield as
calculated by reference to the bid price quotation of the actively traded,
current coupon Treasury Note with a maturity most nearly comparable to the
length of the related Dividend Period, as such bid price quotation is published
on the Business Day immediately preceding such date by the Federal Reserve Bank
of New York in its Composite 3:30 P.M. Quotations for U.S. Government Securities
report for such Business Day, or (ii) if such yield as so calculated is not
available, the Alternate Treasury Note Rate on such date. "Alternate Treasury
Note Rate" on any date means the yield as calculated by reference to the
arithmetic average of the bid price quotations of the actively traded, current
coupon Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by the bid price quotations as of any
time on the Business Day immediately preceding such date, obtained from at least
three recognized primary U.S. Government securities dealers selected by the
Auction Agent.
"Valuation Date" means, for purposes of determining whether the
Corporation is maintaining the APS Basic Maintenance Amount, each Business Day
commencing with the Date of Original Issue.
"Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Corporation, the amount of cash or securities paid
to or received from a broker (subsequent to the Initial Margin payment) from
time to time as the price of such futures contract fluctuates.
(b) The foregoing definitions of Accountant's Confirmation, APS Basic
Maintenance Amount, APS Basic Maintenance Cure Date, APS Basic Maintenance
Report, Inverse Floaters, Deposit Securities, Discounted Value, Independent
Accountant, Initial Margin, Market Value, Maximum Potential Additional Dividend
Liability, S&P Discount Factor, S&P Eligible Asset, S&P Exposure Period, S&P
Hedging Transactions, S&P Volatility Factor, Valuation Date and Variation Margin
have been determined by the Board of Directors of the Corporation in order to
obtain a AAA rating from S&P on the APS on their Date of Original Issue; and the
Board of Directors of the Corporation shall have the authority, without
shareholder approval, to amend, alter or repeal from time to time the foregoing
definitions and the restrictions and guidelines set forth thereunder if S&P or
any Substitute Rating Agency advises the Corporation in writing that such
amendment, alteration or repeal will not adversely affect its then current
rating on the APS.
2. DIVIDENDS. (a) The Holders of a particular series of APS shall be
entitled to receive, when, as and if declared by the Board of Directors of the
Corporation, out of funds legally available therefor, cumulative dividends each
consisting of (i) cash at the Applicable Rate, (ii) a Right to receive cash as
set forth in paragraph 2(e) below, and (iii) any additional amounts as set forth
in paragraph 2(f) below, and no more, payable on the respective dates set forth
below. Dividends on the shares of each series of APS so declared and payable
shall be paid (i) in preference to and in priority over any dividends declared
and payable on the Common Stock, and (ii) to the extent permitted under the Code
and to the extent available, out of net tax-exempt income earned on the
Corporation's investments. To the extent permitted under the Code, dividends on
shares of APS will be designated as exempt-interest dividends. For the purposes
of this section, the term "net tax-exempt income" shall exclude capital gains of
the Corporation.
(b) (i) Cash dividends on shares of each series of APS shall
accumulate from the Date of Original Issue and shall be payable, when, as and if
declared by the Board of Directors, out of funds legally available therefor,
commencing on the Initial Dividend Payment Date. Following the Initial Dividend
Payment Date for a series of APS, dividends on that series of APS will be
payable, at the option of the Corporation, either (i) with respect to any 28-Day
Dividend Period and any Short Term Dividend Period of 35 or fewer days, on the
day next succeeding the last day thereof, or (ii) with respect to any Short Term
Dividend Period of more than 35 days and with respect to any Long Term Dividend
Period, monthly on the first Business Day of each calendar month during such
Short Term Dividend Period or Long Term Dividend Period and on the day next
succeeding the last day thereof (each such date referred to in clause (i) or
(ii) being herein referred to as a "Normal Dividend Payment Date"), except that
if such Normal Dividend Payment Date is not a Business Day, then the Dividend
Payment Date shall be the first Business Day next succeeding such Normal
Dividend Payment Date. Although any particular Dividend Payment Date may not
occur on the originally scheduled date because of the exception discussed above,
the next succeeding Dividend Payment Date, subject to such exception, will occur
on the next following originally scheduled date. If for any reason a Dividend
Payment Date cannot be fixed as described above, then the Board of Directors
shall fix the Dividend Payment Date. The Board of Directors by resolution prior
to authorization of a dividend by the Board of Directors may change a Dividend
Payment Date if such change does not adversely affect the contract rights of the
Holders of shares of APS set forth in the Articles of Incorporation. The Initial
Dividend Period, 28-Day Dividend Periods and Special Dividend Periods with
respect to a series of APS are hereinafter sometimes referred to as Dividend
Periods. Each dividend payment date determined as provided above is hereinafter
referred to as a "Dividend Payment Date."
(ii) Each dividend shall be paid to the Holders as they appear in the
Stock Register as of 12:00 noon, New York City time, on the Business Day
preceding the Dividend Payment Date. Dividends in arrears for any past Dividend
Period may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to the Holders as they appear on the Stock Register on a
date, not exceeding 15 days prior to the payment date therefor, as may be fixed
by the Board of Directors of the Corporation.
(c) (i) During the period from and including the Date of Original
Issue to but excluding the Initial Dividend Payment Date for each series of APS
(the "Initial Dividend Period"), the Applicable Rate shall be the Initial
Dividend Rate. Commencing on the Initial Dividend Payment Date for each series
of APS, the Applicable Rate for each subsequent dividend period (hereinafter
referred to as a "Subsequent Dividend Period"), which Subsequent Dividend Period
shall commence on and include a Dividend Payment Date and shall end on and
include the calendar day prior to the next Dividend Payment Date (or last
Dividend Payment Date in a Dividend Period if there is more than one Dividend
Payment Date), shall be equal to the rate per annum that results from
implementation of the Auction Procedures. The Applicable Rate for each Dividend
Period commencing during a Non-Payment Period shall be equal to the Non-Payment
Period Rate; and each Dividend Period, commencing after the first day of, and
during, a Non-Payment Period shall be a 28-Day Dividend Period in the case of
each series of APS. Except in the case of the willful failure of the Corporation
to pay a dividend on a Dividend Payment Date or to redeem any shares of APS on
the date set for such redemption, any amount of any dividend due on any Dividend
Payment Date (if, prior to the close of business on the second Business Day
preceding such Dividend Payment Date, the Corporation has declared such dividend
payable on such Dividend Payment Date to the Holders of such shares of APS as of
12:00 noon, New York City time, on the Business Day preceding such Dividend
Payment Date) or redemption price with respect to any shares of APS not paid to
such Holders when due may be paid to such Holders in the same form of funds by
12:00 noon, New York City time, on any of the first three Business Days after
such Dividend Payment Date or due date, as the case may be, provided that, such
amount is accompanied by a late charge calculated for such period of non-payment
at the Non-Payment Period Rate applied to the amount of such non-payment based
on the actual number of days comprising such period divided by 365. In the case
of a willful failure of the Corporation to pay a dividend on a Dividend Payment
Date or to redeem any shares of APS on the date set for such redemption, the
preceding sentence shall not apply and the Applicable Rate for the Dividend
Period commencing during the Non-Payment Period resulting from such failure
shall be the Non-Payment Period Rate. For the purposes of the foregoing, payment
to a person in same-day funds on any Business Day at any time shall be
considered equivalent to payment to such person in New York Clearing House
(next-day) funds at the same time on the preceding Business Day, and any payment
made after 12:00 noon, New York City time, on any Business Day shall be
considered to have been made instead in the same form of funds and to the same
person before 12:00 noon, New York City time, on the next Business Day.
(ii) The amount of cash dividends per share of any series of APS
payable (if declared) on the Initial Dividend Payment Date, each 28-Day Dividend
Period and each Dividend Payment Date of each Short Term Dividend Period shall
be computed by multiplying the Applicable Rate for such Dividend Period by a
fraction, the numerator of which will be the number of days in such Dividend
Period or part thereof that such share was outstanding and the denominator of
which will be 365, multiplying the amount so obtained by $25,000, and rounding
the amount so obtained to the nearest cent. During any Long Term Dividend
Period, the amount of cash dividends per share of a series of APS payable (if
declared) on any Dividend Payment Date shall be computed by multiplying the
Applicable Rate for such Dividend Period by a fraction, the numerator of which
will be such number of days in such part of such Dividend Period that such share
was outstanding and for which dividends are payable on such Dividend Payment
Date and the denominator of which will be 360, multiplying the amount so
obtained by $25,000, and rounding the amount so obtained to the nearest cent.
(iii) With respect to each Dividend Period that is a Special Dividend
Period, the Corporation may, at its sole option and to the extent permitted by
law, by telephonic and written notice (a "Request for Special Dividend Period")
to the Auction Agent and to each Broker-Dealer, request that the next succeeding
Dividend Period for a series of APS be a number of days (other than 28 or, if
the Corporation changes the 28-Day Dividend Period to a 7-Day Dividend Period,
seven), evenly divisible by seven and not fewer than seven nor more than 364 in
the case of a Short Term Dividend Period or one whole year or more but not
greater than five years in the case of a Long Term Dividend Period, specified in
such notice, provided that the Corporation may not give a Request for Special
Dividend Period of greater than 28 days (and any such request shall be null and
void) unless, for any Auction occurring after the initial Auction, Sufficient
Clearing Bids were made in the last occurring Auction and unless full cumulative
dividends, any amounts due with respect to redemptions, and any Additional
Dividends payable prior to such date have been paid in full. Such Request for
Special Dividend Period, in the case of a Short Term Dividend Period, shall be
given on or prior to the second Business Day but not more than seven Business
Days prior to an Auction Date for a series of APS and, in the case of a Long
Term Dividend Period, shall be given on or prior to the second Business Day but
not more than 28 days prior to an Auction Date for a series of APS. Upon
receiving such Request for Special Dividend Period, the Broker-Dealer(s) shall
jointly determine whether, given the factors set forth below, it is advisable
that the Corporation issue a Notice of Special Dividend Period for the series of
APS as contemplated by such Request for Special Dividend Period and the Optional
Redemption Price of the APS during such Special Dividend Period and the Specific
Redemption Provisions and shall give the Corporation and the Auction Agent
written notice (a "Response") of such determination by no later than the second
Business Day prior to such Auction Date. In making such determination the
Broker-Dealer(s) will consider (1) existing short-term and long-term market
rates and indices of such short-term and long-term rates, (2) existing market
supply and demand for short-term and long-term securities, (3) existing yield
curves for short-term and long-term securities comparable to the APS, (4)
industry and financial conditions which may affect the APS, (5) the investment
objective of the Corporation, and (6) the Dividend Periods and dividend rates at
which current and potential beneficial holders of the APS would remain or become
beneficial holders. If the Broker-Dealer(s) shall not give the Corporation and
the Auction Agent a Response by such second Business Day or if the Response
states that given the factors set forth above it is not advisable that the
Corporation give a Notice of Special Dividend Period for the series of APS, the
Corporation may not give a Notice of Special Dividend Period in respect of such
Request for Special Dividend Period. In the event the Response indicates that it
is advisable that the Corporation give a Notice of Special Dividend Period for
the series of APS, the Corporation may by no later than the second Business Day
prior to such Auction Date give a notice (a "Notice of Special Dividend Period")
to the Auction Agent, the Securities Depository and each Broker-Dealer which
notice will specify (i) the duration of the Special Dividend Period, (ii) the
Optional Redemption Price as specified in the related Response and (iii) the
Specific Redemption Provisions, if any, as specified in the related Response.
The Corporation also shall provide a copy of such Notice of Special Dividend
Period to Moody's and S&P. The Corporation shall not give a Notice of Special
Dividend Period and, if the Corporation has given a Notice of Special Dividend
Period, the Corporation is required to give telephonic and written notice of its
revocation (a "Notice of Revocation") to the Auction Agent, each Broker-Dealer,
and the Securities Depository on or prior to the Business Day prior to the
relevant Auction Date if (x) either the 1940 Act APS Asset Coverage is not
satisfied or the Corporation shall fail to maintain S&P Eligible Assets with an
aggregate Discounted Value at least equal to the APS Basic Maintenance Amount,
on each of the two Valuation Dates immediately preceding the Business Day prior
to the relevant Auction Date on an actual basis and on a pro forma basis giving
effect to the proposed Special Dividend Period (using as a pro forma dividend
rate with respect to such Special Dividend Period the dividend rate which the
Broker-Dealers shall advise the Corporation is an approximately equal rate for
securities similar to the APS with an equal dividend period), (y) sufficient
funds for the payment of dividends payable on the immediately succeeding
Dividend Payment Date have not been irrevocably deposited with the Auction Agent
by the close of business on the third Business Day preceding the related Auction
Date or (z) the Broker-Dealer(s) jointly advise the Corporation that after
consideration of the factors listed above they have concluded that it is
advisable to give a Notice of Revocation. The Corporation also shall provide a
copy of such Notice of Revocation to S&P. If the Corporation is prohibited from
giving a Notice of Special Dividend Period as a result of any of the factors
enumerated in clause (x), (y) or (z) above or if the Corporation gives a Notice
of Revocation with respect to a Notice of Special Dividend Period for any series
of APS, the next succeeding Dividend Period will be a 28-Day Dividend Period. In
addition, in the event Sufficient Clearing Bids are not made in the applicable
Auction or such Auction is not held for any reason, such next succeeding
Dividend Period will be a 28-Day Dividend Period and the Corporation may not
again give a Notice of Special Dividend Period for the APS (and any such
attempted notice shall be null and void) until Sufficient Clearing Bids have
been made in an Auction with respect to a 28-Day Dividend Period.
(d) (i) Holders shall not be entitled to any dividends, whether
payable in cash, property or stock, in excess of full cumulative dividends and
applicable late charges, as herein provided, on the shares of APS (except for
Additional Dividends as provided in paragraph 2(e) hereof and additional
payments as provided in paragraph 2(f) hereof). Except for the late charge
payable pursuant to paragraph 2(c)(i) hereof, no interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment on the
shares of APS that may be in arrears.
(ii) For so long as any share of APS is Outstanding, the Corporation
shall not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or
options, warrants or rights to subscribe for or purchase, Common Stock or other
shares of capital stock, if any, ranking junior to the shares of APS as to
dividends or upon liquidation) in respect of the Common Stock or any other
shares of capital stock of the Corporation ranking junior to or on a parity with
the shares of APS as to dividends or upon liquidation, or call for redemption,
redeem, purchase or otherwise acquire for consideration any shares of the Common
Stock or any other such junior shares (except by conversion into or exchange for
shares of the Corporation ranking junior to the shares of APS as to dividends
and upon liquidation) or any other such Parity Shares (except by conversion into
or exchange for stock of the Corporation ranking junior to or on a parity with
the shares of APS as to dividends and upon liquidation), unless (A) immediately
after such transaction, the Corporation shall have S&P Eligible Assets with an
aggregate Discounted Value equal to or greater than the APS Basic Maintenance
Amount and the Corporation shall maintain the 1940 Act APS Asset Coverage, (B)
full cumulative dividends on shares of APS and shares of Other APS due on or
prior to the date of the transaction have been declared and paid or shall have
been declared and sufficient funds for the payment thereof deposited with the
Auction Agent, (C) any Additional Dividend required to be paid under paragraph
2(e) below on or before the date of such declaration or payment has been paid
and (D) the Corporation has redeemed the full number of shares of APS required
to be redeemed by any provision for mandatory redemption contained herein.
(e) Each dividend shall consist of (i) cash at the Applicable Rate,
(ii) an uncertificated right (a "Right") to receive an Additional Dividend (as
defined below), and (iii) any additional amounts as set forth in paragraph 2(f)
below. Each Right shall thereafter be independent of the share or shares of APS
on which the dividend was paid. The Corporation shall cause to be maintained a
record of each Right received by the respective Holders. A Right may not be
transferred other than by operation of law. If the Corporation retroactively
allocates any net capital gains or other income subject to regular Federal
income taxes to shares of APS without having given advance notice thereof to the
Auction Agent as described in paragraph 2(f) hereof solely by reason of the fact
that such allocation is made as a result of the redemption of all or a portion
of the outstanding shares of APS or the liquidation of the Corporation (the
amount of such allocation referred to herein as a "Retroactive Taxable
Allocation"), the Corporation will, within 90 days (and generally within 60
days) after the end of the Corporation's fiscal year for which a Retroactive
Taxable Allocation is made, provide notice thereof to the Auction Agent and to
each holder of a Right applicable to such shares of APS (initially as nominee of
The Depository Trust Company) during such fiscal year at such holder's address
as the same appears or last appeared on the Stock Books of the Corporation. The
Corporation will, within 30 days after such notice is given to the Auction
Agent, pay to the Auction Agent (who will then distribute to such holders of
Rights), out of funds legally available therefor, an amount equal to the
aggregate Additional Dividend with respect to all Retroactive Taxable
Allocations made to such holders during the fiscal year in question.
An "Additional Dividend" means payment to a present or former holder
of shares of APS of an amount which, when taken together with the aggregate
amount of Retroactive Taxable Allocations made to such holder with respect to
the fiscal year in question, would cause such holder's dividends in dollars
(after Federal income tax consequences) from the aggregate of both the
Retroactive Taxable Allocations and the Additional Dividend to be equal to the
dollar amount of the dividends which would have been received by such holder if
the amount of the aggregate Retroactive Taxable Allocations would have been
excludable from the gross income of such holder. Such Additional Dividend shall
be calculated (i) without consideration being given to the time value of money;
(ii) assuming that no holder of shares of APS is subject to the Federal
alternative minimum tax with respect to dividends received from the Corporation;
and (iii) assuming that each Retroactive Taxable Allocation would be taxable in
the hands of each holder of shares of APS at the greater of: (x) the maximum
marginal regular Federal individual income tax rate applicable to ordinary
income or capital gains depending on the taxable character of the distribution
(including any surtax); or (y) the maximum marginal regular Federal corporate
income tax rate applicable to ordinary income or capital gains depending on the
taxable character of the distribution (disregarding in both (x) and (y) the
effect of any state or local taxes and the phase out of, or provision limiting,
personal exemptions, itemized deductions, or the benefit of lower tax brackets).
(f) Except as provided below, whenever the Corporation intends to
include any net capital gains or other income subject to regular Federal income
taxes in any dividend on shares of APS, the Corporation will notify the Auction
Agent of the amount to be so included at least five Business Days prior to the
Auction Date on which the Applicable Rate for such dividend is to be
established. The Corporation may also include such income in a dividend on
shares of a series of APS without giving advance notice thereof if it increases
the dividend by an additional amount calculated as if such income was a
Retroactive Taxable Allocation and the additional amount was an Additional
Dividend, provided that the Corporation will notify the Auction Agent of the
additional amounts to be included in such dividend at least five Business Days
prior to the applicable Dividend Payment Date.
(g) No fractional shares of APS shall be issued.
3. LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the Holders shall be
entitled to receive, out of the assets of the Corporation available for
distribution to shareholders, before any distribution or payment is made upon
any Common Stock or any other shares of ranking junior in right of payment upon
liquidation to the APS, the sum of $25,000 per share plus accumulated but unpaid
dividends (whether or not earned or declared) thereon to the date of
distribution, and after such payment the Holders will be entitled to no other
payments other than Additional Dividends as provided in paragraph 2(e) hereof.
If upon any liquidation, dissolution or winding up of the Corporation, the
amounts payable with respect to the APS and any other Outstanding class or
series of Preferred Stock of the Corporation ranking on a parity with the APS as
to payment upon liquidation are not paid in full, the Holders and the holders of
such other class or series will share ratably in any such distribution of assets
in proportion to the respective preferential amounts to which they are entitled.
After payment of the full amount of the liquidating distribution to which they
are entitled, the Holders will not be entitled to any further participation in
any distribution of assets by the Corporation except for any Additional
Dividends. A consolidation, merger or statutory share exchange of the
Corporation with or into any other corporation or entity or a sale, whether for
cash, shares of stock, securities or properties, of all or substantially all or
any part of the assets of the Corporation shall not be deemed or construed to be
a liquidation, dissolution or winding up of the Corporation.
4. REDEMPTION. (a) Shares of APS shall be redeemable by the
Corporation as provided below:
(i) To the extent permitted under the 1940 Act and Maryland law, upon
giving a Notice of Redemption, the Corporation at its option may redeem shares
of any series of APS, in whole or in part, out of funds legally available
therefor, at the Optional Redemption Price per share, on any Dividend Payment
Date; provided that no share of APS may be redeemed at the option of the
Corporation during (A) the Initial Dividend Period with respect to a series of
shares or (B) a Non-Call Period to which such share is subject. In addition,
holders of APS which are redeemed shall be entitled to receive Additional
Dividends to the extent provided herein. The Corporation may not give a Notice
of Redemption relating to an optional redemption as described in this paragraph
4(a)(i) unless, at the time of giving such Notice of Redemption, the Corporation
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 due to Holders by reason of the redemption of their shares of
APS on such redemption date.
(ii) The Corporation shall redeem, out of funds legally available
therefor, at the Mandatory Redemption Price per share, shares of APS to the
extent permitted under the 1940 Act and Maryland law, on a date fixed by the
Board of Directors, if the Corporation fails to maintain S&P Eligible Assets
with an aggregate Discounted Value equal to or greater than the APS Basic
Maintenance Amount as provided in paragraph 7(a) or to satisfy the 1940 Act APS
Asset Coverage as provided in paragraph 6 and such failure is not cured on or
before the APS Basic Maintenance Cure Date or the 1940 Act Cure Date (herein
collectively referred to as a "Cure Date"), as the case may be. In addition,
holders of APS so redeemed shall be entitled to receive Additional Dividends to
the extent provided herein. The number of shares of APS to be redeemed shall be
equal to the lesser of (i) the minimum number of shares of APS the redemption of
which, if deemed to have occurred immediately prior to the opening of business
on the Cure Date, together with all shares of other Preferred Stock subject to
redemption or retirement, would result in the Corporation having S&P Eligible
Assets with an aggregate Discounted Value equal to or greater than the APS Basic
Maintenance Amount or satisfaction of the 1940 Act APS Asset Coverage, as the
case may be, on such Cure Date (provided that, if there is no such minimum
number of shares of APS and shares of other Preferred Stock the redemption of
which would have such result, all shares of APS and shares of other Preferred
Stock then Outstanding shall be redeemed), and (ii) the maximum number of shares
of APS, together with all shares of other Preferred Stock subject to redemption
or retirement, that can be redeemed out of funds expected to be legally
available therefor on such redemption date. In determining the number of shares
of APS required to be redeemed in accordance with the foregoing, the Corporation
shall allocate the number required to be redeemed which would result in the
Corporation having S&P Eligible Assets with an aggregate Discounted Value equal
to or greater than the APS Basic Maintenance Amount or satisfaction of the 1940
Act APS Asset Coverage, as the case may be, pro rata among shares of APS of all
series, Other APS and other Preferred Stock subject to redemption pursuant to
provisions similar to those contained in this paragraph 4(a)(ii); provided that,
shares of APS which may not be redeemed at the option of the Corporation due to
the designation of a Non-Call Period applicable to such shares (A) will be
subject to mandatory redemption only to the extent that other shares are not
available to satisfy the number of shares required to be redeemed and (B) will
be selected for redemption in an ascending order of outstanding number of days
in the Non-Call Period (with shares with the lowest number of days to be
redeemed first) and by lot in the event of shares having an equal number of days
in such Non-Call Period. The Corporation shall effect such redemption on a
Business Day which is not later than 35 days after such Cure Date, except that
if the Corporation does not have funds legally available for the redemption of
all of the required number of shares of APS and shares of other Preferred Stock
which are subject to mandatory redemption or the Corporation otherwise is unable
to effect such redemption on or prior to 35 days after such Cure Date, the
Corporation shall redeem those shares of APS which it is unable to redeem on the
earliest practicable date on which it is able to effect such redemption out of
funds legally available therefor.
(b) Notwithstanding any other provision of this paragraph 4, no shares
of APS may be redeemed pursuant to paragraph 4(a)(i) of these Articles
Supplementary (i) unless all dividends in arrears on all remaining outstanding
shares of Parity Shares shall have been or are being contemporaneously paid or
declared and set apart for payment and (ii) if redemption thereof would result
in the Corporation's failure to maintain S&P Eligible Assets with an aggregate
Discounted Value equal to or greater than the APS Basic Maintenance Amount. In
the event that less than all the outstanding shares of a series of APS are to be
redeemed and there is more than one Holder, the shares of that series of APS to
be redeemed shall be selected by lot or such other method as the Corporation
shall deem fair and equitable.
(c) Whenever shares of APS are to be redeemed, the Corporation, not
less than 17 nor more than 30 days prior to the date fixed for redemption, shall
mail a notice ("Notice of Redemption") by first-class mail, postage prepaid, to
each Holder of shares of APS to be redeemed and to the Auction Agent. The
Corporation shall cause the Notice of Redemption to also be published in the
eastern and national editions of The Wall Street Journal. The Notice of
Redemption shall set forth (i) the redemption date, (ii) the amount of the
redemption price, (iii) the aggregate number of shares of APS of such series to
be redeemed, (iv) the place or places where shares of APS of such series are to
be surrendered for payment of the redemption price, (v) a statement that
dividends on the shares to be redeemed shall cease to accumulate on such
redemption date (except that holders may be entitled to Additional Dividends)
and (vi) the provision of these Articles Supplementary pursuant to which such
shares are being redeemed. No defect in the Notice of Redemption or in the
mailing or publication thereof shall affect the validity of the redemption
proceedings, except as required by applicable law.
If the Notice of Redemption shall have been given as aforesaid and,
concurrently or thereafter, the Corporation shall have deposited in trust with
the Auction Agent, or segregated in an account at the Corporation's custodian
bank for the benefit of the Auction Agent, Deposit Securities (with a right of
substitution) having an aggregate Discounted Value (utilizing in the case of S&P
an S&P Exposure Period of 3 Business Days) equal to the redemption payment for
the shares of APS as to which such Notice of Redemption has been given with
irrevocable instructions and authority to pay the redemption price to the
Holders of such shares, then upon the date of such deposit or, if no such
deposit is made, then upon such date fixed for redemption (unless the
Corporation shall default in making the redemption payment), all rights of the
Holders of such shares as shareholders of the Corporation by reason of the
ownership of such shares will cease and terminate (except their right to receive
the redemption price in respect thereof and any Additional Dividends, but
without interest), and such shares shall no longer be deemed outstanding. The
Corporation shall be entitled to receive, from time to time, from the Auction
Agent the interest, if any, on such Deposit Securities deposited with it and the
Holders of any shares so redeemed shall have no claim to any of such interest.
In case the Holder of any shares so called for redemption shall not claim the
redemption payment for his shares within one year after the date of redemption,
the Auction Agent shall, upon demand, pay over to the Corporation such amount
remaining on deposit and the Auction Agent shall thereupon be relieved of all
responsibility to the Holder of such shares called for redemption and such
Holder thereafter shall look only to the Corporation for the redemption payment.
5. VOTING RIGHTS. (a) General. Except as otherwise provided in the
Articles of Incorporation, each Holder of shares of APS shall be entitled to one
vote for each share held on each matter submitted to a vote of stockholders of
the Corporation, and the holders of outstanding shares of Preferred Stock,
including APS, and of shares of Common Stock shall vote together as a single
class; provided that, at any meeting of the stockholders of the Corporation held
for the election of directors, the holders of outstanding shares of Preferred
Stock, including APS, shall be entitled, as a class, to the exclusion of the
holders of all other securities and classes of capital stock of the Corporation,
to elect two directors of the Corporation. Subject to paragraph 5(b) hereof, the
holders of outstanding shares of capital stock of the Corporation, including the
holders of outstanding shares of Preferred Stock, including APS, voting as a
single class, shall elect the balance of the directors.
(b) Right to Elect Majority of Board of Directors. 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 directors
constituting the Board of Directors shall be automatically increased by the
smallest number that, when added to the two directors elected exclusively by the
holders of shares of Preferred Stock, would constitute a majority of the Board
of Directors as so increased by such smallest number; and the holders of shares
of Preferred Stock shall be entitled, voting separately as one class (to the
exclusion of the holders of all other securities and classes of shares of
capital stock of the Corporation), to elect such smallest number of additional
directors, together with the two directors that such holders are in any event
entitled to elect. A Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not earned or
declared, and whether or not funds are then legally available in an amount
sufficient therefor) on the outstanding shares of APS equal to at least two full
years' dividends shall be due and unpaid and sufficient cash or specified
securities shall not have been deposited with the Auction Agent for the payment
of such accumulated dividends; or
(ii) if at any time holders of any other shares of Preferred Stock are
entitled to elect a majority of the directors of the Corporation under the 1940
Act. Upon the termination of a Voting Period, the voting rights described in
this paragraph 5(b) shall cease, subject always, however, to the reverting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this paragraph 5(b).
(c) Right to Vote with Respect to Certain Other Matters. So long as
any shares of APS are outstanding, the Corporation shall not, without the
affirmative vote of the holders of a majority of the shares of Preferred Stock
Outstanding at the time, voting separately as one class: (i) authorize, create
or issue any class or series of shares of capital stock ranking prior to the APS
or any other series of Preferred Stock with respect to payment of dividends or
the distribution of assets on liquidation, provided, however, that no vote is
required to authorize the issuance of another class of preferred stock which are
substantially identical in all respects to the shares of APS; or (ii) amend,
alter or repeal the provisions of the Articles of Incorporation, whether by
merger, consolidation or otherwise, so as to adversely affect any of the
contract rights expressly set forth in the Articles of Incorporation of holders
of shares of APS or any other Preferred Stock. So long as any shares of APS are
outstanding, the Corporation may not, without the affirmative vote of the
holders of at least 66-2/3% of the shares of APS outstanding at the time, voting
as a separate class, file a voluntary application for relief under federal
bankruptcy law or any similar application under state law for so long as the
Corporation is solvent and does not foresee becoming insolvent. To the extent
permitted under the 1940 Act, in the event shares of more than one series of APS
are outstanding, the Corporation shall not approve any of the actions set forth
in clause (i) or (ii) which adversely affects the contract rights expressly set
forth in the Articles of Incorporation of a Holder of shares of a series of APS
differently than those of a Holder of shares of any other series of APS without
the affirmative vote of the holders of at least a majority of the shares of APS
of each series adversely affected and outstanding at such time (each such
adversely affected series voting separately as a class). The Corporation shall
notify S&P ten Business Days prior to any such vote described in clause (i) or
(ii). Unless a higher percentage is provided for under the Articles of
Incorporation, the affirmative vote of the holders of a majority of the
outstanding shares of Preferred Stock, including APS, voting together as a
single class, will be required to approve any plan of reorganization (including
bankruptcy proceedings) adversely affecting such shares or any action requiring
a vote of security holders under Section 13(a) of the 1940 Act. The class vote
of holders of shares of Preferred Stock, including APS, described above will in
each case be in addition to a separate vote of the requisite percentage of
shares of Common Stock and shares of Preferred Stock, including APS, voting
together as a single class necessary to authorize the action in question.
(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of the
holders of shares of Preferred Stock to elect additional directors as described
in paragraph 5(b) above, the Corporation shall call a special meeting of such
holders and instruct the Auction Agent to mail a notice of such special meeting
to such holders, such meeting to be held not less than 10 nor more than 20 days
after the date of mailing of such notice. If the Corporation fails to send such
notice to the Auction Agent or if the Corporation does not call such a special
meeting, it may be called by any such holder on like notice. The record date for
determining the holders entitled to notice of and to vote at such special
meeting shall be the close of business on the fifth Business Day preceding the
day on which such notice is mailed. At any such special meeting and at each
meeting held during a Voting Period, such Holders, voting together as a class
(to the exclusion of the holders of all other securities and classes of shares
of capital stock of the Corporation), shall be entitled to elect the number of
directors prescribed in paragraph 5(b) above. At any such meeting or adjournment
thereof in the absence of a quorum, a majority of such holders present in person
or by proxy shall have the power to adjourn the meeting without notice, other
than by an announcement at the meeting, to a date not more than 120 days after
the original record date.
(ii) For purposes of determining any rights of the Holders to vote on
any matter or the number of shares required to constitute a quorum, whether such
right is created by these Articles Supplementary, by the other provisions of the
Articles of Incorporation, by statute or otherwise, a share of APS which is not
Outstanding shall not be counted.
(iii) Subject to the provisions of paragraph 5(b) hereof, the terms of
office of all persons who are directors of the Corporation at the time of a
special meeting of Holders and holders of other Preferred Stock to elect
directors shall continue, notwithstanding the election at such meeting by the
Holders and such other holders of the number of directors that they are entitled
to elect, and the persons so elected by the Holders and such other holders,
together with the two incumbent directors elected by the Holders and such other
holders of Preferred Stock and the remaining incumbent directors elected by the
holders of the Common Stock and Preferred Stock, shall constitute the duly
elected directors of the Corporation.
(iv) Simultaneously with the expiration of a Voting Period, the terms
of office of the additional directors elected by the Holders and holders of
other Preferred Stock pursuant to paragraph 5(b) above shall terminate, the
remaining directors shall constitute the directors of the Corporation and the
voting rights of the Holders and such other holders to elect additional
directors pursuant to paragraph 5(b) above shall cease, subject to the
provisions of the last sentence of paragraph 5(b).
(v) Solely for purposes of the provisions of paragraphs 5 (b) and (d)
hereof, and subject to the terms thereof in accordance with the 1940 Act and
Section 3-803(f) of the Maryland General Corporation Law (the "MGCL"), by
resolution of its Board of Directors on August 20, 1999, the Corporation elected
to be subject to Section 3-804(b) of the MGCL, which vests in the Board the
power to fix the number of directors of the Corporation, to be effective upon
the occurrence of the conditions giving rise to a Voting Period, notwithstanding
any contrary provisions in the Corporation's Charter or Bylaws. Except as set
forth above, the Corporation has not elected to be subject to the provisions of
Title 3 Subtitle 8 of the MGCL.
(e) Exclusive Remedy. Unless otherwise required by law, the Holders of
shares of APS shall not have any rights or preferences other than those
specifically set forth herein. The Holders of shares of APS shall have no
preemptive rights or rights to cumulative voting. In the event that the
Corporation fails to pay any dividends on the shares of APS, the exclusive
remedy of the Holders shall be the right to vote for directors pursuant to the
provisions of this paragraph 5.
(f) Notification to S&P and Moody's. In the event a vote of Holders of
APS is required pursuant to the provisions of Section 13(a) of the 1940 Act, the
Corporation shall, not later than ten Business Days prior to the date on which
such vote is to be taken, notify S&P that such vote is to be taken and the
nature of the action with respect to which such vote is to be taken and, not
later than ten Business Days after the date on which such vote is taken, notify
S&P of the result of such vote.
6. 1940 ACT APS ASSET COVERAGE. The Corporation shall maintain, as of
the last Business Day of each month in which any share of APS is outstanding,
the 1940 Act APS Asset Coverage.
7. APS BASIC MAINTENANCE AMOUNT. (a) The Corporation shall maintain,
on each Valuation Date, and shall verify to its satisfaction that it is
maintaining on such Valuation Date S&P Eligible Assets having an aggregate
Discounted Value equal to or greater than the APS Basic Maintenance Amount. Upon
any failure to maintain the required Discounted Value, the Corporation will use
its best efforts to alter the composition of its portfolio to retain a
Discounted Value at least equal to the APS Basic Maintenance Amount on or prior
to the APS Basic Maintenance Cure Date.
(b) On or before 5:00 p.m., New York City time, on the third Business
Day after a Valuation Date on which the Corporation fails to satisfy the APS
Basic Maintenance Amount, the Corporation shall complete and deliver to the
Auction Agent, and S&P, a complete APS Basic Maintenance Report as of the date
of such failure, which will be deemed to have been delivered to the Auction
Agent if the Auction Agent receives a copy or telecopy, telex or other
electronic transcription thereof and on the same day the Corporation mails to
the Auction Agent for delivery on the next Business Day the complete APS Basic
Maintenance Report. The Corporation will deliver an APS Basic Maintenance Report
to the Auction Agent and S&P, on or before 5:00 p.m., New York City time, on the
third Business Day after a Valuation Date on which the Corporation cures its
failure to maintain S&P Eligible Assets, with an aggregate Discounted Value
equal to or greater than the APS Basic Maintenance Amount or on which the
Corporation fails to maintain S&P Eligible Assets, with an aggregate Discounted
Value which exceeds the APS Basic Maintenance Amount by 5% or more. The
Corporation will also deliver an APS Basic Maintenance Report to the Auction
Agent and S&P as of each Quarterly Valuation Date on or before the third
Business Day after such date. Additionally, on or before 5:00 p.m., New York
City time, on the third Business Day after the first day of a Special Dividend
Period, the Corporation will deliver an APS Basic Maintenance Report to S&P and
the Auction Agent. The Corporation shall also provide S&P with an APS Basic
Maintenance Report when specifically requested by S&P. A failure by the
Corporation to deliver an APS Basic Maintenance Report under this paragraph 7(b)
shall be deemed to be delivery of an APS Basic Maintenance Report indicating the
Discounted Value for S&P Eligible Assets of the Corporation is less than the APS
Basic Maintenance Amount, as of the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery of an APS
Basic Maintenance Report in accordance with paragraph 7(b) above relating to a
Quarterly Valuation Date, the Independent Accountant will confirm in writing to
the Auction Agent and S&P (i) the mathematical accuracy of the calculations
reflected in such Report (and in any other APS Basic Maintenance Report,
randomly selected by the Independent Accountant, that was delivered by the
Corporation during the quarter ending on such Quarterly Valuation Date), (ii)
that, in such Report (and in such randomly selected Report), the Corporation
correctly determined the assets of the Corporation which constitute S&P Eligible
Assets at such Quarterly Valuation Date in accordance with these Articles
Supplementary, (iii) that, in such Report (and in such randomly selected
Report), the Corporation determined whether the Corporation had, at such
Quarterly Valuation Date (and at the Valuation Date addressed in such randomly
selected Report) in accordance with these Articles Supplementary, S&P Eligible
Assets of an aggregate Discounted Value at least equal to the APS Basic
Maintenance Amount, (iv) with respect to the S&P ratings on Municipal
Obligations, the issuer name, issue size and coupon rate listed in such Report,
that the Independent Accountant has requested that S&P verify such information
and the Independent Accountant shall provide a listing in its letter of any
differences, (v) with respect to the Moody's ratings on Municipal Obligations,
the issuer name, issue size and coupon rate listed in such Report, that such
information has been verified by Moody's (in the event such information is not
verified by Moody's, the Independent Accountant will inquire of Moody's what
such information is, and provide a listing in its letter of any differences),
(vi) with respect to the bid or mean price (or such alternative permissible
factor used in calculating the Market Value) provided by the custodian of the
Corporation's assets to the Corporation for purposes of valuing securities in
the Corporation's portfolio, the Independent Accountant has traced the price
used in such Report to the bid or mean price listed in such Report as provided
to the Corporation and verified that such information agrees (in the event such
information does not agree, the Independent Accountant will provide a listing in
its letter of such differences) and (vii) with respect to such confirmation to
Moody's, that the Corporation has satisfied the requirements of paragraph 8(b)
of these Articles Supplementary (such confirmation is herein called the
"Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery to the Auction
Agent and S&P of an APS Basic Maintenance Report in accordance with paragraph
7(b) above relating to any Valuation Date on which the Corporation failed to
maintain S&P Eligible Assets with an aggregate Discounted Value equal to or
greater than the APS Basic Maintenance Amount, and relating to the APS Basic
Maintenance Cure Date with respect to such failure, the Independent Accountant
will provide to the Auction Agent and S&P an Accountant's Confirmation as to
such APS Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to
subparagraph (c) or (d) of this paragraph 7 shows that an error was made in the
APS Basic Maintenance Report for a particular Valuation Date for which such
Accountant's Confirmation as required to be delivered, or shows that a lower
aggregate Discounted Value for the aggregate of all S&P Eligible Assets of the
Corporation was determined by the Independent Accountant, the calculation or
determination made by such Independent Accountant shall be final and conclusive
and shall be binding on the Corporation, and the Corporation shall accordingly
amend and deliver the APS Basic Maintenance Report to the Auction Agent and S&P
promptly following receipt by the Corporation of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business
Day after the Date of Original Issue of the shares of APS, the Corporation will
complete and deliver to S&P an APS Basic Maintenance Report as of the close of
business on such Date of Original Issue. Within five Business Days of such Date
of Original Issue, the Independent Accountant will confirm in writing to S&P (i)
the mathematical accuracy of the calculations reflected in such Report and (ii)
that the aggregate Discounted Value of S&P Eligible Assets reflected thereon
equals or exceeds the APS Basic Maintenance Amount reflected thereon. Also, on
or before 5:00 p.m., New York City time, on the first Business Day after shares
of Common Stock are repurchased by the Corporation, the Corporation will
complete and deliver to S&P an APS Basic Maintenance Report as of the close of
business on such date that Common Stock is repurchased.
8. CERTAIN OTHER RESTRICTIONS AND REQUIREMENTS.
(a) For so long as any shares of APS are rated by S&P, the Corporation
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 S&P that engaging in such transactions will not impair
the ratings then assigned to the shares of APS by S&P, except that the
Corporation 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, "S&P Hedging Transactions"), subject to the
following limitations:
(i) the Corporation will not engage in any S&P Hedging Transaction
based on the Municipal Index (other than transactions which terminate a futures
contract or option held by the Corporation by the Corporation's taking an
opposite position thereto ("Closing Transactions")), which would cause the
Corporation at the time of such transaction to own or have sold the least of (A)
more than 1,000 outstanding futures contracts based on the Municipal Index, (B)
outstanding futures contracts based on the Municipal Index exceeding in number
25% of the quotient of the Market Value of the Corporation's total assets
divided by $1,000 or (C) outstanding futures contracts based on the Municipal
Index exceeding in number 10% of the average number of daily traded futures
contracts based on the Municipal Index in the 30 days preceding the time of
effecting such transaction as reported by The Wall Street Journal;
(ii) the Corporation will not engage in any S&P Hedging Transaction
based on Treasury Bonds (other than Closing Transactions) which would cause the
Corporation at the time of such transaction to own or have sold the lesser of
(A) outstanding futures contracts based on Treasury Bonds and on the Municipal
Index exceeding in number 25% of the quotient of the Market Value of the
Corporation's total assets divided by $100,000 ($200,000 in the case of the
two-year United States Treasury Note) or (B) outstanding futures contracts based
on Treasury Bonds exceeding in number 10% of the average number of daily traded
futures contracts based on Treasury Bonds in the 30 days preceding the time of
effecting such transaction as reported by The Wall Street Journal;
(iii) the Corporation will engage in Closing Transactions to close out
any outstanding futures contract which the Corporation owns or has sold or any
outstanding option thereon owned by the Corporation in the event (A) the
Corporation does not have S&P Eligible Assets with an aggregate Discounted Value
equal to or greater than the APS Basic Maintenance Amount on two consecutive
Valuation Dates and (B) the Corporation is required to pay Variation Margin on
the second such Valuation Date;
(iv) the Corporation 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 Corporation holds the securities deliverable under such terms; and
(v) when the Corporation writes a futures contract or option thereon,
it will either maintain an amount of cash, cash equivalents or high grade (rated
A or better by S&P), fixed-income securities in a segregated account with the
Corporation's custodian, so that the amount so segregated plus the amount of
Initial Margin and Variation Margin held in the account of or on behalf of the
Corporation'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 Corporation
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 Corporation has S&P Eligible
Assets with a Discounted Value that equals or exceeds the APS Basic Maintenance
Amount, the Discounted Value of cash or securities held for the payment of
Initial Margin or Variation Margin shall be zero and the aggregate Discounted
Value of S&P Eligible Assets 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 Corporation plus
(ii) 25% of the aggregate settlement value, as marked to market, of any
outstanding futures contracts based on Treasury Bonds which contracts are owned
by the Corporation.
(b) For so long as shares of APS are rated by S&P, the Corporation
will not, unless it has received written confirmation from S&P that such action
would not impair the rating then assigned to shares of APS by S&P (i) borrow
money except for the purpose of clearing transactions in portfolio securities
(which borrowings shall under any circumstances be limited to the lesser of $10
million and an amount equal to 5% of the Market Value of the Corporation's
assets at the time of such borrowings and which borrowings shall be repaid
within 60 days and not be extended or renewed and shall not cause the aggregate
Discounted Value of S&P Eligible Assets to be less than the APS Basic
Maintenance Amount), (ii) engage in short sales of securities, (iii) lend any
securities, (iv) issue any class or series of stock ranking prior to or on a
parity with the APS with respect to the payment of dividends or the distribution
of assets upon dissolution, liquidation or winding up of the Corporation, (v)
reissue any APS previously purchased or redeemed by the Corporation, (vi) merge
or consolidate into or with any other Corporation or entity, (vii) change the
Pricing Service or (viii) engage in reverse repurchase agreements.
9. NOTICE. All notices or communications, unless otherwise specified
in these Articles Supplementary, shall be sufficiently given if in writing and
delivered in person or mailed by first-class mail, postage prepaid. Notice shall
be deemed given on the earlier of the date received or the date seven days after
which such notice is mailed.
10. AUCTION PROCEDURES.
(a) Certain definitions. As used in this paragraph 10, the following
terms shall have the following meanings, unless the context otherwise requires:
(i) "APS" means the shares of auction preferred stock being auctioned
pursuant to this paragraph 10.
(ii) "Auction Date" means the first Business Day preceding the first
day of a Dividend Period.
(iii) "Available APS" has the meaning specified in paragraph 10(d)(i)
below.
(iv) "Bid" has the meaning specified in paragraph 10(b)(i) below.
(v) "Bidder" has the meaning specified in paragraph 10(b)(i) below.
(vi) "Hold Order" has the meaning specified in paragraph 10(b)(i)
below.
(vii) "Maximum Applicable Rate" for any Dividend Period will be the
Applicable Percentage of the Reference Rate. The Applicable Percentage will be
determined based on (i) the credit rating assigned on such date to such shares
by S&P (or if S&P shall not make such rating available, the equivalent of such
rating by a Substitute Rating Agency) and (ii) whether the Corporation has
provided notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net
capital gains or other taxable income will be included in such dividend on
shares of APS as follows:
APPLICABLE APPLICABLE
PERCENTAGE OF Percentage Of
Reference Rate -- Reference Rate --
S&P Credit Ratings No Notification Notification
AA- or higher 110% 150%
A- to A+............ 125 160
BBB- to BBB+ 150 250
Below BBB-.......... 200 275
The Corporation shall take all reasonable action necessary to enable
S&P to provide a rating for each series of APS. If S&P shall not make such a
rating available, the underwriter or its affiliates and successors, after
consultation with the Corporation, shall select a nationally recognized
statistical rating organization to act as a Substitute Rating Agency.
(viii) "Order" has the meaning specified in paragraph 10(b)(i) below.
(ix) "Sell Order" has the meaning specified in paragraph 10(b)(i)
below.
(x) "Submission Deadline" means 1:00 P.M., New York City time, on any
Auction Date or such other time on any Auction Date as may be specified by the
Auction Agent from time to time as the time by which each Broker-Dealer must
submit to the Auction Agent in writing all Orders obtained by it for the Auction
to be conducted on such Auction Date.
(xi) "Submitted Bid" has the meaning specified in paragraph 10(d)(i)
below.
(xii) "Submitted Hold Order" has the meaning specified in paragraph
10(d)(i) below.
(xiii) "Submitted Order" has the meaning specified in paragraph
10(d)(i) below.
(xiv) "Submitted Sell Order" has the meaning specified in paragraph
10(d)(i) below.
(xv) "Sufficient Clearing Bids" has the meaning specified in paragraph
10(d)(i) below.
(xvi) "Winning Bid Rate" has the meaning specified in paragraph
10(d)(i) below.
(b) Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Holders and Potential Holders.
(i) Unless otherwise permitted by the Corporation, Beneficial Owners
and Potential Beneficial Owners may only participate in Auctions through their
Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as Existing Holders in respect of shares
subject to Orders submitted or deemed submitted to them by Beneficial Owners and
as Potential Holders in respect of shares subject to Orders submitted to them by
Potential Beneficial Owners. A Broker-Dealer may also hold shares of APS in its
own account as a Beneficial Owner. A Broker-Dealer may thus submit Orders to the
Auction Agent as a Beneficial Owner or a Potential Beneficial Owner and
therefore participate in an Auction as an Existing Holder or Potential Holder on
behalf of both itself and its customers. On or prior to the Submission Deadline
on each Auction Date:
(A) each Beneficial Owner may submit to its Broker-Dealer
information as to:
(1) the number of Outstanding shares, if any, of APS held by such
Beneficial Owner which such Beneficial Owner desires to continue to hold
without regard to the Applicable Rate for the next succeeding Dividend
Period;
(2) the number of Outstanding shares, if any, of APS held by such
Beneficial Owner which such Beneficial Owner desires to continue to hold,
provided that the Applicable Rate for the next succeeding Dividend Period
shall not be less than the rate per annum specified by such Beneficial
Owner; and/or
(3) the number of Outstanding shares, if any, of APS held by such
Beneficial Owner which such Beneficial Owner offers to sell without regard
to the Applicable Rate for the next succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial Owners
that shall be maintained in good faith for the purpose of conducting a
competitive Auction, shall contact Potential Beneficial Owners, including
Persons that are not Beneficial Owners, on such list to determine the number of
Outstanding shares, if any, of APS which each such Potential Beneficial Owner
offers to purchase, provided that the Applicable Rate for the next succeeding
Dividend Period shall not be less than the rate per annum specified by such
Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a Broker-
Dealer acting for its own account to the Auction Agent, of information referred
to in clause (A) or (B) of this paragraph 10(b)(i) is hereinafter referred to as
an "Order" and each Beneficial Owner and each Potential Beneficial Owner placing
an Order, including a Broker-Dealer acting in such capacity for its own account,
is hereinafter referred to as a "Bidder"; an Order containing the information
referred to in clause (A)(1) of this paragraph 10(b)(i) is hereinafter referred
to as a "Hold Order"; an Order containing the information referred to in clause
(A)(2) or (B) of this paragraph 10(b)(i) is hereinafter referred to as a "Bid";
and an Order containing the information referred to in clause (A)(3) of this
paragraph 10(b)(i) is hereinafter referred to as a "Sell Order." Inasmuch as a
Broker-Dealer participates in an Auction as an Existing Holder or a Potential
Holder only to represent the interests of a Beneficial Owner or Potential
Beneficial Owner, whether it be its customers or itself, all discussion herein
relating to the consequences of an Auction for Existing Holders and Potential
Holders also applies to the underlying beneficial ownership interests
represented.
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of Outstanding shares of APS specified in such Bid
if the Applicable Rate determined on such Auction Date shall be less than
the rate per annum specified in such Bid; or (1) such number or a lesser
number of Outstanding shares of APS to be determined as set forth in
paragraph 10(e)(i)(D) if the Applicable Rate determined on such Auction
Date shall be equal to the rate per annum specified therein; or
(2) a lesser number of Outstanding shares of APS to be determined
as set forth in paragraph 10(e)(ii)(C) if such specified rate per annum
shall be higher than the Maximum Applicable Rate and Sufficient Clearing
Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of Outstanding shares of APS specified in such
Sell Order; or
(2) such number or a lesser number of Outstanding shares of APS
to be determined as set forth in paragraph 10(e)(ii)(C) if Sufficient
Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable offer
to purchase:
(1) the number of Outstanding shares of APS specified in such Bid
if the Applicable Rate determined on such Auction Date shall be higher than
the rate per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding shares of APS
to be determined as set forth in paragraph 10(e)(i)(E) if the Applicable
Rate determined on such Auction Date shall be equal to the rate per annum
specified therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent.
(i) Each Broker-Dealer shall submit in writing or through the Auction
Agent's Auction Processing System to the Auction Agent prior to the Submission
Deadline on each Auction Date all Orders obtained by such Broker-Dealer,
designating itself (unless otherwise permitted by the Corporation) as an
Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
shares subject to Orders submitted to it by Potential Beneficial Owners, and
specifying with respect to each Order:
(A) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Corporation);
(B) the aggregate number of Outstanding shares of APS that are the
subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of APS subject to any
Hold Order placed by such Existing Holder;
(2) the number of Outstanding shares, if any, of APS subject to any
Bid placed by such Existing Holder and the rate per annum specified in such Bid;
and
(3) the number of Outstanding shares, if any, of APS subject to any
Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate per
annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more than
three figures to the right of the decimal point, the Auction Agent shall round
such rate up to the next highest one-thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the Outstanding shares of
APS held by an Existing Holder are not submitted to the Auction Agent prior to
the Submission Deadline, the Auction Agent shall deem a Hold Order (in the case
of an Auction relating to a Dividend Period which is not a Special Dividend
Period) and a Sell Order (in the case of an Auction relating to a Special
Dividend Period) to have been submitted on behalf of such Existing Holder
covering the number of Outstanding shares of APS held by such Existing Holder
and not subject to Orders submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering in
the aggregate more than the number of Outstanding shares of APS held by such
Existing Holder are submitted to the Auction Agent, such Order shall be
considered valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder shall
be considered valid up to and including the number of Outstanding shares of APS
held by such Existing Holder; provided that if more than one Hold Order is
submitted on behalf of such Existing Holder and the number of shares of APS
subject to such Hold Orders exceeds the number of Outstanding shares of APS held
by such Existing Holder, the number of shares of APS subject to each of such
Hold Orders shall be reduced pro rata so that such Hold Orders, in the
aggregate, will cover exactly the number of Outstanding shares of APS held by
such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall be
considered valid, in the ascending order of their respective rates per annum if
more than one Bid is submitted on behalf of such Existing Holder, up to and
including the excess of the number of Outstanding shares of APS held by such
Existing Holder over the number of shares of APS subject to any Hold Order
referred to in paragraph 10(c)(iv)(A) above (and if more than one Bid submitted
on behalf of such Existing Holder specifies the same rate per annum and together
they cover more than the remaining number of shares that can be the subject of
valid Bids after application of paragraph 10(c)(iv)(A) above and of the
foregoing portion of this paragraph 10(c)(iv)(B) to any Bid or Bids specifying a
lower rate or rates per annum, the number of shares subject to each of such Bids
shall be reduced pro rata so that such Bids, in the aggregate, cover exactly
such remaining number of shares); and the number of shares, if any, subject to
Bids not valid under this paragraph 10(c)(iv)(B) shall be treated as the subject
of a Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid up to and including the
excess of the number of Outstanding shares of APS held by such Existing Holder
over the number of shares of APS subject to Hold Orders referred to in paragraph
10(c)(iv)(A) and Bids referred to in paragraph 10(c)(iv)(B); provided that if
more than one Sell Order is submitted on behalf of any Existing Holder and the
number of shares of APS subject to such Sell Orders is greater than such excess,
the number of shares of APS subject to each of such Sell Orders shall be reduced
pro rata so that such Sell Orders, in the aggregate, cover exactly the number of
shares of APS equal to such excess.
(v) If more than one Bid is submitted on behalf of any Potential
Holder, each Bid submitted shall be a separate Bid with the rate per annum and
number of shares of APS therein specified.
(vi) Any Order submitted by a Beneficial Owner as a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date shall be
irrevocable.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(i) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted to it by
the Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order", a "Submitted Bid" or a "Submitted Sell Order", as the case may be, or as
a "Submitted Order") and shall determine:
(A) the excess of the total number of Outstanding shares of APS over
the number of Outstanding shares of APS that are the subject of Submitted Hold
Orders (such excess being hereinafter referred to as the "Available APS");
(B) from the Submitted Orders whether the number of Outstanding shares
of APS that are the subject of Submitted Bids by Potential Holders specifying
one or more rates per annum equal to or lower than the Maximum Applicable Rate
exceeds or is equal to the sum of:
(1) the number of Outstanding shares of APS that are the subject
of Submitted Bids by Existing Holders specifying one or more rates per
annum higher than the Maximum Applicable Rate, and
(2) the number of Outstanding shares of APS that are subject to
Submitted Sell Orders (if such excess or such equality exists (other than
because the number of Outstanding shares of APS in clause (1) above and
this clause (2) are each zero because all of the Outstanding shares of APS
are the subject of Submitted Hold Orders), such Submitted Bids by Potential
Holders being hereinafter referred to collectively as "Sufficient Clearing
Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per annum
specified in the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying the
Winning Bid Rate and all other Submitted Bids from Existing Holders
specifying lower rates per annum were rejected, thus entitling such
Existing Holders to continue to hold the shares of APS that are the subject
of such Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying the
Winning Bid Rate and all other Submitted Bids from Potential Holders
specifying lower rates per annum were accepted, thus entitling the
Potential Holders to purchase the shares of APS that are the subject of
such Submitted Bids, would result in the number of shares subject to all
Submitted Bids specifying the Winning Bid Rate or a lower rate per annum
being at least equal to the Available APS.
(ii) Promptly after the Auction Agent has made the determinations
pursuant to paragraph 10(d)(i), the Auction Agent shall advise the Corporation
of the Maximum Applicable Rate and, based on such determinations, the Applicable
Rate for the next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate for
the next succeeding Dividend Period shall be equal to the Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than because all
of the Outstanding shares of APS are the subject of Submitted Hold Orders), that
the Applicable Rate for the next succeeding Dividend Period shall be equal to
the Maximum Applicable Rate; or
(C) if all of the Outstanding shares of APS are the subject of
Submitted Hold Orders, that the Dividend Period next succeeding the Auction
shall automatically be the same length as the immediately preceding Dividend
Period and the Applicable Rate for the next succeeding Dividend Period shall be
equal to 40% of the Reference Rate (or 60% of such rate if the Corporation has
provided notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net
capital gains or other taxable income will be included in such dividend on
shares of APS) on the date of the Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares. Based on the determinations made pursuant to
paragraph 10(d)(i), the Submitted Bids and Submitted Sell Orders shall be
accepted or rejected and the Auction Agent shall take such other action as set
forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of paragraph 10(e)(iii) and paragraph 10(e)(iv), Submitted Bids and
Submitted Sell Orders shall be accepted or rejected in the following order of
priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be accepted
and the Submitted Bid of each of the Existing Holders specifying any rate per
annum that is higher than the Winning Bid Rate shall be accepted, thus requiring
each such Existing Holder to sell the Outstanding shares of APS that are the
subject of such Submitted Sell Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders specifying any
rate per annum that is lower than the Winning Bid Rate shall be rejected, thus
entitling each such Existing Holder to continue to hold the Outstanding shares
of APS that are the subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders specifying any
rate per annum that is lower than the Winning Bid Rate shall be accepted;
(D) the Submitted Bid of each of the Existing Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be rejected, thus
entitling each such Existing Holder to continue to hold the Outstanding shares
of APS that are the subject of such Submitted Bid, unless the number of
Outstanding shares of APS subject to all such Submitted Bids shall be greater
than the number of Outstanding shares of APS ("Remaining Shares") equal to the
excess of the Available APS over the number of Outstanding shares of APS subject
to Submitted Bids described in paragraph 10(e)(i)(B) and paragraph 10(e)(i)(C),
in which event the Submitted Bids of each such Existing Holder shall be
accepted, and each such Existing Holder shall be required to sell Outstanding
shares of APS, but only in an amount equal to the difference between (1) the
number of Outstanding shares of APS then held by such Existing Holder subject to
such Submitted Bid and (2) the number of shares of APS obtained by multiplying
(x) the number of Remaining Shares by (y) a fraction the numerator of which
shall be the number of Outstanding shares of APS held by such Existing Holder
subject to such Submitted Bid and the denominator of which shall be the sum of
the number of Outstanding shares of APS subject to such Submitted Bids made by
all such Existing Holders that specified a rate per annum equal to the Winning
Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be accepted but only
in an amount equal to the number of Outstanding shares of APS obtained by
multiplying (x) the difference between the Available APS and the number of
Outstanding shares of APS subject to Submitted Bids described in paragraph
10(e)(i)(B), paragraph 10(e)(i)(C) and paragraph 10(e)(i)(D) by (y) a fraction
the numerator of which shall be the number of Outstanding shares of APS subject
to such Submitted Bid and the denominator of which shall be the sum of the
number of Outstanding shares of APS subject to such Submitted Bids made by all
such Potential Holders that specified rates per annum equal to the Winning Bid
Rate.
(ii) If Sufficient Clearing Bids have not been made (other than
because all of the Outstanding shares of APS are subject to Submitted Hold
Orders), subject to the provisions of paragraph 10(e)(iii), Submitted Orders
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate per
annum that is equal to or lower than the Maximum Applicable Rate shall be
rejected, thus entitling such Existing Holder to continue to hold the
Outstanding shares of APS that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any rate per
annum that is equal to or lower than the Maximum Applicable Rate shall be
accepted, thus requiring such Potential Holder to purchase the Outstanding
shares of APS that are the subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any rate per
annum that is higher than the Maximum Applicable Rate shall be accepted and the
Submitted Sell Orders of each Existing Holder shall be accepted, in both cases
only in an amount equal to the difference between (1) the number of Outstanding
shares of APS then held by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and (2) the number of shares of APS obtained by multiplying
(x) the difference between the Available APS and the aggregate number of
Outstanding shares of APS subject to Submitted Bids described in paragraph
10(e)(ii)(A) and paragraph 10(e)(ii)(B) by (y) a fraction the numerator of which
shall be the number of Outstanding shares of APS held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and the denominator of
which shall be the number of Outstanding shares of APS subject to all such
Submitted Bids and Submitted Sell Orders.
(iii) If, as a result of the procedures described in paragraph
10(e)(i) or paragraph 10(e)(ii), any Existing Holder would be entitled or
required to sell, or any Potential Holder would be entitled or required to
purchase, a fraction of a share of APS on any Auction Date, the Auction Agent
shall, in such manner as in its sole discretion it shall determine, round up or
down the number of shares of APS to be purchased or sold by any Existing Holder
or Potential Holder on such Auction Date so that each Outstanding share of APS
purchased or sold by each Existing Holder or Potential Holder on such Auction
Date shall be a whole share of APS.
(iv) If, as a result of the procedures described in paragraph
10(e)(i), any Potential Holder would be entitled or required to purchase less
than a whole share of APS on any Auction Date, the Auction Agent shall, in such
manner as in its sole discretion it shall determine, allocate shares of APS for
purchase among Potential Holders so that only whole shares of APS are purchased
on such Auction Date by any Potential Holder, even if such allocation results in
one or more of such Potential Holders not purchasing any shares of APS on such
Auction Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell Orders
on behalf of Existing Holders or Potential Holders, the aggregate number of
Outstanding shares of APS to be purchased and the aggregate number of the
Outstanding shares of APS to be sold by such Potential Holders and Existing
Holders and, to the extent that such aggregate number of Outstanding shares to
be purchased and such aggregate number of Outstanding shares to be sold differ,
the Auction Agent shall determine to which other Broker-Dealer or Broker-Dealers
acting for one or more purchasers such Broker-Dealer shall deliver, or from
which other Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, Outstanding shares of APS
(f) Miscellaneous. The Corporation may interpret the provisions of
this paragraph 10 to resolve any inconsistency or ambiguity, remedy any formal
defect or make any other change or modification that does not substantially
adversely affect the rights of Beneficial Owners of APS. A Beneficial Owner or
an Existing Holder (A) may sell, transfer or otherwise dispose of shares of APS
only pursuant to a Bid or Sell Order in accordance with the procedures described
in this paragraph 10 or to or through a Broker-Dealer, provided that in the case
of all transfers other than pursuant to Auctions such Beneficial Owner or
Existing Holder, its Broker-Dealer, if applicable, or its Agent Member advises
the Auction Agent of such transfer and (B) except as otherwise required by law,
shall have the ownership of the shares of APS held by it maintained in book
entry form by the Securities Depository in the account of its Agent Member,
which in turn will maintain records of such Beneficial Owner's beneficial
ownership. Neither the Corporation nor any Affiliate shall submit an Order in
any Auction. Any Beneficial Owner that is an Affiliate shall not sell, transfer
or otherwise dispose of shares of APS to any Person other than the Corporation.
All of the Outstanding shares of APS of a series shall be represented by a
single certificate registered in the name of the nominee of the Securities
Depository unless otherwise required by law or unless there is no Securities
Depository. If there is no Securities Depository, at the Corporation's option
and upon its receipt of such documents as it deems appropriate, any shares of
APS may be registered in the Stock Register in the name of the Beneficial Owner
thereof and such Beneficial Owner thereupon will be entitled to receive
certificates therefor and required to deliver certificates therefor upon
transfer or exchange thereof.
11. SECURITIES DEPOSITORY; STOCK CERTIFICATES. (a) If there is a
Securities Depository, one certificate for all of the shares of APS of each
series shall be issued to the Securities Depository and registered in the name
of the Securities Depository or its nominee. Additional certificates may be
issued as necessary to represent shares of APS. All such certificates shall bear
a legend to the effect that such certificates are issued subject to the
provisions restricting the transfer of shares of APS contained in these Article
Supplementary. Unless the Corporation shall have elected, during a Non-Payment
Period, to waive this requirement, the Corporation will also issue stop-transfer
instructions to the Auction Agent for the shares of APS. Except as provided in
paragraph (b) below, the Securities Depository or its nominee will be the
Holder, and no Beneficial Owner shall receive certificates representing its
ownership interest in such shares.
(b) If the Applicable Rate applicable to all shares of APS of a series
shall be the Non-Payment Period Rate or there is no Securities Depository, the
Corporation may at its option issue one or more new certificates with respect to
such shares (without the legend referred to in paragraph 11(a)) registered in
the names of the Beneficial Owners or their nominees and rescind the
stop-transfer instructions referred to in paragraph 11(a) with respect to such
shares.
<PAGE>
IN WITNESS WHEREOF, DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC., has
caused these presents to be signed in its name and on its behalf by its Vice
President and witnessed by its Assistant Secretary as of the 22nd day of
September, 1999, and its Vice President acknowledges that these Articles
Supplementary are the act and deed of Dreyfus Strategic Municipal Bond Fund,
Inc., and, under the penalties of perjury, that the matters and facts set forth
herein with respect to authorization and approval are true in all material
respects to the best of her knowledge, information and belief.
DREYFUS STRAREGIC MUNICIPAL BOND FUND, INC.
By: /s/ Stephanie D. Pierce
-------------------------------------
Stephanie D. Pierce
Vice President, Assistant Secretary
and Assistant Treasurer
WITNESS:
/s/ Christopher J. Kelley
- ---------------------------
Christopher J. Kelley
Assistant Secretary
EXHIBIT (B)
BY-LAWS
OF
DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
(A Maryland Corporation)
-----------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing shares
of stock shall set forth thereon the statements prescribed by Section 2-211 of
the Maryland General Corporation Law ("General Corporation Law") and by any
other applicable provision of law and shall be signed by the Chairman of the
Board or the President or a Vice President and countersigned by the Secretary or
an Assistant Secretary or the Treasurer or an Assistant Treasurer and may be
sealed with the corporate seal. The signatures of any such officers may be
either manual or facsimile signatures and the corporate seal may be either
facsimile or any other form of seal. In case any such officer who has signed
manually or by facsimile any such certificate ceases to be such officer before
the certificate is issued, it nevertheless may be issued by the corporation with
the same effect as if the officer had not ceased to be such officer as of the
date of its issue.
No certificate representing shares of stock shall be issued for any
share of stock until such share is fully paid, except as otherwise authorized in
Section 2-206 of the General Corporation Law.
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Board of Directors may require, in its discretion, the owner
of any such certificate or the owner's legal representative to give bond, with
sufficient surety, to the corporation to indemnify it against any loss or claim
that may arise by reason of the issuance of a new certificate.
2. SHARE TRANSFERS. Upon compliance with provisions restricting the
transferability of shares of stock, if any, transfers of shares of stock of the
corporation shall be made only on the stock transfer books of the corporation by
the record holder thereof or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation or with a
transfer agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares of stock properly endorsed and the payment of all
taxes due thereon.
3. RECORD DATE FOR STOCKHOLDERS. The Board of Directors may fix, in
advance, a date as the record date for the purpose of determining stockholders
entitled to notice of, or to vote at, any meeting of stockholders, or
stockholders entitled to receive payment of any dividend or the allotment of any
rights or in order to make a determination of stockholders for any other proper
purpose. Such date, in any case, shall be not more than 90 days, and in case of
a meeting of stockholders not less than 10 days, prior to the date on which the
meeting or particular action requiring such determination of stockholders is to
be held or taken. In lieu of fixing a record date, the Board of Directors may
provide that the stock transfer books shall be closed for a stated period but
not to exceed 20 days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of, or to vote at, a meeting of
stockholders, such books shall be closed for at least 10 days immediately
preceding such meeting. If no record date is fixed and the stock transfer books
are not closed for the determination of stockholders: (1) The record date for
the determination of stockholders entitled to notice of, or to vote at, a
meeting of stockholders shall be at the close of business on the day on which
the notice of meeting is mailed or the day 30 days before the meeting, whichever
is the closer date to the meeting; and (2) The record date for the determination
of stockholders entitled to receive payment of a dividend or an allotment of any
rights shall be at the close of business on the day on which the resolution of
the Board of Directors declaring the dividend or allotment of rights is adopted,
provided that the payment or allotment date shall not be more than 60 days after
the date on which the resolution is adopted.
4. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share of stock" or "shares of stock" or "stockholder" or
"stockholders" refers to an outstanding share or shares of stock and to a holder
or holders of record of outstanding shares of stock when the corporation is
authorized to issue only one class of shares of stock and said reference also is
intended to include any outstanding share or shares of stock and any holder or
holders of record of outstanding shares of stock of any class or series upon
which or upon whom the Charter confers such rights where there are two or more
classes or series of shares or upon which or upon whom the General Corporation
Law confers such rights notwithstanding that the Charter may provide for more
than one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder.
5. STOCKHOLDER MEETINGS.
TIME. The annual meeting of stockholders shall be held on the date
fixed, from time to time, by the directors, within the thirty-one day period
commencing with the first day of June (or if said day be a legal holiday, then
on the next succeeding day not a legal holiday), for the election of directors
and the transaction of any business within the powers of the corporation.
Special meetings shall be held on the date or dates fixed by the directors.
PLACE. Annual meetings and special meetings shall be held at such
place, either within the State of Maryland or at such other place within the
United States, as the directors from time to time may fix.
NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER OF NOTICE. Written or
printed notice of all meetings shall be given by the Secretary and shall state
the time and place of the meeting. The notice of a special meeting shall state
in all instances the purpose or purposes for which the meeting is called.
Written or printed notice of any meeting shall be given to each stockholder
either by mail or by presenting it to the stockholder personally or by leaving
it at his or her residence or usual place of business not less than ten days and
not more than 90 days before the date of the meeting, unless any provisions of
the General Corporation Law shall prescribe a different elapsed period of time,
to each stockholder at his or her address appearing on the books of the
corporation or the address supplied by the stockholder for the purpose of
notice. If mailed, notice shall be deemed to be given when deposited in the
United States mail addressed to the stockholder at his or her post office
address as it appears on the records of the corporation with postage thereon
prepaid. Whenever any notice of the time, place or purpose of any meeting of
stockholders is required to be given under the provisions of these by-laws or of
the General Corporation Law, a waiver thereof in writing, signed by the
stockholder and filed with the records of the meeting, whether before or after
the holding thereof, or actual attendance or representation at the meeting shall
be deemed equivalent to the giving of such notice to such stockholder. The
foregoing requirements of notice also shall apply, whenever the corporation
shall have any class of stock which is not entitled to vote, to holders of stock
who are not entitled to vote at the meeting, but who are entitled to notice
thereof and to dissent from any action taken thereat.
STATEMENT OF AFFAIRS. The President of the corporation or, if the
Board of Directors shall determine otherwise, some other executive officer
thereof, shall prepare or cause to be prepared annually a full and correct
statement of the affairs of the corporation, including a balance sheet and a
financial statement of operations for the preceding fiscal year, which shall be
submitted at the annual meeting and filed within 20 days thereafter at the
principal office of the corporation in the State of Maryland.
QUORUM. At any meeting of stockholders, the presence in person or
by proxy of stockholders entitled to cast a majority of the votes thereat shall
constitute a quorum. In the absence of a quorum, the stockholders present in
person or by proxy, by majority vote and without notice other than by
announcement, may adjourn the meeting from time to time, but not for a period
exceeding 120 days after the original record date until a quorum shall attend.
ADJOURNED MEETINGS. A meeting of stockholders convened on the date
for which it was called (including one adjourned to achieve a quorum as provided
in the paragraph above) may be adjourned from time to time without further
notice to a date not more than 120 days after the original record date, and any
business may be transacted at any adjourned meeting which could have been
transacted at the meeting as originally called.
CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting: the President, the Chairman of the Board, a Vice President or, if
none of the foregoing is in office and present and acting, by a chairman to be
chosen by the stockholders. The Secretary of the corporation or, in his or her
absence, an Assistant Secretary, shall act as secretary of every meeting, but if
neither the Secretary nor an Assistant Secretary is present the chairman of the
meeting shall appoint a secretary of the meeting.
PROXY REPRESENTATION. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether for the purposes of determining the
stockholder's presence at a meeting, or whether by waiving notice of any
meeting, voting or participating at a meeting, expressing consent or dissent
without a meeting or otherwise. Every proxy shall be executed in writing by the
stockholder or by his or her duly authorized attorney-in-fact or be in such
other form as may be permitted by the Maryland General Corporation Law,
including documents conveyed by electronic transmission, and filed with the
Secretary of the corporation. A copy, facsimile transmission or other
reproduction of the writing or transmission may be substituted for the original
writing or transmission for any purpose for which the original transmission
could be used. No unrevoked proxy shall be valid after 11 months from the date
of its execution, unless a longer time is expressly provided therein. The
placing of a stockholder's name on a proxy pursuant to telephonic or
electronically transmitted instructions obtained pursuant to procedures
reasonably designed to verify that such instructions have been authorized by
such stockholder shall constitute execution of such proxy by or on behalf of
such stockholder.
INSPECTORS OF ELECTION. The directors, in advance of any meeting,
may, but need not, appoint one or more inspectors to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath to execute faithfully the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum and the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting
or any stockholder, the inspector or inspectors, if any, shall make a report in
writing of any challenge, question or matter determined by him or them and
execute a certificate of any fact found by him or them.
VOTING. Each share of stock shall entitle the holder thereof to one
vote, except in the election of directors, at which each said vote may be cast
for as many persons as there are directors to be elected. Except for election of
directors, a majority of the votes cast at a meeting of stockholders, duly
called and at which a quorum is present, shall be sufficient to take or
authorize action upon any matter which may come before a meeting, unless more
than a majority of votes cast is required by the corporation's Articles of
Incorporation. A plurality of all the votes cast at a meeting at which a quorum
is present shall be sufficient to elect a director.
6. INFORMAL ACTION. Any action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting if a consent in writing,
setting forth such action, is signed by all the stockholders entitled to vote on
the subject matter thereof and any other stockholders entitled to notice of a
meeting of stockholders (but not to vote thereat) have waived in writing any
rights which they may have to dissent from such action and such consent and
waiver are filed with the records of the corporation.
ARTICLE II
BOARD OF DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed under the direction of a Board of Directors. The
use of the phrase "entire board" herein refers to the total number of directors
which the corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. Each director shall be a natural person
of full age. A director need not be a stockholder, a citizen of the United
States or a resident of the State of Maryland. The initial Board of Directors
shall consist of one person. Thereafter, the number of directors constituting
the entire board shall never be less than three or the number of stockholders,
whichever is less. At any regular meeting or at any special meeting called for
that purpose, a majority of the entire Board of Directors may increase or
decrease the number of directors, provided that the number thereof shall never
be less than three or the number of stockholders, whichever is less, nor more
than twelve and further provided that the tenure of office of a director shall
not be affected by any decrease in the number of directors.
3. ELECTION AND TERM. The first Board of Directors shall consist of
the director named in the Articles of Incorporation and shall hold office until
the first annual meeting of stockholders or until his successor has been elected
and qualified. Beginning with the first annual meeting of stockholders held
after the initial public offering of the shares of the corporation (the "initial
annual meeting"), the Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors constituting the
entire Board permits, with the term of office of one class expiring each year.
At the initial annual meeting, directors of the first class shall be deemed to
have been elected to hold office for a term expiring at the next succeeding
annual meeting, directors of the second class shall be deemed to have been
elected to hold office for a term expiring at the second succeeding annual
meeting and directors of the third class shall be deemed to have been elected to
hold office for a term expiring at the third succeeding annual meeting. In the
interim between annual meetings of stockholders or special meetings of
stockholders called for the election of directors, newly created directorships
and any vacancies in the Board of Directors, other than vacancies resulting from
the removal of directors by the stockholders, may be filled by the Board of
Directors. Newly created directorships filled by the Board of Directors shall be
by action of a majority of the entire Board of Directors. All other vacancies to
be filled by the Board of Directors may be filled by a majority of the remaining
members of the Board of Directors, although such majority is less than a quorum
thereof. Any director elected by the stockholders of the corporation to fill a
vacancy shall be in the same class and have the same remaining term as that of
the predecessor. Any director elected by the Board of Directors to fill a
vacancy shall serve until the next annual meeting of stockholders and until his
successor is elected and qualifies. No decrease in the number of directors shall
shorten the term of any incumbent director.
4. MEETINGS.
TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors conveniently may assemble.
PLACE. Meetings shall be held at such place within or without the
State of Maryland as shall be fixed by the Board.
CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the President or of a majority of the directors in office.
NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. Whenever any notice of the
time, place or purpose of any meeting of directors or any committee thereof is
required to be given under the provisions of the General Corporation Law or of
these by-laws, a waiver thereof in writing, signed by the director or committee
member entitled to such notice and filed with the records of the meeting,
whether before or after the holding thereof, or actual attendance at the meeting
shall be deemed equivalent to the giving of such notice to such director or such
committee member.
QUORUM AND ACTION. A majority of the entire Board of Directors
shall constitute a quorum except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute a
quorum, provided such majority shall constitute at least one-third of the entire
Board and, in no event, less than two directors. A majority of the directors
present, whether or not a quorum is present, may adjourn a meeting to another
time and place. Except as otherwise specifically provided by the Articles of
Incorporation, the General Corporation Law or these by-laws, the action of a
majority of the directors present at a meeting at which a quorum is present
shall be the action of the Board of Directors.
CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, or the President or any other director chosen by the Board,
shall preside at all meetings.
5. REMOVAL OF DIRECTORS. Any or all of the directors may be removed
for cause or without cause by the stockholders, who may elect a successor or
successors to fill any resulting vacancy or vacancies for the unexpired term of
the removed director or directors.
6. COMMITTEES. The Board of Directors may appoint from among its
members an Executive Committee and other committees composed of one or more
directors and may delegate to such committee or committees, in the intervals
between meetings of the Board of Directors, any or all of the powers of the
Board of Directors in the management of the business and affairs of the
corporation to the extent permitted by law. In the absence of any member of any
such committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
7. INFORMAL ACTION. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if a written consent to such action is signed by all members
of the Board of Directors or any such committee, as the case may be, and such
written consent is filed with the minutes of the proceedings of the Board or any
such committee.
Members of the Board of Directors or any committee designated thereby
may participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
ARTICLE III
OFFICERS
The corporation may have a Chairman of the Board and shall have a
President, a Secretary and a Treasurer, who shall be elected by the Board of
Directors, and may have such other officers, assistant officers and agents as
the Board of Directors shall authorize from time to time. Any two or more
offices, except those of President and Vice President, may be held by the same
person, but no person shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law to be executed,
acknowledged or verified by two or more officers.
Any officer or agent may be removed by the Board of Directors
whenever, in its judgment, the best interests of the corporation will be served
thereby.
ARTICLE IV
PRINCIPAL OFFICE - RESIDENT AGENT - STOCK LEDGER
The address of the principal office of the corporation in the State of
Maryland prescribed by the General Corporation Law is 300 East Lombard Street,
c/o The Corporation Trust Incorporated, Baltimore, Maryland 21202. The name and
address of the resident agent in the State of Maryland prescribed by the General
Corporation Law are: The Corporation Trust Incorporated, 300 East Lombard
Street, Baltimore, Maryland 21202.
The corporation shall maintain, at its principal office in the State
of Maryland prescribed by the General Corporation Law or at the business office
or an agency of the corporation, an original or duplicate stock ledger
containing the names and addresses of all stockholders and the number of shares
of each class held by each stockholder. Such stock ledger may be in written form
or any other form capable of being converted into written form within a
reasonable time for visual inspection.
The corporation shall keep at said principal office in the State of
Maryland the original or a certified copy of the by-laws, including all
amendments thereto, and shall duly file thereat the annual statement of affairs
of the corporation prescribed by Section 2-313 of the General Corporation Law.
ARTICLE V
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the
corporation and shall be in such form and contain such other words and/or
figures as the Board of Directors shall determine or the law require.
ARTICLE VI
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be
subject to change, by the Board of Directors.
ARTICLE VII
CONTROL OVER BY-LAWS
The power to make, alter, amend and repeal the by-laws is vested
exclusively in the Board of Directors of the corporation.
ARTICLE VIII
INDEMNIFICATION
1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall
indemnify its directors to the fullest extent that indemnification of directors
is permitted by the law. The corporation shall indemnify its officers to the
same extent as its directors and to such further extent as is consistent with
law. The corporation shall indemnify its directors and officers who while
serving as directors or officers also serve at the request of the corporation as
a director, officer, partner, trustee, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan to the same extent as its directors and, in the case of officers,
to such further extent as is consistent with law. The indemnification and other
rights provided by this Article shall continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of the heirs, executors
and administrators of such a person. This Article shall not protect any such
person against any liability to the corporation or any stockholder thereof to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office ("disabling conduct").
2. ADVANCES. Any current or former director or officer of the
corporation seeking indemnification within the scope of this Article shall be
entitled to advances from the corporation for payment of the reasonable expenses
incurred by him in connection with the matter as to which he is seeking
indemnification in the manner and to the fullest extent permissible under the
General Corporation Law. The person seeking indemnification shall provide to the
corporation a written affirmation of his good faith belief that the standard of
conduct necessary for indemnification by the corporation has been met and a
written undertaking to repay any such advance if it should ultimately be
determined that the standard of conduct has not been met. In addition, at least
one of the following additional conditions shall be met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
corporation for his or her undertaking; (b) the corporation is insured against
losses arising by reason of the advance; or (c) a majority of a quorum of
directors of the corporation who are neither "interested persons" as defined in
Section 2(a)(19) of the Investment Company Act of 1940, as amended, nor parties
to the proceeding ("disinterested non-party directors"), or independent legal
counsel, in a written opinion, shall have determined, based on a review of facts
readily available to the corporation at the time the advance is proposed to be
made, that there is reason to believe that the person seeking indemnification
will ultimately be found to be entitled to indemnification.
3. PROCEDURE. At the request of any person claiming indemnification
under this Article, the Board of Directors shall determine, or cause to be
determined, in a manner consistent with the General Corporation Law, whether the
standards required by this Article have been met. Indemnification shall be made
only following: (a) a final decision on the merits by a court or other body
before whom the proceeding was brought that the person to be indemnified was not
liable by reason of disabling conduct or (b) in the absence of such a decision,
a reasonable determination, based upon a review of the facts, that the person to
be indemnified was not liable by reason of disabling conduct by (i) the vote of
a majority of a quorum of disinterested non-party directors or (ii) an
independent legal counsel in a written opinion.
4. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Employees and agents who
are not officers or directors of the corporation may be indemnified, and
reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940, as amended.
5. OTHER RIGHTS. The Board of Directors may make further provision
consistent with law for indemnification and advance of expenses to directors,
officers, employees and agents by resolution, agreement or otherwise. The
indemnification provided by this Article shall not be deemed exclusive of any
other right, with respect to indemnification or otherwise, to which those
seeking indemnification may be entitled under any insurance or other agreement
or resolution of stockholders or disinterested non-party directors or otherwise.
6. AMENDMENTS. References in this Article are to the General
Corporation Law and to the Investment Company Act of 1940 as from time to time
amended. No amendment of the by-laws shall affect any right of any person under
this Article based on any event, omission or proceeding prior to the amendment.
Dated: September 26, 1989
Amended: August 20, 1999
EXHIBIT (D)(1)
AUCTION AGENT AGREEMENT
between
DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
and
BANKERS TRUST COMPANY
Dated as of September __, 1999
Relating to
AUCTION PREFERRED STOCK
of
DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
<PAGE>
TABLE OF CONTENTS
Page
I. DEFINITIONS AND RULES OF CONSTRUCTION...................................1
1.1 Terms Defined by Reference to the Articles Supplementary.............1
1.2 Terms Defined Herein.................................................1
1.3 Rules of Construction................................................2
II. THE AUCTION............................................................3
2.1 Purpose; Incorporation by Reference of Auction Procedures
and Settlement Procedures...........................................3
2.2 Preparation for Each Auction; Maintenance of Registry
of Existing Holders.................................................3
2.3 Auction Schedule.....................................................6
2.4 Notice of Auction Results............................................7
2.5 Broker-Dealers.......................................................7
2.6 Ownership of Shares of APS and Submission of Bids by the
Fund and its Affiliates.............................................8
2.7 Access to and Maintenance of Auction Records.........................8
III. THE AUCTION AGENT AS PAYING AGENT.....................................9
3.1 The Paying Agent.....................................................9
3.2 The Fund's Notices to the Paying Agent...............................9
3.3 The Fund to Provide Funds for Dividends, Redemptions
and Additional Dividends............................................9
3.4 Disbursing Dividends, Redemption Price and Additional Dividends.....10
IV. THE PAYING AGENT AS TRANSFER AGENT AND REGISTRAR......................10
4.1 Original Issue of Stock Certificates................................10
4.2 Registration of Transfer or Exchange of Shares......................11
4.3 Removal of Legend...................................................11
4.4 Lost, Stolen or Destroyed Stock Certificates........................11
4.5 Disposition of Canceled Certificates; Record Retention..............12
4.6 Stock Register......................................................12
4.7 Return of Funds.....................................................12
V. REPRESENTATIONS AND WARRANTIES.........................................12
5.1 Representations and Warranties of the Fund..........................12
5.2 Representations and Warranties of the Auction Agent.................13
VI. THE AUCTION AGENT.....................................................14
6.1 Duties and Responsibilities.........................................14
6.2 Rights of the Auction Agent.........................................14
6.3 Auction Agent's Disclaimer..........................................14
6.4 Compensation, Expenses and Indemnification..........................15
VII. MISCELLANEOUS........................................................15
7.1 Term of Agreement...................................................15
7.2 Communications......................................................16
7.3 Entire Agreement....................................................17
7.4 Benefits............................................................17
7.5 Amendment; Waiver...................................................17
7.6 Successors and Assigns..............................................18
7.7 Severability........................................................18
7.8 Execution in Counterparts...........................................18
7.9 Governing Law.......................................................18
<PAGE>
THIS AUCTION AGENT AGREEMENT, dated as of September __, 1999, is
between DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC., a Maryland corporation (the
"Fund"), and BANKERS TRUST COMPANY, a New York corporation.
The Fund proposes to issue 2,480 shares of Series A preferred
stock, 2,480 shares of Series B preferred stock and 2,480 shares of Series C
preferred stock, par value $.001 per share, liquidation preference $25,000 per
share (the "APS"), pursuant to the Fund's Articles Supplementary (as defined
below). The Fund desires that Bankers Trust Company perform certain duties as
agent in connection with each Auction of shares of APS (in such capacity, the
"Auction Agent"), and as the transfer agent, registrar, dividend disbursing
agent and redemption agent with respect to the shares of APS (in such capacity,
the "Paying Agent"), upon the terms and conditions of this Agreement, and the
Fund hereby appoints Bankers Trust Company as said Auction Agent and Paying
Agent in accordance with those terms and conditions (hereinafter generally
referred to as the "Auction Agent," except in Sections 3 and 4 below).
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Fund and the Auction Agent agree as follows:
I. DEFINITIONS AND RULES OF CONSTRUCTION.
1.1 Terms Defined by Reference to the Articles Supplementary.
Capitalized terms not defined herein shall have the respective meanings
specified in the Articles Supplementary.
1.2 Terms Defined Herein. As used herein and in the Settlement
Procedures (as defined below), the following terms shall have the following
meanings, unless the context otherwise requires:
(a) "Affiliate" means any Person made known to the Auction Agent
to be controlled by, in control of, or under common control with, the Fund or
its successors.
(b) "Agent Member" of any Person means such Person's agent member
of the Securities Depository that will act on behalf of a Bidder.
(c) " Articles Supplementary" means the Articles Supplementary of
the Fund, establishing the powers, preferences and rights of the APS.
(d) "Auction" has the meaning specified in Section 2.1 hereof.
(e) "Auction Procedures" means the Auction Procedures that are
set forth in Article THIRD, paragraph 10 of the Articles Supplementary.
(f) "Authorized Officer" means each Managing Director, Vice
President, Assistant Vice President, Assistant Secretary and Assistant Treasurer
of the Auction Agent and every other officer or employee of the Auction Agent
designated as an "Authorized Officer" for purposes hereof in a communication to
the Fund.
(g) "Broker-Dealer Agreement" means each agreement between the
Auction Agent and a Broker-Dealer substantially in the form attached hereto as
Exhibit A.
(h) "Fee Schedule" means the separate writing to be signed by the
Fund and the Auction Agent setting forth the details of the compensation to be
paid to the Auction Agent for all services rendered by it under this Agreement
and under the Broker-Dealer Agreement.
(i) "Fund Officer" means the President, each Vice President, the
Secretary, the Treasurer, each Assistant Secretary and each Assistant Treasurer
of the Fund and every other officer or employee of the Fund designated as a
"Fund Officer" for purposes hereof in a notice from the Fund to the Auction
Agent.
(j) "Holder" shall be a holder of record of one or more shares of
APS, listed as such in the stock register maintained by the Paying Agent
pursuant to Section 4.6 hereof.
(k) "Settlement Procedures" means the Settlement Procedures
attached as Exhibit A to the Broker-Dealer Agreement.
1.3 Rules of Construction.
Unless the context or use indicates another or different meaning or
intent, the following rules shall apply to the construction of this Agreement:
(a) Words importing the singular number shall include the plural
number and vice versa.
(b) The captions and headings herein are solely for convenience
of reference and shall not constitute a part of this Agreement nor shall they
affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other words of
similar import refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be to
New York City time.
II. THE AUCTION.
2.1 Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
(a) The Articles Supplementary provide that the Applicable Rate
on shares of each series of APS, as the case may be, for each Dividend Period
therefor after the Initial Dividend Period shall be the rate per annum that a
commercial bank, trust company or other financial institution appointed by the
Fund advises results from implementation of the Auction Procedures. The Board of
Directors of the Fund has adopted a resolution appointing Deutsche Bank as
Auction Agent for purposes of the Auction Procedures. The Auction Agent hereby
accepts such appointment and agrees that, on each Auction Date, it shall follow
the procedures set forth in this Section 2 and the Auction Procedures for the
purpose of determining the Applicable Rate for the APS for the next Dividend
Period therefor. Each periodic operation of such procedures is hereinafter
referred to as an "Auction."
(b) All of the provisions contained in the Auction Procedures and
in the Settlement Procedures are incorporated herein by reference in their
entirety and shall be deemed to be a part hereof to the same extent as if such
provisions were set forth fully herein.
2.2 Preparation for Each Auction; Maintenance of Registry of Existing
Holders.
(a) Pursuant to Section 2.5 hereof, the Fund shall not designate
any Person to act as a Broker-Dealer without the prior written approval of the
Auction Agent (which approval shall not be withheld unreasonably). As of the
date hereof, the Fund shall provide the Auction Agent with a list of the
Broker-Dealers previously approved by the Auction Agent and shall cause to be
delivered to the Auction Agent for execution by the Auction Agent a
Broker-Dealer Agreement signed by each such Broker-Dealer. The Auction Agent
shall keep such list current and accurate and shall indicate thereon, or on a
separate list, the identity of each Existing Holder, if any, whose most recent
Order was submitted by a Broker-Dealer on such list and resulted in such
Existing Holder continuing to hold or purchasing shares of APS. Not later than
five Business Days prior to any Auction Date for which any change in such list
of Broker-Dealers is to be effective, the Fund shall notify the Auction Agent in
writing of such change and, if any such change is the addition of a
Broker-Dealer to such list, the Fund shall cause to be delivered to the Auction
Agent for execution by the Auction Agent a Broker-Dealer Agreement signed by
such Broker-Dealer. The Auction Agent shall have entered into a Broker-Dealer
Agreement with each Broker-Dealer prior to the participation of any such
Broker-Dealer in any Auction.
(b) In the event that the Auction Date for any Auction shall be
changed after the Auction Agent shall have given the notice referred to in
clause (vii) of paragraph (a) of the Settlement Procedures, the Auction Agent,
by such means as the Auction Agent deems practicable, shall give notice of such
change to the Broker-Dealers not later than the earlier of 9:15 A.M. on the new
Auction Date or 9:15 A.M. on the old Auction Date.
(c) The provisions contained in Article THIRD, paragraph 2 of the
Articles Supplementary concerning Special Dividend Periods and the notification
of a Special Dividend Period will be followed by the Fund and, to the extent
applicable, the Auction Agent, and the provisions contained therein are
incorporated herein by reference in their entirety and shall be deemed to be a
part of this Agreement to the same extent as if such provisions were set forth
fully herein.
(d) (i) Except as otherwise provided in Article THIRD, paragraph
2 of the Articles Supplementary, whenever the Fund intends to include any net
capital gains or other income subject to regular Federal income tax in any
dividend on shares of APS, the Fund will notify the Auction Agent of the amount
to be so included at least five Business Days prior to the Auction Date on which
the Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from the Fund, in turn it will notify each
Broker-Dealer, who, on or prior to such Auction Date, in accordance with its
Broker-Dealer Agreement, will notify its Beneficial Owners and Potential
Beneficial Owners believed to be interested in submitting an Order in the
Auction to be held on such Auction Date. Whenever the Fund includes any
additional amounts in a dividend as provided in Article THIRD, paragraph 2 of
the Articles Supplementary, the Fund will notify the Auction Agent of such
additional amounts to be so included in such dividend at least five Business
Days prior to the applicable Dividend Payment Date. Whenever the Auction Agent
receives such notice from the Fund, in turn it will notify the Securities
Depository and each Broker-Dealer, who, on or prior to the applicable Dividend
Payment Date, in accordance with its Broker-Dealer Agreement, will notify its
Beneficial Owners.
(ii) If the Fund makes a Retroactive Taxable Allocation, the
Fund, within 90 days (and generally within 60 days) after the end of its fiscal
year for which a Retroactive Taxable Allocation is made, will provide notice
thereof to the Auction Agent and to each Holder (initially the Securities
Depository) during such fiscal year at such Holder's address as the same appears
or last appeared on the stock books of the Fund. The Fund, within 30 days after
such notice is given to the Auction Agent, will pay to the Auction Agent (who
then will distribute to such Holders), out of funds legally available therefor,
a cash amount equal to the aggregate Additional Dividend with respect to all
Retroactive Taxable Allocations made to such Holders during the fiscal year in
question.
(e) (i) On each Auction Date, the Auction Agent shall determine
the Reference Rate and the Maximum Applicable Rate. If the Reference Rate is not
quoted on an interest basis but is quoted on a discount basis, the Auction Agent
shall convert the quoted rate to an Interest Equivalent, as set forth in Article
THIRD, paragraph 1 of the Articles Supplementary; or, if the rate obtained by
the Auction Agent is not quoted on an interest or discount basis, the Auction
Agent shall convert the quoted rate to an interest rate after consultation with
the Fund as to the method of such conversion. Not later than 9:30 A.M. on each
Auction Date, the Auction Agent shall notify the Fund and the Broker-Dealers of
the Reference Rate so determined and of the Maximum Applicable Rate.
(ii) If the Reference Rate is the applicable "AA" Composite
Commercial Paper Rate and such rate is to be based on rates supplied by
Commercial Paper Dealers and one or more of the Commercial Paper Dealers shall
not provide a quotation for the determination of the applicable "AA" Composite
Commercial Paper Rate, the Auction Agent immediately shall notify the Fund so
that the Fund can determine whether to select a Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers to provide the quotation or
quotations not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers. The Fund promptly shall advise the Auction Agent of any such selection.
If the Fund does not select any such Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers, then the rates shall be supplied by the
remaining Commercial Paper Dealer or Commercial Paper Dealers.
(iii) If, after the date of this Agreement, there is any
change in the prevailing rating of APS by Standard & Poor's Ratings Group (or
substitute or successor rating agencies), thereby resulting in any change in the
corresponding applicable percentage for the APS, as set forth in the definition
of Maximum Application Rate (the "Percentage"), the Fund shall notify the
Auction Agent in writing of such change in the Percentage prior to 9:00 A.M. on
the Auction Date for APS next succeeding such change. The Percentage for the APS
on the date of this Agreement is 110%. The Auction Agent shall be entitled to
rely on the last Percentage of which it has received notice from the Fund (or,
in the absence of such notice, the Percentage set forth in the preceding
sentence) in determining the Maximum Applicable Rate as set forth in Section
2.2(e)(i) hereof.
(f) (i) The Auction Agent shall maintain a current registry of
the Existing Holders of the shares of APS for purposes of each Auction. The Fund
shall use its best efforts to provide or cause to be provided to the Auction
Agent within ten Business Days following the date of the Closing a list of the
initial Existing Holders of APS, and the Broker-Dealer of each such Existing
Holder through which such Existing Holder purchased such shares. The Auction
Agent may rely upon, as evidence of the identities of the Existing Holders, such
list, the results of each Auction and notices from any Existing Holder, the
Agent Member of any Existing Holder or the Broker-Dealer of any Existing Holder
with respect to such Existing Holder's transfer of any shares of APS to another
Person.
(ii) In the event of any partial redemption of APS, upon
notice by the Fund to the Auction Agent of such partial redemption, the Auction
Agent promptly shall request the Securities Depository to notify the Auction
Agent of the identities of the Agent Members (and the respective numbers of
shares) from the accounts of which shares have been called for redemption and
the person or department at such Agent Member to contact regarding such
redemption, and at least two Business Days prior to the Auction preceding the
date of redemption, the Auction Agent shall request each Agent Member so
identified to disclose to the Auction Agent (upon selection by such Agent Member
of the Existing Holders whose shares are to be redeemed) the number of shares of
APS of each such Existing Holder, if any, to be redeemed by the Fund, provided
that the Auction Agent has been furnished with the name and telephone number of
a person or department at such Agent Member from which it is to request such
information. In the absence of receiving any such information with respect to an
Existing Holder, from such Existing Holder's Agent Member or otherwise, the
Auction Agent may continue to treat such Existing Holder as having ownership of
the number of shares of APS shown in the Auction Agent's registry of Existing
Holders.
(iii) The Auction Agent shall register a transfer of the
ownership of shares of APS from an Existing Holder to another Existing Holder,
or to another Person if permitted by the Fund, only if (A) such transfer is made
pursuant to an Auction or (B) if such transfer is made other than pursuant to an
Auction, the Auction Agent has been notified of such transfer in writing in a
notice substantially in the form of Exhibit C to the Broker-Dealer Agreements,
by such Existing Holder or by the Agent Member of such Existing Holder. The
Auction Agent is not required to accept any notice of transfer delivered for an
Auction unless it is received by the Auction Agent by 3:00 P.M. on the Business
Day next preceding the applicable Auction Date. The Auction Agent shall rescind
a transfer made on the registry of the Existing Holders of any shares of APS if
the Auction Agent has been notified in writing, in a notice substantially in the
form of Exhibit D to the Broker-Dealer Agreement, by the Agent Member or the
Broker-Dealer of any Person that (i) purchased any shares of APS and the seller
failed to deliver such shares or (ii) sold any shares of APS and the purchaser
failed to make payment to such Person upon delivery to the purchaser of such
shares.
(g) The Auction Agent may request that the Broker Dealers, as set
forth in Section 3.2(c) of the Broker-Dealer Agreements, provide the Auction
Agent with a list of their respective customers that such Broker-Dealers believe
are Beneficial Owners of shares of APS. The Auction Agent shall keep
confidential any such information and shall not disclose any such information so
provided to any Person other than the relevant Broker-Dealer and the Fund,
provided that the Auction Agent reserves the right to disclose any such
information if it is advised by its counsel that its failure to do so would be
unlawful.
2.3 Auction Schedule.
The Auction Agent shall conduct Auctions in accordance with the
schedule set forth below. Such schedule may be changed by the Auction Agent with
the consent of the Fund, which consent shall not be withheld unreasonably. The
Auction Agent shall give notice of any such change to each Broker-Dealer. Such
notice shall be received prior to the first Auction Date on which any such
change shall be effective.
TIME EVENT
By 9:30 A.M. Auction Agent advises the Fund and the
Broker-Dealers of the Reference Rate and the
Maximum Applicable Rate as set forth in
Section 2.2(e)(i) hereof.
9:30 A.M. - 1:30 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers as
provided in Article THIRD, paragraph 10 of
the Articles Supplementary. Submission
deadline is 1:00 P.M.
Not earlier than 1:30 P.M. Auction Agent makes determinations pursuant
to Article THIRD, paragraph 10 of the Articles
Supplementary.
By approximately 3:00 P.M. Auction Agent advises the Fund of the results
of the Auction as provided in Article THIRD,
paragraph 10 of the Articles Supplementary.
Submitted Bids and Submitted Sell Orders are
accepted and rejected in whole or in part and
shares of APS allocated as provided in Article
THIRD, paragraph 10 of the Articles
Supplementary.
Auction Agent gives notice of the Auction
results as set forth in Section 2.4 hereof.
2.4 Notice of Auction Results.
On each Auction Date, the Auction Agent shall notify Broker-Dealers of
the results of the Auction held on such date by telephone or through the Auction
Agent's Auction Processing System as set forth in Paragraph (a) of the
Settlement Procedures.
2.5 Broker-Dealers.
(a) Not later than 12:00 noon on each Auction Date, the Fund
shall pay to the Auction Agent in Federal Funds or similar same-day funds an
amount in cash equal to (i) in the case of any Auction Date immediately
preceding a 28-Day Dividend Period, the product of (A) a fraction the numerator
of which is the number of days in such Dividend Period (calculated by counting
the first day of such Dividend Period but excluding the last day thereof) and
the denominator of which is 360, times (B) 1/4 of 1%, times (C) $25,000 times
(D) the sum of the aggregate number of outstanding shares of APS for which the
Auction is conducted and (ii) in the case of any Special Dividend Period, the
amount determined by mutual consent of the Fund and the Broker-Dealers pursuant
to Section 3.5 of the Broker-Dealer Agreements. The Auction Agent shall apply
such moneys as set forth in Section 3.5 of the Broker-Dealer Agreements and
shall thereafter remit to the Fund any remaining funds paid to the Auction Agent
pursuant to this Section 2.5(a).
(b) The Fund shall not designate any Person to act as a Broker-
Dealer, or permit a Existing Holder or a Potential Beneficial Owner to
participate in Auctions through any Person other than a Broker-Dealer, without
the prior written approval of the Auction Agent, which approval shall not be
withheld unreasonably. The Fund may designate an Affiliate or PaineWebber
Incorporated to act as a Broker-Dealer.
(c) The Auction Agent shall terminate any Broker-Dealer Agreement
as set forth therein if so directed by the Fund.
(d) Subject to Section 2.5(b) hereof, the Auction Agent from time
to time shall enter into such Broker-Dealer Agreements as the Fund shall
request.
(e) The Auction Agent shall maintain a list of Broker-Dealers.
2.6 Ownership of Shares of APS and Submission of Bids by the Fund and
its Affiliates.
Neither the Fund nor any Affiliate of the Fund may submit any Sell
Order or Bid, directly or indirectly, in any Auction, except that an Affiliate
of the Fund that is a Broker-Dealer may submit a Sell Order or Bid on behalf of
a Beneficial Owner or a Potential Beneficial Owner. The Fund shall notify the
Auction Agent if the Fund or, to the best of the Fund's knowledge, any Affiliate
of the Fund becomes a Beneficial Owner of any shares of APS. Any shares of APS
redeemed, purchased or otherwise acquired (i) by the Fund shall not be reissued,
except in accordance with the requirements of the Securities Act of 1933, as
amended, or (ii) by its Affiliates shall not be transferred (other than to the
Fund). The Auction Agent shall have no duty or liability with respect to
enforcement of this Section 2.6.
2.7 Access to and Maintenance of Auction Records.
The Auction Agent shall afford to the Fund, its agents, independent
public accountants and counsel, access at reasonable times during normal
business hours to review and make extracts or copies (at the Fund's sole cost
and expense) of all books, records, documents and other information concerning
the conduct and results of Auctions, provided that any such agent, accountant or
counsel shall furnish the Auction Agent with a letter from the Fund requesting
that the Auction Agent afford such person access. The Auction Agent shall
maintain records relating to any Auction for a period of two years after such
Auction (unless requested by the Fund to maintain such records for such longer
period not in excess of four years, then for such longer period), and such
records, in reasonable detail, shall accurately and fairly reflect the actions
taken by the Auction Agent hereunder. The Fund agrees to keep confidential any
information regarding the customers of any Broker-Dealer received from the
Auction Agent in connection with this Agreement or any Auction, and shall not
disclose such information or permit the disclosure of such information without
the prior written consent of the applicable Broker-Dealer to anyone except such
agent, accountant or counsel engaged to audit or review the results of Auctions
as permitted by this Section 2.7, provided that the Fund reserves the right to
disclose any such information if it is advised by its counsel that its failure
to do so would (i) be unlawful or (ii) expose it to liability, unless the
Broker-Dealer shall have offered indemnification satisfactory to the Fund. Any
such agent, accountant or counsel, before having access to such information,
shall agree to keep such information confidential and not to disclose such
information or permit disclosure of such information without the prior written
consent of the applicable Broker-Dealer, provided that such agent, accountant or
counsel may reserve the right to disclose any such information if it is advised
by its counsel that its failure to do so would (i) be unlawful or (ii) expose it
to liability, unless the Broker-Dealer shall have offered indemnification
satisfactory to such agent, accountant or counsel.
III. THE AUCTION AGENT AS PAYING AGENT.
3.1 The Paying Agent.
The Fund's Board of Directors has adopted a resolution appointing
Deutsche Bank as transfer agent, registrar, dividend disbursing agent and
redemption agent for the Fund in connection with any shares of APS (in such
capacity, the "Paying Agent"). The Paying Agent hereby accepts such appointment
and agrees to act in accordance with its standard procedures and the provisions
of the Articles Supplementary which are specified herein with respect to the
shares of APS and as set forth in this Section 3.
3.2 The Fund's Notices to the Paying Agent.
Whenever any shares of APS are to be redeemed, the Fund promptly shall
deliver to the Paying Agent a Notice of Redemption at least five Business Days
prior to the date such Notice of Redemption is required to be mailed pursuant to
the Articles Supplementary. The Paying Agent shall have no responsibility to
confirm or verify the accuracy of any such Notice.
3.3 The Fund to Provide Funds for Dividends, Redemptions and
Additional Dividends.
(a) Not later than noon on each Dividend Payment Date, the Fund
shall deposit with the Paying Agent an aggregate amount of Federal Funds or
similar same-day funds equal to the declared dividends to be paid to Holders on
such Dividend Payment Date, and shall give the Paying Agent irrevocable
instructions to apply such funds to the payment of such dividends on such
Dividend Payment Date.
(b) If the Fund shall give a Notice of Redemption, then by noon
of the date fixed for redemption, the Fund shall deposit in trust with the
Paying Agent an aggregate amount of Federal Funds or similar same-day funds
sufficient to redeem such shares of APS called for redemption and shall give the
Paying Agent irrevocable instructions and authority to pay the redemption price
to the Holders of shares of APS called for redemption upon surrender of the
certificate or certificates therefor.
(c) If the Fund provides notice to the Auction Agent of a
Retroactive Taxable Allocation, the Fund, within 30 days after such notice is
given and by noon of the date fixed for payment of an Additional Dividend, shall
deposit in trust with the Paying Agent an aggregate amount of Federal Funds or
similar same-day funds equal to such Additional Dividend and shall give the
Paying Agent irrevocable instructions and authority to pay the Additional
Dividend to Holders (or former Holders) entitled thereto.
3.4 Disbursing Dividends, Redemption Price and Additional Dividends.
After receipt of the Federal Funds or similar same-day funds and
instructions from the Fund described in Sections 3.3(a), (b) and (c) above, the
Paying Agent shall pay to the Holders (or former Holders) entitled thereto (i)
on each corresponding Dividend Payment Date, dividends on the shares of APS,
(ii) on any date fixed for redemption, the redemption price of any shares of APS
called for redemption and (iii) on the date fixed for payment of an Additional
Dividend, such Additional Dividend. The amount of dividends for any Dividend
Period to be paid by the Paying Agent to Holders will be determined by the Fund
as set forth in Article THIRD, paragraph 2 of the Articles Supplementary. The
redemption price to be paid by the Paying Agent to the Holders of any shares of
APS called for redemption will be determined as set forth in Article THIRD,
paragraph 4 of the Articles Supplementary. The amount of Additional Dividends to
be paid by the Paying Agent in the event of a Retroactive Taxable Allocation to
Holders will be determined by the Fund pursuant to Article THIRD, paragraph 2(e)
of the Articles Supplementary. The Fund shall notify the Paying Agent in writing
of a decision to redeem any shares of APS on or prior to the date specified in
Section 3.2 above, and such notice by the Fund to the Paying Agent shall contain
the information required to be stated in a Notice of Redemption required to be
mailed by the Fund to such Holders. The Paying Agent shall have no duty to
determine the redemption price and may rely on the amount thereof set forth in a
Notice of Redemption.
IV. THE PAYING AGENT AS TRANSFER AGENT AND REGISTRAR.
4.1 Original Issue of Stock Certificates.
On the Date of Original Issue for any share of APS, one certificate
for each series of APS shall be issued by the Fund and registered in the name of
Cede & Co., as nominee of the Securities Depository, and countersigned by the
Paying Agent. The Fund will give the Auction Agent prior written notice and
instruction as to the issuance and redemption of APS.
4.2 Registration of Transfer or Exchange of Shares.
Except as provided in this Section 4.2, the shares of each series of
APS shall be registered solely in the name of the Securities Depository or its
nominee. If the Securities Depository shall give notice of its intention to
resign as such, and if the Fund shall not have selected a substitute Securities
Depository acceptable to the Paying Agent prior to such resignation, then upon
such resignation, the shares of each series of APS, if any, at the Fund's
request, may be registered for transfer or exchange, and new certificates
thereupon shall be issued in the name of the designated transferee or
transferees, upon surrender of the old certificate in form deemed by the Paying
Agent properly endorsed for transfer with (a) all necessary endorsers'
signatures guaranteed in such manner and form as the Paying Agent may require by
a guarantor reasonably believed by the Paying Agent to be responsible, (b) such
assurances as the Paying Agent shall deem necessary or appropriate to evidence
the genuineness and effectiveness of each necessary endorsement and (c)
satisfactory evidence of compliance with all applicable laws relating to the
collection of taxes in connection with any registration of transfer or exchange
or funds necessary for the payment of such taxes. If the certificate or
certificates for shares of APS are not held by the Securities Depository or its
nominee, payments upon transfer of shares in an Auction shall be made in Federal
Funds or similar same-day funds to the Auction Agent against delivery of
certificates therefor.
4.3 Removal of Legend.
Any request for removal of a legend indicating a restriction on
transfer from a certificate evidencing shares of APS shall be accompanied by an
opinion of counsel stating that such legend may be removed and such shares may
be transferred free of the restriction described in such legend, said opinion to
be delivered under cover of a letter from a Fund Officer authorizing the Paying
Agent to remove the legend on the basis of said opinion.
4.4 Lost, Stolen or Destroyed Stock Certificates.
The Paying Agent shall issue and register replacement certificates for
certificates represented to have been lost, stolen or destroyed, upon the
fulfillment of such requirements as shall be deemed appropriate by the Fund and
by the Paying Agent, subject at all times to provisions of law, the By-Laws of
the Fund governing such matters and resolutions adopted by the Fund with respect
to lost, stolen or destroyed securities. The Paying Agent may issue new
certificates in exchange for and upon the cancellation of mutilated
certificates. Any request by the Fund to the Paying Agent to issue a replacement
or new certificate pursuant to this Section 4.4 shall be deemed to be a
representation and warranty by the Fund to the Paying Agent that such issuance
will comply with provisions of applicable law and the By-Laws and resolutions of
the Fund.
4.5 Disposition of Canceled Certificates; Record Retention.
The Paying Agent shall promptly transmit to the Fund stock
certificates which have been canceled in transfer or in exchange and
accompanying documentation. The Fund, at its expense, shall retain such records
for a minimum additional period of six calendar years from the date of delivery
of the records to the Fund and shall make such records available during this
period at any time, or from time to time, for reasonable periodic, special, or
other examinations by representatives of the Securities and Exchange Commission.
The Fund also shall undertake to furnish to the Securities and Exchange
Commission, upon demand, either at their principal office or at any regional
office, complete, correct and current hard copies of any and all such records.
Thereafter, such records shall not be destroyed by the Fund without the approval
of the Paying Agent, which approval shall not be withheld unreasonably, but will
be safely stored for possible future reference.
4.6 Stock Register.
The Paying Agent shall maintain the stock register, which shall
contain a list of the Holders, the number of shares held by each Holder and the
address of each Holder. The Paying Agent shall record in the stock register any
change of address of a Holder upon notice by such Holder. In case of any written
request or demand for the inspection of the stock register or any other books of
the Fund in the possession of the Paying Agent, the Paying Agent will notify the
Fund and secure instructions as to permitting or refusing such inspection. The
Paying Agent reserves the right, however, to exhibit the stock register or other
records to any person in case it is advised by its counsel that its failure to
do so would (i) be unlawful or (ii) expose it to liability, unless the Fund
shall have offered indemnification satisfactory to the Paying Agent.
4.7 Return of Funds.
Any funds deposited with the Paying Agent by the Fund for any reason
under this Agreement, including for the payment of dividends or the redemption
of APS, that remain with the Paying Agent after 12 months shall be repaid to the
Fund upon written request by the Fund.
V. REPRESENTATIONS AND WARRANTIES.
5.1 Representations and Warranties of the Fund.
The Fund represents and warrants to the Auction Agent that:
(i) the Fund is duly organized and is validly existing as a
corporation in good standing under the laws of the State of Maryland, and has
full power to execute and deliver this Agreement and to authorize, create and
issue the shares of APS;
(ii) the Fund is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, as a
closed-end, non-diversified, management investment company;
(iii) this Agreement has been duly and validly authorized,
executed and delivered by the Fund and constitutes the legal, valid and binding
obligation of the Fund, enforceable against the Fund in accordance with its
terms, subject as to such enforceability to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or affecting
creditors' rights and to general equitable principles;
(iv) the forms of the certificates evidencing the shares of APS
comply with all applicable laws of the State of Maryland;
(v) the shares of APS have been duly and validly authorized by
the Fund and, upon completion of the initial sale of the shares of APS and
receipt of payment therefor, will be validly issued, fully paid and
nonassessable;
(vi) at the time of the offering of the shares of APS, the shares
offered will be registered under the Securities Act of 1933, as amended, and no
further action by or before any governmental body or authority of the United
States or of any state thereof is required in connection with the execution and
delivery of this Agreement or will be required in connection with the issuance
of the shares of APS, except such action as required by applicable state
securities laws, all of which action will have been taken;
(vii) the execution and delivery of this Agreement and the
issuance and delivery of the shares of APS do not and will not conflict with,
violate, or result in a breach of, the terms, conditions or provisions of, or
constitute a default under, the Fund's Articles of Incorporation, By-Laws or
Articles Supplementary, any law or regulation applicable to the Fund, any order
or decree of any court or public authority having jurisdiction over the Fund, or
any mortgage, indenture, contract, agreement or undertaking to which the Fund is
a party or by which it is bound; and
(viii) no taxes are payable upon or in respect of the execution
of this Agreement or will be payable upon or in respect of the issuance of the
shares of APS.
5.2 Representations and Warranties of the Auction Agent.
The Auction Agent represents and warrants to the Fund that the Auction
Agent is duly organized and is validly existing as a corporation in good
standing under the laws of New York, and has the corporate power to enter into
and perform its obligations under this Agreement.
VI. THE AUCTION AGENT.
6.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Fund
hereunder and owes no fiduciary duties to any Person except as provided by this
Agreement.
(b) The Auction Agent undertakes to perform such duties and only
such duties as are set forth specifically in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against the Auction
Agent.
(c) In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered or omitted by
it or for any error of judgment made by it in the performance of its duties
under this Agreement. The Auction Agent shall not be liable for any error of
judgment made in good faith unless the Auction Agent shall have been negligent
in ascertaining (or failing to ascertain) the pertinent facts.
6.2 Rights of the Auction Agent.
(a) The Auction Agent may rely upon, and shall be protected in
acting or refraining from acting upon, any communication authorized hereby and
any written instruction, notice, request, direction, consent, report,
certificate, share certificate or other instrument, paper or document reasonably
believed by it to be genuine. The Auction Agent shall not be liable for acting
upon any telephone communication authorized hereby which the Auction Agent
believes in good faith to have been given by the Fund or by a Broker-Dealer. The
Auction Agent may record telephone communications with the Fund or with the
Broker-Dealers or with both.
(b) The Auction Agent may consult with counsel of its choice, and
the written advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or
risk its own funds or otherwise incur or become exposed to financial liability
in the performance of its duties hereunder. The Auction Agent shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Fund.
(d) The Auction Agent may perform its duties and exercise its
rights hereunder either directly or by or through agents or attorneys.
6.3 Auction Agent's Disclaimer.
The Auction Agent makes no representation as to the validity, accuracy
or the adequacy of this Agreement, the Broker-Dealer Agreements or the APS.
6.4 Compensation, Expenses and Indemnification.
(a) The Fund shall pay to the Auction Agent from time to time
reasonable compensation for all services rendered by it under this Agreement and
under the Broker-Dealer Agreements as set forth in the Fee Schedule, subject to
adjustments if the APS no longer are held of record by the Securities Depository
or its nominee or if there shall be such other change as shall increase
materially the Auction Agent's obligations hereunder or under the Broker-Dealer
Agreements.
(b) The Fund shall reimburse the Auction Agent upon its request for
all reasonable expenses, disbursements and advances incurred or made by the
Auction Agent in accordance with any provision of this Agreement and of the
Broker-Dealer Agreements (including the reasonable compensation, expenses and
disbursements of its agents and counsel), except any expense, disbursement or
advance attributable to its negligence or bad faith.
(c) The Fund shall indemnify the Auction Agent for, and hold it
harmless against, any loss, liability or expense incurred without negligence or
bad faith on its part arising out of or in connection with its agency under this
Agreement and under the Broker-Dealer Agreements, including the costs and
expenses of defending itself against any claim of liability in connection with
its exercise or performance of any of its duties hereunder and thereunder,
except such as may result from its negligence or bad faith.
VII. MISCELLANEOUS.
7.1 Term of Agreement.
(a) The term of this Agreement is unlimited unless it shall be
terminated as provided in this Section 7.1. The Fund may terminate this
Agreement at any time by so notifying the Auction Agent, provided that if any
APS remain outstanding the Fund shall have entered into an agreement in
substantially the form of this Agreement with a successor auction agent. The
Auction Agent may terminate this Agreement upon prior notice to the Fund on the
date specified in such notice, which date shall be no earlier than 60 days after
delivery of such notice. If the Auction Agent resigns while any shares of APS
remain outstanding, the Fund shall use its best efforts to enter into an
agreement with a successor auction agent containing substantially the same terms
and conditions as this Agreement.
(b) Except as otherwise provided in this Section 7.1(b), the
respective rights and duties of the Fund and the Auction Agent under this
Agreement shall cease upon termination of this Agreement. The Fund's
representations, warranties, covenants and obligations to the Auction Agent
under Sections 5 and 6.4 hereof shall survive the termination hereof. Upon
termination of this Agreement, the Auction Agent shall (i) resign as Auction
Agent under the Broker-Dealer Agreements, (ii) at the Fund's request, deliver
promptly to the Fund copies of all books and records maintained by it in
connection with its duties hereunder, and (iii) at the request of the Fund,
transfer promptly to the Fund or to any successor auction agent any funds
deposited by the Fund with the Auction Agent (whether in its capacity as Auction
Agent or as Paying Agent) pursuant to this Agreement which have not been
distributed previously by the Auction Agent in accordance with this Agreement.
7.2 Communications.
Except for (i) communications authorized to be made by telephone
pursuant to this Agreement or the Auction Procedures and (ii) communications in
connection with Auctions (other than those expressly required to be in writing),
all notices, requests and other communications to any party hereunder shall be
in writing (including telecopy or similar writing) and shall be given to such
party at its address or telecopier number set forth below:
If to the Fund, addressed to:
Dreyfus Municipal Income, Inc.
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attention: Secretary
Telephone No.: (212) 922-7000
If to the Auction Agent, addressed to:
Bankers Trust Company
Four Albany Street
New York, NY 10006
Attention: Auction Rate Securities
Telecopier No.: (212) 250-6215
Telephone No.: (212) 250-6850
or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of the Fund by a Fund Officer and on
behalf of the Auction Agent by an Authorized Officer.
7.3 Entire Agreement.
This Agreement contains the entire agreement between the parties
relating to the subject matter hereof, and there are no other representations,
endorsements, promises, agreements or understandings, oral, written or inferred,
between the parties relating to the subject matter hereof, except for agreements
relating to the compensation of the Auction Agent.
7.4 Benefits.
Nothing herein, express or implied, shall give to any Person, other
than the Fund, the Auction Agent and their respective successors and assigns,
any benefit of any legal or equitable right, remedy or claim hereunder.
7.5 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. The Fund shall notify the Auction Agent of any change in the Articles
Supplementary prior to the effective date of any such change. If any such change
in the Articles Supplementary materially increases the Auction Agent's
obligations hereunder, the Fund shall obtain the written consent to the Auction
Agent prior to the effective date of such change.
(b) Failure of either party hereto to exercise any right or remedy
hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
7.6 Successors and Assigns.
This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and permitted assigns of each of the
Fund and the Auction Agent. This Agreement may not be assigned by either party
hereto absent the prior written consent of the other party, which consent shall
not be withheld unreasonably.
7.7 Severability.
If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.
7.8 Execution in Counterparts.
This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
7.9 Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and to be
performed in said state.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the date first above written.
DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
By:_____________________________________
Name:
Title:
BANKERS TRUST COMPANY
By:_____________________________________
Name:
Title:
EXHIBIT (D)(2)
BROKER-DEALER AGREEMENT
between
BANKERS TRUST COMPANY
and
PAINEWEBBER INCORPORATED
Dated as of September ___, 1999
Relating to
AUCTION PREFERRED STOCK
of
DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
BROKER-DEALER AGREEMENT dated as of September ___, 1999, between
BANKERS TRUST COMPANY, a New York corporation (the "Auction Agent") (not in its
individual capacity, but solely as agent of Dreyfus Strategic Municipal Bond
Fund, Inc., a Maryland corporation (the "Fund"), pursuant to authority granted
to it in the Auction Agent Agreement dated as of September ___, 1999, between
the Fund and the Auction Agent (the "Auction Agent Agreement")) and PAINEWEBBER
INCORPORATED (together with its successors and assigns, "BD").
The Fund proposes to issue 2,480 shares of Series A preferred stock,
2,480 shares of Series B preferred stock and 2,480 shares of Series C preferred
stock, par value $.001 per share, liquidation preference $25,000 per share,
designated Auction Preferred Stock (the "APS"), pursuant to the Fund's Articles
Supplementary (as defined below).
The Fund's Articles Supplementary provide that the dividend rate on
the APS for each Dividend Period therefor after the Initial Dividend Period
shall be the Applicable Rate therefor, which in each case, in general shall be
the rate per annum that a commercial bank, trust company or other financial
institution appointed by the Fund advises results from implementation of the
Auction Procedures (as defined below). The Fund's Board of Directors has adopted
a resolution appointing Bankers Trust Company as Auction Agent for purposes of
the Auction Procedures, and pursuant to Section 2.5 of the Auction Agent
Agreement, the Fund has requested and directed the Auction Agent to execute and
deliver this Agreement.
The Auction Procedures require the participation of one or more
Broker-Dealers.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Auction Agent and BD agree as follows:
I. DEFINITIONS AND RULES OF CONSTRUCTION.
1.1 Terms Defined by Reference to the Articles Supplementary.
Capitalized terms not defined herein have the respective meanings specified in
the Fund's Articles Supplementary.
1.2 Terms Defined Herein. As used herein and in the Settlement
Procedures (as defined below), the following terms have the following meanings,
unless the context otherwise requires:
(a) "Articles Supplementary" means the Articles Supplementary of
the Fund, establishing the powers, preferences and rights of the APS.
(b) "Auction" has the meaning specified in Section 3.1 hereof.
(c) "Auction Procedures" means the Auction Procedures that are
set forth in Article THIRD, paragraph 10 of the Articles Supplementary.
(d) "Authorized Officer" means each Managing Director, Vice President,
Assistant Vice President, Assistant Secretary and Assistant Treasurer of the
Auction Agent and every other officer or employee of the Auction Agent
designated as an "Authorized Officer" for purposes of this Agreement in a
communication to BD.
(e) "BD Officer" means each officer or employee of BD designated
as a "BD Officer" for purposes of this Agreement in a communication to the
Auction Agent.
(f) "Broker-Dealer Agreement" means this Agreement and any
substantially similar agreement between the Auction Agent and a Broker-Dealer.
(g) "Settlement Procedures" means the Settlement Procedures
attached hereto as Exhibit A.
1.3 Rules of Construction. Unless the context or use indicates another
or different meaning or intent, the following rules shall apply to the
construction of this Agreement:
(a) Words importing the singular number shall include the plural
number and vice versa.
(b) The captions and headings herein are solely for convenience
of reference and shall not constitute a part of this Agreement, nor shall they
affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other words of
similar import refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be to
New York City time.
II. NOTIFICATION OF DIVIDEND PERIOD AND ADVANCE NOTICE OF
ALLOCATION OF TAXABLE INCOME.
2.1 The provisions contained in Article THIRD, paragraph 2 of the
Articles Supplementary concerning the notification of a Special Dividend Period
will be followed by the Auction Agent and BD, and the provisions contained
therein are incorporated herein by reference in their entirety and shall be
deemed to be a part of this Agreement to the same extent as if such provisions
were set forth fully herein.
2.2 Except as otherwise provided in Article THIRD, paragraph 2 of the
Articles Supplementary, whenever the Fund intends to include any net capital
gains or other income subject to regular federal income tax in any dividend on
shares of APS, the Fund will notify the Auction Agent of the amount to be so
included at least five Business Days prior to the Auction Date on which the
Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from the Fund, in turn it will notify BD, who, on or
prior to such Auction Date, will notify its Beneficial Owners and Potential
Beneficial Owners believed to be interested in submitting an Order in the
Auction to be held on such Auction Date. Whenever the Fund intends to include
any additional amounts in a dividend as provided in Article THIRD, paragraph 2
of the Articles Supplementary, the Fund will notify the Auction Agent of such
additional amounts to be so included in such dividend at least five Business
Days prior to the applicable Dividend Payment Date. Whenever the Auction Agent
receives such notice from the Fund, in turn it will notify the Securities
Depository and BD, who, on or prior to the applicable Dividend Payment Date,
will notify its Beneficial Owners.
III. THE AUCTION.
3.1 Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
(a) On each Auction Date, the provisions of the Auction
Procedures will be followed by the Auction Agent for the purpose of determining
the Applicable Rate for the of APS, for the next Dividend Period therefor. Each
periodic operation of such procedures is hereinafter referred to as an
"Auction."
(b) All of the provisions contained in the Auction Procedures and
the Settlement Procedures are incorporated herein by reference in their entirety
and shall be deemed to be a part of this Agreement to the same extent as if such
provisions were set forth fully herein.
(c) BD agrees to act as, and assumes the obligations of and
limitations and restrictions placed upon, a Broker-Dealer under this Agreement.
BD understands that other Persons meeting the requirements specified in the
definition of "Broker-Dealer" contained in Article THIRD, paragraph 1 of the
Articles Supplementary may execute a Broker-Dealer Agreement and participate as
Broker-Dealers in Auctions.
(d) BD and other Broker-Dealers may participate in Auctions for
their own accounts. However, the Fund, by notice to BD and all other Broker
Dealers, may prohibit all Broker-Dealers from submitting Bids in Auctions for
their own accounts, provided that Broker-Dealers may continue to submit Hold
Orders and Sell Orders.
3.2 Preparation for Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for the APS,
the Auction Agent shall advise BD by telephone of the Reference Rate and the
Maximum Applicable Rate in effect on such Auction Date.
(b) In the event that the Auction Date for any Auction shall be
changed after the Auction Agent has given the notice referred to in paragraph
(a) of the Settlement Procedures, the Auction Agent, by such means as the
Auction Agent deems practicable, shall give notice of such change to BD not
later than the earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the
old Auction Date. Thereafter, BD promptly shall notify customers of BD that BD
believes are Beneficial Owners of shares of APS of such change in the Auction
Date.
(c) The Auction Agent from time to time may request BD to provide
it with a list of the respective customers BD believes are Beneficial Owners of
shares of APS. BD shall comply with any such request, and the Auction Agent
shall keep confidential any such information, including information received as
to the identity of Bidders in any Auction, and shall not disclose any such
information so provided to any Person other than the Fund; and such information
shall not be used by the Auction Agent or its officers, employees, agents or
representatives for any purpose other than such purposes as are described
herein. The Auction Agent shall transmit any list of customers BD believes are
Beneficial Owners of shares of APS and information related thereto only to its
officers, employees, agents or representatives who need to know such information
for the purposes of acting in accordance with this Agreement, and the Auction
Agent shall prevent the transmission of such information to others and shall
cause its officers, employees, agents and representatives to abide by the
foregoing confidentiality restrictions; provided, however, that the Auction
Agent shall have no responsibility or liability for the actions of any of its
officers, employees, agents or representatives after they have left the employ
of the Auction Agent.
3.3 Auction Schedule; Method of Submission of Orders.
(a) The Fund and the Auction Agent shall conduct Auctions for APS
in accordance with the schedule set forth below. Such schedule may be changed at
any time by the Auction Agent with the consent of the Fund, which consent shall
not be withheld unreasonably.
The Auction Agent shall give notice of any such change to BD. Such notice shall
be received prior to the first Auction Date on which any such change shall be
effective.
Time: Event:
By 9:30 A.M. Auction Agent advises the Fund and
Broker-Dealers of the Reference Rate
and the Maximum Applicable Rate as
set forth in Section 3.2(a) hereof.
9:30 A.M. - 1:30 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers
as provided in of Article THIRD,
paragraph 10 of the Articles
Supplementary. Submission Deadline
is 1:00 P.M.
Not earlier than 1:30 P.M. Auction Agent makes determinations
pursuant to Article THIRD, paragraph
10 of the Articles Supplementary.
By approximately 3:00 P.M. Auction Agent advises the Fund of the
results of the Auction as provided in
Article THIRD, paragraph 10 of the
Articles Supplementary. Submitted
Bids and Submitted Sell Orders are
accepted and rejected in whole or in
part and shares of APS are allocated as
provided in Article THIRD, paragraph
10 of the Articles Supplementary.
Auction Agent gives notice of the
Auction results as set
forth in Section 3.4(a) hereof.
(b) BD agrees to maintain a list of Potential Beneficial Owners
and to contact the Potential Beneficial Owners on such list on or prior to each
Auction Date for the purposes set forth in Article THIRD, paragraph 10 of the
Articles Supplementary.
(c) BD shall submit Orders to the Auction Agent in writing in
substantially the form attached hereto as Exhibit B. BD shall submit separate
Orders to the Auction Agent for each Potential Beneficial Owner or Beneficial
Owner on whose behalf BD is submitting an Order and shall not net or aggregate
the Orders of Potential Beneficial Owners or Beneficial Owners on whose behalf
BD is submitting Orders.
(d) BD shall deliver to the Auction Agent (i) a written notice,
substantially in the form attached hereto as Exhibit C, of transfers of shares
of APS, made through BD by an Existing Holder to another Person other than
pursuant to an Auction, and (ii) a written notice, substantially in the form
attached hereto as Exhibit D, of the failure of shares of APS to be transferred
to or by any Person that purchased or sold shares of APS through BD pursuant to
an Auction. The Auction Agent is not required to accept any notice delivered
pursuant to the terms of the foregoing sentence with respect to an Auction
unless it is received by the Auction Agent by 3:00 P.M. on the Business Day next
preceding the applicable Auction Date.
3.4 Notice of Auction Results.
(a) On each Auction Date, the Auction Agent shall notify BD by
telephone as set forth in paragraph (a) of the Settlement Procedures. On the
Business Day next succeeding such Auction Date, the Auction Agent shall notify
BD in writing of the disposition of all Orders submitted by BD in the Auction
held on such Auction Date.
(b) BD shall notify each Beneficial Owner, Potential Beneficial
Owner, Existing Holder or Potential Holder on whose behalf BD has submitted an
Order as set forth in paragraph (b) of the Settlement Procedures, and take such
other action as is required of BD pursuant to the Settlement Procedures.
If any Beneficial Owner or Existing Holder selling shares of APS
in an Auction fails to deliver such shares, the BD of any Person that was to
have purchased shares of APS in such Auction may deliver to such Person a number
of whole shares of APS that is less than the number of shares that otherwise was
to be purchased by such Person. In such event, the number of shares of APS to be
so delivered shall be determined by such BD. Delivery of such lesser number of
shares shall constitute good delivery. Upon the occurrence of any such failure
to deliver shares, such BD shall deliver to the Auction Agent the notice
required by Section 3.3(d)(ii) hereof. Notwithstanding the foregoing terms of
this Section 3.4(b), any delivery or non-delivery of shares of APS which
represents any departure from the results of an Auction, as determined by the
Auction Agent, shall be of no effect unless and until the Auction Agent shall
have been notified of such delivery or non-delivery in accordance with the terms
of Section 3.3(d) hereof. The Auction Agent shall have no duty or liability with
respect to enforcement of this Section 3.4(b).
3.5 Service Charge to Be Paid to BD.
On the Business Day next succeeding each Auction Date, the
Auction Agent shall pay to BD from moneys received from the Fund an amount equal
to: (a) in the case of any Auction Date immediately preceding a Dividend Period
of 28 days or less, the product of (i) a fraction the numerator of which is the
number of days in such Dividend Period (calculated by counting the first day of
such Dividend Period but excluding the last day thereof) and the denominator of
which is 360, times (ii) 1/4 of 1%, times (iii) $25,000, times (iv) the sum of
(A) the aggregate number of APS placed by BD in the applicable Auction that were
(x) the subject of a Submitted Bid of a Beneficial Owner submitted by BD and
continued to be held as a result of such submission and (y) the subject of a
Submitted Bid of a Potential Beneficial Owner submitted by BD and were purchased
as a result of such submission plus (B) the aggregate number of APS subject to
valid Hold Orders (determined in accordance with Article THIRD, paragraph 10 of
the Articles Supplementary) submitted to the Auction Agent by BD plus (C) the
number of APS deemed to be subject to Hold Orders by Beneficial Owners pursuant
to Article THIRD, paragraph 10 of the Articles Supplementary that were acquired
by such Beneficial Owners through BD; and (b) in the case of any Auction Date
immediately preceding a Special Dividend Period, that amount as mutually agreed
upon by the Fund and BD, based on the selling concession that would be
applicable to an underwriting of fixed or variable rate preferred shares with a
similar final maturity or variable rate dividend period, at the commencement of
such Special Dividend Period.
For purposes of subclause (a)(iv)(C) of the foregoing sentence,
if any Beneficial Owner who acquired shares of APS through BD transfers those
shares to another Person other than pursuant to an Auction, then the
Broker-Dealer for the shares so transferred shall continue to be BD, provided,
however, that if the transfer was effected by, or if the transferee is, a
Broker-Dealer other than BD, then such Broker-Dealer shall be the Broker-Dealer
for such shares.
IV. THE AUCTION AGENT.
4.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Fund
hereunder and owes no fiduciary duties to any other Person by reason of this
Agreement.
(b) The Auction Agent undertakes to perform such duties and only
such duties as are set forth specifically in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against the Auction
Agent.
(c) In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered or omitted by
it, or for any error of judgment made by it in the performance of its duties
under this Agreement. The Auction Agent shall not be liable for any error of
judgment made in good faith unless the Auction Agent shall have been negligent
in ascertaining (or failing to ascertain) the pertinent facts.
4.2 Rights of the Auction Agent.
(a) The Auction Agent may rely upon, and shall be protected in
acting or refraining from acting upon, any communication authorized by this
Agreement and any written instruction, notice, request, direction, consent,
report, certificate, share certificate or other instrument, paper or document
believed by it to be genuine. The Auction Agent shall not be liable for acting
upon any telephone communication authorized by this Agreement which the Auction
Agent believes in good faith to have been given by the Fund or by BD. The
Auction Agent may record telephone communications with BD.
(b) The Auction Agent may consult with counsel of its own choice,
and the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or
risk its own funds or otherwise incur or become exposed to financial liability
in the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its
rights hereunder either directly or by or through agents or attorneys.
4.3 Auction Agent's Disclaimer. The Auction Agent makes no
representation as to the validity or adequacy of this Agreement or the APS.
V. MISCELLANEOUS.
5.1 Termination. Any party may terminate this Agreement at any time
upon five days' prior written notice to the other party; provided, however, that
if BD is PaineWebber Incorporated, neither BD nor the Auction Agent may
terminate this Agreement without first obtaining the prior written consent of
the Fund to such termination, which consent shall not be withheld unreasonably.
5.2 Participant in Securities Depository; Payment of Dividends in
Same-Day Funds.
(a) BD is, and shall remain for the term of this Agreement, a
member of, or a participant in, the Securities Depository (or an affiliate of
such a member or participant).
(b) BD represents that it (or if BD does not act as Agent Member,
one of its affiliates) shall make all dividend payments on the APS available in
same-day funds on each Dividend Payment Date to customers that use BD (or its
affiliate) as Agent Member.
5.3 Agent Member. At the date hereof, BD is a participant of the
Securities Depository.
5.4 Communications. Except for (i) communications authorized to be
made by telephone pursuant to this Agreement or the Auction Procedures and (ii)
communications in connection with the Auctions (other than those expressly
required to be in writing), all notices, requests and other communications to
any party hereunder shall be in writing (including telecopy or similar writing)
and shall be given to such party at its address or telecopier number set forth
below:
If to BD, addressed to:
PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Attention: Vijit Sawhney
Telecopier No.: (201) 271-6999
Telephone No.: (201) 271-7270
If to the Auction Agent, addressed to:
Bankers Trust Company
Corporate Trust and Agency Group
Four Albany Street
New York, New York 10006
Attention: Auction Rate Securities
Telecopier No.: (212) 250-6215
Telephone No.: (212) 250-6850
or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of BD by a BD Officer and on behalf of
the Auction Agent by an Authorized Officer. BD may record telephone
communications with the Auction Agent.
5.5 Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof, and there are no
other representations, endorsements, promises, agreements or understandings,
oral, written or inferred, between the parties relating to the subject matter
hereof.
5.6 Benefits. Nothing in this Agreement, express or implied, shall
give to any person, other than the Fund, the Auction Agent and BD and their
respective successors and assigns, any benefit of any legal or equitable right,
remedy or claim under this Agreement.
5.7 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be
modified, amended, rescinded, canceled or waived, in whole or in part, except by
a written instrument signed by a duly authorized representative of the party to
be charged.
(b) Failure of either party to this Agreement to exercise any
right or remedy hereunder in the event of a breach of this Agreement by the
other party shall not constitute a waiver of any such right or remedy with
respect to any subsequent breach.
5.8 Successors and Assigns. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the respective successors and
permitted assigns of each of BD and the Auction Agent. This Agreement may not be
assigned by either party hereto absent the prior written consent of the other
party; provided, however, that this Agreement may be assigned by the Auction
Agent to a successor Auction Agent selected by the Fund without the consent of
BD.
5.9 Severability. If any clause, provision or section of this
Agreement shall be ruled invalid or unenforceable by any court of competent
jurisdiction, the invalidity or unenforceability of such clause, provision or
section shall not affect any remaining clause, provision or section hereof.
5.10 Execution in Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
5.11 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed in said state.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the date first above written.
BANKERS TRUST COMPANY
------------------------------
By:
Title:
PAINEWEBBER INCORPORATED
------------------------------
By:
Title:
<PAGE>
EXHIBIT A
SETTLEMENT PROCEDURES
The following summary of Settlement Procedures sets forth the
procedures expected to be followed in connection with the settlement of each
Auction. Nothing contained in this Appendix A constitutes a representation that
in each Auction each party referred to herein actually will perform the
procedures described herein to be performed by the party.
(a) On each Auction Date, the Auction Agent shall notify by telephone
or through the Auction Agent's Processing System the Broker-Dealers that
participated in the Auction held on such Auction Date and submitted an Order on
behalf of any Beneficial Owner or Potential Beneficial Owner of:
(i) the Applicable Rate fixed for the next succeeding Dividend
Period;
(ii) whether Sufficient Clearing Bids existed for the
determination of the Applicable Rate;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer")
submitted a Bid or a Sell Order on behalf of a Beneficial Owner, the number of
shares, if any, of shares of preferred stock to be sold by such Beneficial
Owner;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted
a Bid on behalf of a Potential Beneficial Owner, the number of shares, if any,
of shares of preferred stock to be purchased by such Potential Beneficial Owner;
(v) if the aggregate number of shares of preferred stock to be
sold by all Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid
or a Sell Order exceeds the aggregate number of shares of preferred stock to be
purchased by all Potential Beneficial Owners on whose behalf such Broker-Dealer
submitted a Bid, the name or names of one or more Buyer's Broker-Dealers (and
the name of the Agent Member, if any, of each such Buyer's Broker-Dealer)
acting for one or more purchasers of such excess number of shares of preferred
stock and the number of such shares to be purchased from one or more Beneficial
Owners on whose behalf such Broker-Dealer acted by one or more Potential
Beneficial Owners on whose behalf each of such Buyer's Broker-Dealers acted;
(vi) if the aggregate number of shares of preferred stock to be
purchased by all Potential Beneficial Owners on whose behalf such Broker-Dealer
submitted a Bid exceeds the aggregate number of shares of preferred stock to be
sold by all Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid
or a Sell Order, the name or names of one or more Seller's Broker-Dealers (and
the name of the Agent Member, if any, of each such Seller's Broker-Dealer)
acting for one or more sellers of such excess number of shares of preferred
stock and the number of such shares to be sold to one or more Potential
Beneficial Owners on whose behalf such Broker-Dealer acted by one or more
Beneficial Owners on whose behalf each of such Seller's Broker-Dealers acted;
and
(vii) the Auction Date of the next succeeding Auction with
respect to the shares of preferred stock.
(b) On each Auction Date, each Broker-Dealer that submitted an Order
on behalf of any Beneficial Owner or Potential Beneficial Owner shall:
(i) in the case of a Broker-Dealer that is a Buyer's
Broker-Dealer, instruct each Potential Beneficial Owner on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in part, to
instruct such Potential Beneficial Owner's Agent Member to pay to such
Broker-Dealer (or its Agent Member) through the Securities Depository the amount
necessary to purchase the number of shares of preferred stock to be purchased
pursuant to such Bid against receipt of such shares and advise such Potential
Beneficial Owner of the Applicable Rate for the next succeeding Dividend Period;
(ii) in the case of a Broker-Dealer that is a Seller's
Broker-Dealer, instruct each Beneficial Owner on whose behalf such Broker-Dealer
submitted a Sell Order that was accepted, in whole or in part, or a Bid that was
accepted, in whole or in part, to instruct such Beneficial Owner's Agent Member
to deliver to such Broker-Dealer (or its Agent Member) through the Securities
Depository the number of shares of preferred stock to be sold pursuant to such
Order against payment therefor and advise any such Beneficial Owner that will
continue to hold shares of preferred stock of the Applicable Rate for the next
succeeding Dividend Period;
(iii) advise each Beneficial Owner on whose behalf such
Broker-Dealer submitted a Hold Order of the Applicable Rate for the next
succeeding Dividend Period;
(iv) advise each Beneficial Owner on whose behalf such
Broker-Dealer submitted an Order of the Auction Date for the next succeeding
Auction; and
(v) advise each Potential Beneficial Owner on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in part, of the
Auction Date for the next succeeding Auction.
(c) On the basis of the information provided to it pursuant to (a)
above, each Broker-Dealer that submitted a Bid or a Sell Order on behalf of a
Potential Beneficial Owner or a Beneficial Owner shall, in such manner and at
such time or times as in its sole discretion it may determine, allocate any
funds received by it pursuant to (b)(i) above and any shares of preferred stock
received by it pursuant to (b)(ii) above among the Potential Beneficial Owners,
if any, on whose behalf such Broker-Dealer submitted Bids, the Beneficial
Owners, if any, on whose behalf such Broker-Dealer submitted Bids that were
accepted or Sell Orders, and any Broker-Dealer or Broker-Dealers identified to
it by the Auction Agent pursuant to (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Beneficial Owner and Beneficial Owner shall
instruct its Agent Member as provided in (b)(i) or (ii) above, as the case may
be;
(ii) each Seller's Broker-Dealer which is not an Agent Member of
the Securities Depository shall instruct its Agent Member to (A) pay through the
Securities Depository to the Agent Member of the Beneficial Owner delivering
shares to such Broker-Dealer pursuant to (b)(ii) above the amount necessary to
purchase such shares against receipt of such shares, and (B) deliver such shares
through the Securities Depository to a Buyer's Broker-Dealer (or its Agent
Member) identified to such Seller's Broker-Dealer pursuant to (a)(v) above
against payment therefor; and
(iii) each Buyer's Broker-Dealer which is not an Agent Member of
the Securities Depository shall instruct its Agent Member to (A) pay through the
Securities Depository to a Seller's Broker-Dealer (or its Agent Member)
identified pursuant to (a)(vi) above the amount necessary to purchase the shares
to be purchased pursuant to (b)(i) above against receipt of such shares, and (B)
deliver such shares through the Securities Depository to the Agent Member of the
purchaser thereof against payment therefor.
(e) On the day after the Auction Date:
(i) each Bidder's Agent Member referred to in (d)(i) above shall
instruct the Securities Depository to execute the transactions described in
(b)(i) or (ii) above, and the Securities Depository shall execute such
transactions;
(ii) each Seller's Broker-Dealer or its Agent Member shall
instruct the Securities Depository to execute the transactions described in
(d)(ii) above, and the Securities Depository shall execute such transactions;
and
(iii) each Buyer's Broker-Dealer or its Agent Member shall
instruct the Securities Depository to execute the transactions described in
(d)(iii) above, and the Securities Depository shall execute such transactions.
(f) If a Beneficial Owner selling shares of preferred stock in an
Auction fails to deliver such shares (by authorized book-entry), a Broker-Dealer
may deliver to the Potential Beneficial Owner on behalf of which it submitted a
Bid that was accepted a number of whole shares of preferred stock that is less
than the number of shares that otherwise was to be purchased by such Potential
Beneficial Owner. In such event, the number of shares of preferred stock to be
so delivered shall be determined solely by such Broker-Dealer. Delivery of such
lesser number of shares shall constitute good delivery. Notwithstanding the
foregoing terms of this paragraph (f), any delivery or non-delivery of shares
which shall represent any departure from the results of an Auction, as
determined by the Auction Agent, shall be of no effect unless and until the
Auction Agent shall have been notified of such delivery or non-delivery in
accordance with the provisions of the Auction Agent Agreement and the
Broker-Dealer Agreements.
<PAGE>
EXHIBIT B
BANKERS TRUST COMPANY
AUCTION BID FORM
Submit To: Bankers Trust Company Issue: Dreyfus Strategic
Corporate Trust and Agency Group Municipal Bond Fund,
Four Albany Street Inc.
New York, NY 10006
Attention: Auction Rate Securities
Telecopier No.: (212) 250-6215
Telephone No.: (212) 250-6850
The undersigned Broker-Dealer submits the following Order on behalf of the
Bidder listed below:
Name of Bidder: ________________________
BENEFICIAL OWNER
Shares now held _______________ HOLD _____________
BID at rate of _____________
SELL _____________
POTENTIAL BENEFICIAL OWNER
# of shares bid _____________
BID at rate of _____________ Notes:
(1) If submitting more than one Bid for one Bidder, use additional Auction Bid
Forms.
(2) If one or more Bids covering in the aggregate more than the number of
outstanding shares held by any Beneficial Owner are submitted, such bid shall be
considered valid in the order of priority set forth in the Auction Procedures on
the above issue.
(3) A Hold or Sell Order may be placed only by a Beneficial Owner covering a
number of shares not greater than the number of shares currently held.
(4) Potential Beneficial Owners may make only Bids, each of which must specify a
rate. If more than one Bid is submitted on behalf of any Potential Beneficial
Owner, each Bid submitted shall be a separate Bid with the rate specified.
(5) Bids may contain no more than three figures to the right of the decimal
point (.001 of 1%). Fractions will not be accepted.
NAME OF BROKER-DEALER ________________________
Authorized Signature ________________________
<PAGE>
EXHIBIT C
(Note: To be used only for transfers made
other than pursuant to an Auction)
TRANSFER FORM
Re: Dreyfus Strategic Municipal Bond Fund, Inc.
Auction Preferred Stock
We are (check one):
[ ] the Existing Holder named below;
[ ] the Broker-Dealer for such Existing Holder; or
[ ] the Agent Member for such Existing Holder.
We hereby notify you that such Beneficial Owner has transferred
_______________ APS to ________________________.
-------------------------
(Name of Existing Holder)
-------------------------
(Name of Broker-Dealer)
-------------------------
(Name of Agent Member)
By: _________________________
Printed Name:
Title:
<PAGE>
EXHIBIT D
(Note: To be used only for failures to deliver
APS sold pursuant to an Auction)
NOTICE OF A FAILURE TO DELIVER
Complete either I or II
I. We are a Broker-Dealer for ____________________ (the "Purchaser"),
which purchased _____ shares of Series [A/B/C] APS of Dreyfus Strategic
Municipal Bond Fund, Inc. in the Auction held on ____________________ from the
seller of such shares.
II. We are a Broker-Dealer for _____________________ (the "Seller"),
which sold ____ shares of Series [A/B/C] APS of Dreyfus Strategic Municipal Bond
Fund, Inc. in the Auction held on ______________ to the Purchaser of such
shares.
We hereby notify you that (check one):
_______ the Seller failed to deliver such shares to the Purchaser
_______ the Purchaser failed to make payment to the Seller upon
delivery of such shares
Name: _______________________
(Name of Broker-Dealer)
By: _______________________
Printed Name:
Title:
EXHIBIT (D)(3)
LETTER OF REPRESENTATIONS
[To be Completed by Issuer and Agent]
DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
(Name of Issuer]
BANKERS TRUST COMPANY
[Name of Agent]
SEPTEMBER __, 1999
[Date]
Attention: General Counsel's Office
THE DEPOSITORY TRUST COMPANY
55 Water Street; 49th Floor
New York, NY 10041-0099
Re: AUCTION PREFERRED STOCK, SERIES A (CUSIP NO. 26202F 20 6)
AUCTION PREFERRED STOCK, SERIES B (CUSIP NO. 26202F 30 5)
AUCTION PREFERRED STOCK, SERIES C (CUSIP NO. 26202F 40 4)
[Issue Description, including CUSIP number]
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain
matters relating to the above-referenced issue ( the "Securities"). Issuer is
selling the Securities to PaineWebber Incorporated (the "Initial Purchaser")
pursuant to an Underwriting Agreement dated as of September __, 1999 (the
"Document"). Initial Purchaser will take delivery of the Securities through The
Depository Trust Cornpany ("DTC"). Bankers Trust Company is acting as transfer
agent, paying agent, and registrar with respect to the Securities (the "Agent").
To induce DTC to accept the Securities as eligible for deposit at DTC,
and to act in accordance with its Rules with respect to the Securities, Issuer
and Agent make the following representations to DTC:
1. Prior to closing on the Securities on September __, 1999 there
shall be deposited with DTC one Security certificate registered in the name of
DTCs nominee, Cede & Co., for each of the Securities with the offering value set
forth on Schedule A hereto, the total of which represents 100% of the offering
value of such Securities. If, however, the offering value of any Security
exceeds S200 million, one certificate will be issued with respect to each $200
million of offering value and an additional certificate will be issued with
respect to any remaining offering value. Each Security certificate shall bear
the following legend:
Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York
corporation ("DTC"), to Issuer or its agent for registration of
transfer, exchange, or payment, and any certificate issued is
registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment
is made to Cede & Co. or to such other entity as is requested by
an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has
an interest herein.
If the Securities will be held by Agent, as custodian for DTC, such Security
certificate shall remain in Agent's custody pursuant to the provisions of the
FAST Balance Certificate Agreement currently in effect between Agent and DTC.
2. Issuer: (a) understands that DTC has no obligation to, and will
not, communicate to its Participants or to any person having an interest in the
Securities any information contained in the Security certificate(s); and (b)
acknowledges that neither DTC's Participants nor any person having an interest
in the Securities shall be deemed to have notice of the provisions of the
Security certificate(s) by virtue of submission of such certificate(s) to DTC.
3. In the event of any solicitation of consents from or voting by
holders of the Securities, Issuer or Agent shall establish a record date for
such purposes (with no provision for revocation of consents or votes by
subsequent holders) and shall send notice of such record date to DTC not less
than 15 calendar days in advance of such record date. Notices to DTC pursuant to
this Paragraph by telecopy shall be sent to DTCs Reorganization Department at
(212) 709-6896 or (212) 709-6897, and receipt of such notices shall be confirmed
by telephoning (212) 709-6870. Notices to DTC pursuant to this Paragraph by mail
or by any other means shall be sent to DTCs Reorganization Department as
indicated in Paragraph 7.
4. In the event of a stock split, recapitalization, conversion, or any
similar transaction resulting in the cancellation of all or any part of the
Securities represented thereby, the Agent shall send DTC a notice of such event
as soon as practicable, but in no event less than five business days prior to
the effective date of such transaction.
5. In the event of a full or partial redemption, Issuer or Agent shall
send a notice to DTC specifying: (a) the amount of the redemption or refunding;
(b) in the case of a refunding, the maturity date(s) established under the
refunding; and (c) the date such notice is to be distributed to Security holders
or published (the "Publication Date"). Such notice shall be sent to DTC by a
secure means (E.G., legible telecopy, registered or certified mail, overnight
delivery in a timely manner designed to assure that such notice is in DTC's
possession no later than the close of business on the business day before or, if
possible, two business days before the Publication Date. Issuer or Agent shall
forward such notice either in a separate secure transmission for each CUSIP
number or in a secure transmission for multiple CUSIP numbers (if applicable)
which includes a manifest or list of each CUSIP number submitted in that
transmission. (The party sending such notice shall have a method to verify
subsequently the use of such means and the timeliness of such notice.) The
Publication Date shall be not less than 30 days nor more than 60 days prior to
the redemption date or, in the case of an advance refunding, the date that the
proceeds are deposited in escrow. Notices to DTC pursuant to this Paragraph by
telecopy shall be sent to DTC's Call Notification Department at (516) 227-4039
or (516) 227-4190. If the party sending the notice does not receive a telecopy
receipt from DTC confirming that the notice has been received, such party shall
telephone (516) 227-4070. Notices to DTC pursuant to this Paragraph by mail or
by any other means shall be sent to:
Manager; Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
6. In the event of an offering or issuance of rights with respect to
the Securities outstanding, Agent shall send DTC's Dividend and Reorganization
Departments a notice specifying: (a) the amount of and conditions, if any,
applicable to such rights offering or issuance; (b) any applicable expiration or
deadline date, or any date by which any action on the part of holders of such
Securities is required; and (c) the Publication Date of such notice.
The Publication Date will be as soon as practicable after the
announcement by the Company of any such offering or issuance of rights with
respect to the Securities represented thereby. DTC requires that the Publication
Date be not less than 30 days nor more than 60 days prior to the related payment
date, distribution date, or issuance date, respectively.
Notices to DTC pursuant to this Paragraph by telecopy shall be sent to
DTC's Dividend Department at (212) 709-1623, and receipt of such notices shall
be confirmed by telephoning (212) 709-1282. Notices to DTC pursuant to the above
by mail or any other means shall be sent to:
Supervisor; Stock Dividends
Dividend Department
7 Hanover Square; 24th Floor
New York, NY 10004-2695
Notices to DTC pursuant to this Paragraph by telecopy shall be sent to
DTC's Reorganization Department at (212) 709-1093, and receipt of such fax shall
be confirmed by telephoning, (212) 709-1063. Notices to DTC pursuant to the
above by mail or any other means shall be sent to:
Supervisor; Rights Offerings
Reorganization Department
7 Hanover Square; 23rd Floor
New York, NY 10004-2695
7. In the event of an invitation to tender the Securities (including
mandatory tenders, exchanges, and capital changes), notice by Issuer or Agent to
Security holders specifying the terms of the tender and the Publication Date of
such notice shall be sent to DTC by a secure means in the manner set forth in
Paragraph 5. Notices to DTC pursuant to this Paragraph and notices of other
corporate actions by telecopy shall be sent to DTC's Reorganization Department
at (212) 709-1093 or (212) 709-1094, and receipt of such notices shall be
confirmed by telephoning (212) 709-6884. Notices to DTC pursuant to the above by
mail or by any other means shall be sent to:
Manager; Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square; 23rd Floor
New York, NY 10004-2695
8. All notices and payment advices sent to DTC shall contain the CUSIP
number of the Securities (listed on Schedule A hereto) and the accompanying
description of such Securities, which, as of the date of this letter, is
"Auction Preferred Stock, Series A," "Auction Preferred Stock, Series B," or
"Auction Preferred Stock, Series C."
9. Issuer or Agent shall provide written notice of dividend payment
information to a standard dividend announcement service subscribed to by DTC as
soon as the information is available. In the event that no such service exists,
Issuer or Agent shall provide such notice directly to DTC electronically as
previously arranged by Issuer or Agent and DTC, as soon as the payment
information is available. If electronic transmission has not been arranged,
absent any other arrangements between Issuer or Agent and DTC, such information
should be sent by telecopy to DTC's Dividend Department at (212) 709-1723 or
(212) 709-1686, and receipt of such notices shall be confirmed by telephoning
(212) 709-1270. Notices to DTC pursuant to the above by mail or by any other
means shall be sent to:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
After establishing the amount of payment to be made on the Securities
in question, Issuer or Agent will notify DTC's Dividend Department of the
payment and payment date preferably five, but not less than two, business days
prior to the effective date for such transaction.
10. Issuer or Agent shall provide CUSIP-level detail for dividend
payments to DTC no later than noon (Eastern Time) on the payment date.
11. Dividend payments and cash distributions shall be received by Cede
& Co. as nominee of DTC, or its registered assigns, in same-day funds no later
than 2:30 p.m. (Eastern Time) on each payment date. Absent any other
arrangements between Issuer or Agent and DTC, such funds shall be wired as
follows:
The Chase Manhattan Bank
ABA # 021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account # 066-026776
12. Redemption payments shall be received by Cede & Co., as nominee of
DTC, or its registered assigns, in same-day funds no later than 2:30 p.m.
(Eastern Time) on payment date. Absent any other arrangements between Agent and
DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA # 021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Redemption Deposit Account # 066-027306
13. Reorganization payments resulting from corporate actions (such as
tender offers or mergers) shall be received by Cede & Co., as nominee of DTC, or
its registered assigns, in same-day funds no later than 2:30 p.m. (Eastern Time)
on payment date. Absent any other arrangements between Agent and DTC, such funds
shall be wired as follows:
The Chase Manhattan Bank
ABA # 021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Reorganization Deposit Account # 066-027608
14. DTC may direct Issuer or Agent to use any other number or address
as the number or address to which notices or payments of dividends,
distributions, or redemption proceeds may be sent.
15. In the event of a redemption, acceleration, or any other similar
transaction (e.g., tender made and accepted in response to Issuer's or Agent's
invitation) necessitating a reduction in the aggregate principal amount of
Securities outstanding or an advance refunding of part of the Securities
outstanding, DTC, in its discretion: (a) may request Issuer or Agent to issue
and authenticate a new Security certificate; or (b) may make an appropriate
notation on the Security certificate indicating the date and amount of such
reduction in the number of Securities outstanding, except in the case of final
redemption, in which case the certificate will be presented to Issuer or Agent
prior to payment, if required.
16. In the event that Issuer determines that beneficial owners of
Securities shall be able to obtain certificated Securities, Issuer or Agent
shall notify DTC of the availability of certificates. In such event, Issuer or
Agent shall issue, transfer, and exchange certificates in appropriate amounts,
as required by DTC and others.
17. DTC may discontinue providing its services as securities
depository with respect to the Securities at any time by giving reasonable
notice to Issuer or Agent (at which time DTC will confirm with Issuer or Agent
the aggregate principal amount of Securities outstanding). Under such
circumstances, at DTC's request Issuer and Agent shall cooperate fully with DTC
by taking appropriate action to make available one or more separate certificates
evidencing Securities to any DTC Participant having Securities credited to its
DTC accounts.
18. Nothing herein shall be deemed to require Agent to advance funds
on behalf of Issuer.
19. This Letter of Representations may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts together constitute but one and the same instrument.
20. This Letter of Representations is governed by, and shall be
construed in accordance with, the laws of the State of New York.
21. The following riders, attached hereto, are hereby incorporated
into this Letter of Representations:
N/A
<PAGE>
NOTES:
A. If there is an Agent (as defined in this
Letter of Representations), Agent as well as
Issuer must sign this Letter. If there is no
Agent, in signing this Letter Issuer itself
undertakes to perform all of the obligations
forth herein.
Very truly yours
B. Schedule B contains statements that
DTC believes accurately describe DTC, the
method of effecting book-entry transfers of
securities distributed through DTC, and
certain related matters.
DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
(Issuer)
By:
-------------------------------
(Authorized Officer's Signature)
BANKERS TRUST COMPANY
(Agent)
By:
--------------------------------
(Authorized Officer's Signature)
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By:
-------------------------------
cc: Underwriter: PaineWebber Incorporated
Underwriter's Counsel: Skadden, Arps, Slate, Meagher & Flom LLP
<PAGE>
SCHEDULE A
1. AUCTION PREFERRED STOCK, SERIES A
2. AUCTION PREFERRED STOCK, SERIES B
3. AUCTION PREFERRED STOCK, SERIES C
(Describe Issue)
CUSIP NUMBER Share Total Offering ($) Value
1. 26202F 20 6 2,480 $62,000,000
2. 26202F 30 5 2,480 $62,000,000
3. 26202F 40 4 2,480 $62,000,000
<PAGE>
SCHEDULE B
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
(Prepared by DTC-bracketed material may be applicable only to certain issues)
1. The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities will
be issued as fully-registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One fully-registered Security certificate will be
issued for [each issue of] the Securities, [each] in the aggregate principal
amount of such issue, and will be deposited with DTC. [If, however, the
aggregate principal amount of [any] issue exceeds $200 million, one certificate
will be issued with respect to each $200 million of principal amount and an
additional certificate will be issued with respect to any remaining principal
amount of such issue.]
2. DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Participants") deposit
with DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is owned by a number
of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The Rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
3. Purchases of Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Securities on
DTC's records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in Securities,
except in the event that use of the book-entry system for the Securities is
discontinued.
4. To facilitate subsequent transfers, all Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Securities; DTC`s records reflect only the
identity of the Direct Participants to whose accounts such Securities are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
[6. Redemption notices shall be sent to DTC. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed.]
7. Neither DTC nor Cede & Co. will consent or vote with respect to
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as
soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the
Securities will be made to Cede & Co., as nominee of DTC. DTC's practice is to
credit Direct Participants' accounts, upon DTC's receipt of funds and
corresponding detail information from Issuer or Agent on payable date in
accordance with their respective holdings shown on DTC's records. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, Agent, or Issuer, subject to
any statutory or regulatory requirements as may be in effect from time to time.
Payment of redemption proceeds, distributions, and dividends to Cede & Co. is
the responsibility of Issuer or Agent, disbursement of such payments to Direct
Participants shall be the responsibility of Cede & Co., and disbursement of such
payments to the Beneficial Owners shall be the responsibility of Direct and
Indirect Participants.
[9. A Beneficial Owner shall give notice to elect to have its
Securities purchased or tendered, through its Participant, to
[Tender/Remarketing] Agent, and shall effect delivery of such Securities by
causing the Direct Participant to transfer the Participant's interest in the
Securities, on DTC's records, to [Tender/Remarketing] Agent. The requirement for
physical delivery of Securities in connection with an optional tender or a
mandatory purchase will be deemed satisfied when the ownership rights in the
Securities are transferred by Direct Participants on DTC's records and followed
by a book-entry credit of tendered securities to [Tender/Remarketing] Agent's
DTC account.]
10. DTC may discontinue providing its services as securities
depository with respect to the Securities at any time by giving reasonable
notice to Issuer or Agent. Under such circumstances, in the event that a
successor securities depository is not obtained, Security certificates are
required to be printed and delivered.
11. Issuer may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's
book-entry system has been obtained from sources that Issuer believes to be
reliable, but Issuer takes no responsibility for the accuracy thereof.
<PAGE>
RIDER AMENDING DTC LETTER OF REPRESENTATIONS -- BEO EQUITY ISSUES
As of March 9, 1998, DTC's Reorganization Department relocated and prior to
that, DTC's Dividend Department relocated to the 55 Water Street location.
Following are the new addresses and related telephone and facsimile numbers
referenced in the Letter of Representations.
THE FOLLOWING CHANGES RELATE TO PARAGRAPH 3 OF THE LETTER OF REPRESENTATIONS:
Old Telecopier Numbers Current Telecopier Numbers
(212) 709-6896 and (212) 709-6897 (212) 855-5181 and (212) 855-5182
The confirmation number (212) 709-6870 is now (212) 855-5202.
THE FOLLOWING CHANGES RELATE TO PARAGRAPH 5 OF THE LETTER OF REPRESENTATIONS:
Old Telecopier Numbers Current Telecopier Numbers
(516) 227-4039* (516) 227-4164
*all other numbers remain the same
THE FOLLOWING CHANGES RELATE TO PARAGRAPH 6 OF THE LETTER OF REPRESENTATIONS:
Old Telecopier Number Current Telecopier Number
Stock Dividends
(212) 709-1623 (212) 855-4545
The confirmation number (212) 709-1282 is now (212) 855-4517
Rights Offerings
(212) 709-1093) (212) 855-5259
The confirmation number (212) 709-1063 is now (212) 855-5260
The new addresses are:
Supervisor; Stock Dividends Supervisor; Rights Offerings
Dividend Department Reorganization Department
The Depository Trust Company -and- The Depository Trust Company
55 Water Street 25th Floor 55 Water Street 50th Floor
New York, NY 10041-0099 New York, NY 10041-0099
<PAGE>
THE FOLLOWING CHANGES RELATE TO PARAGRAPH 7 OF THE LETTER OF REPRESENTATIONS:
Old Telecopier Numbers Current Telecopier Numbers
(212) 709-1093 and (212) 709-1094 (212) 855-5258 and (212) 855-5259
The confirmation number (212) 709-6884 is now (212) 855-5260.
The new address is Manager; Reorganization Department
Reorganization Window
The Depository Trust Company
55 Water Street 50th Floor
New York, NY 10041-0099
THE FOLLOWING CHANGES RELATE TO PARAGRAPH 9 OF THE LETTER OF REPRESENTATIONS:
Old Telecopier Numbers Current Telecopier Numbers
(212) 709-1723 and (212) 709-1686 (212) 855-4555 and (212) 855-4556
The confirmation number (212) 709-1270 is now (212) 855-4550.
The new address is Manager; Announcements
Dividend Department
55 Water Street 25th
The Depository Trust Company Floor
New York, NY 10041-0099
THE FOLLOWING CHANGES RELATE TO PARAGRAPH 10 OF THE LETTER OF REPRESENTATIONS:
Such information shall be conveyed by automated notification. If the
circumstance prevent the funds paid to Cede & Co., as nominee of DTC, by 2:30
p.m. ET from equaling the dollar amount associated with detail payments by 12:00
noon ET Issuer or Agent must provide CUSIP-level reconciliation to DTC no later
than 2:30 p.m. ET. Reconciliation can be provided by automated means or written
format.
THE FOLLOWING CHANGES RELATE TO PARAGRAPH 11 OF THE LETTER OF REPRESENTATIONS:
To facilitate the payment standards, Issuer is required to remit free funds to
Agent by 1:00 p.m. ET on each payment date, or at such earlier time as required
by Agent to guarantee timely credit to the Dividend Deposit Account of Cede &
Co.
THE FOLLOWING CHANGES RELATE TO PARAGRAPH 12 OF THE LETTER OF REPRESENTATIONS:
To facilitate the payment standards, Issuer is required to remit free funds to
Agent by 1:00 p.m. ET on each payment date, or at such earlier time as required
by Agent to guarantee timely credit to the Redemption Deposit Account of Cede &
Co. Issuer or Agent shall deliver Cusip-level detail regarding such payments to
DTC no later than 2:30 p.m. ET on each payment date.
<PAGE>
THE FOLLOWING CHANGES RELATE TO PARAGRAPH 13 OF THE LETTER OF REPRESENTATIONS:
To facilitate the payment standards, Issuer is required to remit free funds to
Agent by 1:00 p.m. ET on each payment date, or at such earlier time as required
by Agent to guarantee timely credit to the Reorganization Deposit Account of
Cede & Co. Issuer or Agent shall deliver Cusip-level detail regarding such
payments to DTC no later than 2:30 p.rn, ET on each payment date.
EXHIBIT (E)
DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
DIVIDEND REINVESTMENT PLAN
1. Each person holding shares of common stock (a "Shareholder") in
Dreyfus Strategic Municipal Bond Fund, Inc. (the "Fund") in her or his own name
will automatically be a participant in the Dividend Reinvestment Plan (the
"Plan"), unless such Shareholder specifically elects to receive all dividends
and distributions in cash paid by check mailed directly to the Shareholder by or
under the direction of Boston Safe Deposit and Trust Company (the "Agent").
Dividends and distributions with respect to shares registered in the name of a
broker/dealer or other nominee will be automatically reinvested under the Plan
unless that service is not available by such broker/dealer or other nominee, in
which case dividends and distributions to those Shareholders will be made in
cash. The Agent will act as agent for individual Shareholders and will open an
account for each Shareholder under the Plan in the same name as her or his
present shares are registered.
2. Whenever the Fund declares a distribution or dividend payable in
shares of common stock or cash, participating Shareholders will receive such
distribution or dividend entirely in shares of common stock and the Agent shall
automatically receive such shares of common stock, including fractions, for the
Shareholder's account, except in the circumstances described in paragraph 3
below.
3. Nonparticipants in the Plan will receive cash and participants in
the Plan will receive the equivalent in Fund shares valued as follows. Whenever
the market price is equal to or exceeds the net asset value at the time shares
of common stock are valued for the purpose of determining the number of shares
equivalent to the cash dividend or distribution, participants will be issued
shares of common stock at the greater of (i) the most recent net asset value or
(ii) 95% of the then-current market price of the Fund's common stock. The Fund
will not issue shares under the Plan below net asset value. If the net asset
value of the common stock at the time of valuation exceeds the market price of
common stock at such time, or if the Fund should declare a dividend or
distribution payable only in cash, the Agent will, as agent for the
participants, buy shares of common stock in the open market, on the New York
Stock Exchange ("NYSE") or elsewhere, for the participants' accounts. If before
the Agent has completed its purchases the market price exceeds the net asset
value of the common stock, the average per share purchase price paid by the
Agent may exceed the net asset value of the common stock, resulting in the
acquisition of fewer shares of common stock than if the dividend or distribution
had been paid in common stock issued by the Fund. The Agent will apply all cash
received as a dividend or distribution to purchase shares of common stock on the
open market as soon as practicable after the payment date of such dividend or
distribution, but in no event later than 30 days after such date, except where
necessary to comply with applicable provisions of the federal securities laws.
4. For purposes of the Plan: (a) the market price of Fund shares of
common stock on a particular date shall be the last sales price on the NYSE on
the close of the previous trading day or, if there is no sale on the NYSE on
that date, then the mean between the closing bid and asked quotations for such
stock on the NYSE on such date and (b) net asset value per share of common stock
on a particular date shall be as determined by or on behalf of the Fund.
5. The open-market purchases provided for above may be made on any
securities exchange where the shares of common stock of the Fund are traded, in
the over-the-counter market or in negotiated transactions, and may be on such
terms as to price, delivery and otherwise as the Agent shall determine.
Uninvested funds held by the Agent will not bear interest, and it is understood
that, in any event, the Agent shall have no liability in connection with any
inability to purchase shares of common stock within 30 days after the payment
date of a dividend or distribution as herein provided, or with the timing of any
purchases effected. The Agent shall have no responsibility as to the value of
the shares of common stock of the Fund acquired for the Shareholder's account.
6. The Agent will hold shares of common stock acquired pursuant to the
Plan in noncertificated form in the Shareholder's name or that of its nominee.
In the case of a Shareholder which holds shares for others who are the
beneficial owners of Fund shares, the Agent will administer the Plan on the
basis of the number of shares certified from time to time by the Shareholder as
representing the total amount registered in the Shareholder's name and held for
the account of beneficial owners who are to participate in the Plan. The Agent
will forward to the Shareholder any proxy solicitation material and will vote
any shares of common stock so held for the Shareholder only in accordance with
the proxy returned by her or him to the Fund. Upon the Shareholder's written
request, the Agent will deliver to her or him, upon payment of a $5.00 service
fee, a certificate or certificates for the Shareholder's full (but not
fractional) shares of common stock.
7. The Agent will confirm to the Shareholder each acquisition made for
her or his account as soon as practicable but not later than 60 days after the
date thereof and will provide information needed by Shareholders for personal
and tax records. Although the Shareholder may from time to time have an
undivided fractional interest (computed to three decimal places) in a share of
common stock of the Fund, no certificates for a fractional share will be issued.
However, dividends and distributions on fractional shares of common stock will
be credited to the Shareholder's account. In the event of termination of a
Shareholder's account under the Plan, the Agent will adjust for any such
undivided fractional interest in cash at the market value of the shares of
common stock at the time of termination.
8. Any stock dividends or split shares distributed by the Fund on
shares of common stock held by the Agent for the Shareholder will be credited to
the Shareholder's account. In the event that the Fund makes available to the
Shareholder rights to purchase additional shares of common stock or other
securities, the Agent will sell such rights and apply the proceeds of the sale
to the purchase of additional shares of common stock of the Fund for the account
of such Shareholder.
9. The Agent's service fee for reinvesting dividends or distributions
will be paid by the Fund. The Shareholder will be charged a pro rata share of
brokerage commissions on all open-market purchases.
10. The Shareholder may terminate her or his account under the Plan by
notifying the Agent in writing by direct mail addressed to: Boston Safe Deposit
and Trust Company, Attention: Closed-End Funds, P.O. Box 1376, Boston,
Massachusetts 02104-1376 or by telephone at 1-800-331-1710. Such termination
will be effective immediately if notice is received by the Agent prior to any
dividend or distribution record date. The Plan will terminate automatically at
such time as the Fund is converted to an open-end investment company. In
addition, the Plan may be terminated by the Agent, with the Fund's prior written
consent, on at least 90 days' written notice to participants in the Plan. Upon
any termination, the Agent will cause a certificate or certificates for the full
number of shares held for the Shareholder under the Plan, and cash adjustment
for any fraction, to be delivered to her or him. If, upon withdrawal, the
Shareholder requests a certificate for shares held in the account, a $5.00
service fee will be charged to the Shareholder by the Agent.
If the Shareholder elects by notice to the Agent in writing in advance
of such termination to have the Agent sell part or all of her or his shares and
remit the proceeds to her or him, the Agent is authorized to deduct a $5.00
service fee plus brokerage commissions for this transaction from the proceeds.
11. These terms and conditions may be amended or supplemented by the
Agent, with the Fund's prior written consent, or by the Fund at any time or
times but, except when necessary or appropriate to comply with applicable law or
the rules or policies of the Securities and Exchange Commission or any other
regulatory authority, only by mailing to the Shareholder appropriate written
notice at least 90 days prior to the effective date thereof. The amendment or
supplement shall be deemed to be accepted by the Shareholder unless, prior to
the effective date thereof, the Agent receives written notice of the termination
of the Shareholder account under the Plan. Any such amendment may include an
appointment by the Agent in its place and stead of a successor Agent under these
terms and conditions, with full power and authority to perform all or any of the
acts to be performed by the Agent under these terms and conditions. Upon any
such appointment of an Agent for the purpose of receiving dividends and
distributions, the Fund will be authorized to pay to such successor Agent, for
Shareholders' accounts, all dividends and distributions payable on the shares of
common stock held in the Shareholders' name or under the Plan for retention or
application by such successor Agent as provided in these terms and conditions.
12. The Agent shall at all times act in good faith and agrees to use
its best efforts, within reasonable limits, to ensure the accuracy of all
services performed under this Agreement and to comply with applicable law. The
Agent assumes no responsibility and shall not be liable for loss or damage due
to errors unless such error is caused by its negligence, bad faith or willful
misconduct or that of its employees.
Dated: November ___, 1989
Accepted and Agreed to:
BOSTON SAFE DEPOSIT AND
TRUST COMPANY
By:
------------------------
Title:
-------------------------
<PAGE>
EXHIBIT (G)
INVESTMENT ADVISORY AGREEMENT
DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
August 24, 1994
The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Dear Sirs:
The above-named investment company (the "Fund") herewith confirms its
agreement with you as follows:
The Fund desires to employ its capital by investing and reinvesting
the same in investments of the type and in accordance with the limitations
specified in its charter documents and in its Prospectus as from time to time in
effect, copies of which have been or will be submitted to you, and in such
manner and to such extent as from time to time may be approved by the Fund's
Board. The Fund intends to employ The Boston Company Advisors, Inc. (the
"Administrator") to act as its administrator and desires to employ you to act as
its investment adviser.
In this connection it is understood that from time to time you will
employ or associate with yourself such person or persons as you may believe to
be particularly fitted to assist you in the performance of this Agreement. Such
person or persons may be officers or employees who are employed by both you and
the Fund. The compensation of such person or persons shall be paid by you and no
obligation may be incurred on the Fund's behalf in any such respect.
Subject to the supervision and approval of the Fund's Board, you will
provide investment management of the Fund's portfolio in accordance with the
Fund's investment objectives and policies as stated in its Prospectus as from
time to time in effect. In connection therewith, you will obtain and provide
investment research and will supervise the Fund's investments and conduct a
continuous program of investment, evaluation and, if appropriate, sale and
reinvestment of the Fund's assets. You will furnish to the Fund such statistical
information, with respect to the investments which the Fund may hold or
contemplate purchasing, as the Fund may reasonably request. The Fund wishes to
be informed of important developments materially affecting its portfolio and
shall expect you, on your own initiative, to furnish to the Fund from time to
time such information as you may believe appropriate for this purpose.
You shall exercise your best judgment in rendering the services to be
provided to the Fund hereunder and the Fund agrees as an inducement to your
undertaking the same that you shall not be liable hereunder for any error of
judgment or mistake of law or for any loss suffered by the Fund, provided that
nothing herein shall be deemed to protect or purport to protect you against any
liability to the Fund or to its security holders to which you would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties hereunder, or by reason of your reckless disregard of
your obligations and duties hereunder.
In consideration of services rendered pursuant to this Agreement, the
Fund will pay you on the first business day of each month a fee at the annual
rate of .50 of 1% of the value of the Fund's average weekly net assets. Net
asset value shall be computed on such days and at such time or times as
described in the Fund's then-current Prospectus. Upon any termination of this
Agreement before the end of any month, the fee for such part of a month shall be
pro-rated according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement.
For the purpose of determining fees payable to you, the value of the
Fund's net assets shall be computed in the manner specified in the Fund's
charter documents for the computation of the value of the Fund's net assets.
You will bear all expenses in connection with the performance of your
services under this Agreement. All other expenses to be incurred in the
operation of the Fund will be borne by the Fund, except to the extent
specifically assumed by you. The expenses to be borne by the Fund include,
without limitation, the following: organizational costs, taxes, interest, loan
commitment fees, interest and distributions paid on securities sold short,
brokerage fees and commissions, if any, and other expenses in any way related to
the execution, recording and settlement of portfolio securities transactions,
fees of Board members who are not your or the Administrator's officers,
directors or employees or holders of 5% or more of your or the Administrator's
outstanding voting securities, Securities and Exchange Commission fees and state
Blue Sky qualification fees, advisory and administration fees, charges of
custodians, transfer and dividend paying agents' fees, certain insurance
premiums, industry association fees, outside auditing and legal expenses,
expenses of listing, and maintaining the listing of, the Fund's common stock on
any stock exchange, costs incurred in the offering of any preferred stock of the
Fund, costs of independent pricing services, costs of maintaining the Fund's
existence, expenses of reacquiring shares of common stock and/or any preferred
stock of the Fund, expenses in connection with the Fund's Dividend Reinvestment
Plan, costs of maintaining the required books and accounts, costs attributable
to investor services (including, without limitation, telephone and personnel
expenses), costs of preparing, printing and mailing share certificates, proxy
statements and prospectuses, costs of stockholders' reports and meetings, and
any extraordinary expenses.
The Fund understands that you now act, and that from time to time
hereafter you may act, as investment adviser to one or more other investment
companies and fiduciary or other managed accounts, and the Fund has no objection
to your so acting, provided that when the purchase or sale of securities of the
same issuer is suitable for the investment objectives of two or more companies
or accounts managed by you which have available funds for investment, the
available securities will be allocated in a manner believed by you to be
equitable to each company or account. It is recognized that in some cases this
procedure may adversely affect the price paid or received by the Fund or the
size of the position obtainable for or disposed of by the Fund.
In addition, it is understood that the persons employed by you to
assist in the performance of your duties hereunder will not devote their full
time to such service and nothing contained herein shall be deemed to limit or
restrict your right or the right of any of your affiliates to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.
You shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith or gross negligence on your part in the performance of your duties or from
reckless disregard by you of your obligations and duties under this Agreement.
Any person, even though also your officer, director, partner, employee or agent,
who may be or become an officer, Board member, employee or agent of the Fund,
shall be deemed, when rendering services to the Fund or acting on any business
of the Fund, to be rendering such services to or acting solely for the Fund and
not as your officer, director, partner, employee or agent or one under your
control or direction even though paid by you.
This Agreement shall continue until September 30, 1994, and thereafter
shall continue automatically for successive annual periods ending on September
30th of each year, provided such continuance is specifically approved at least
annually by (i) the Fund's Board or (ii) vote of a majority (as defined in the
Investment Company Act of 1940) of the Fund's outstanding voting securities,
provided that in either event its continuance also is approved by a majority of
the Fund's Board members who are not "interested persons" (as defined in said
Act) of any party to this Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval. This Agreement is terminable without
penalty, on 60 days' notice, by the Fund's Board or by vote of holders of a
majority of the Fund's shares or, upon not less than 90 days' notice, by you.
This Agreement also will terminate automatically in the event of its assignment
(as defined in said Act).
The Fund recognizes that from time to time your directors, officers
and employees may serve as directors, trustees, partners, officers and employees
of other corporations, business trusts, partnerships or other entities
(including other investment companies) and that such other entities may include
the name "Dreyfus" as part of their name, and that your corporation or its
affiliates may enter into investment advisory or other agreements with such
other entities. If you cease to act as the Fund's investment adviser, the Fund
agrees that, at your request, the Fund will take all necessary action to change
the name of the Fund to a name not including "Dreyfus" in any form or
combination of words.
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
DREYFUS STRATEGIC MUNICIPAL BOND
FUND, INC.
By: s/ RICHARD J. MOYNIHAN
-------------------------
Richard J. Moynihan, President
Accepted:
THE DREYFUS CORPORATION
By: s/ DANIEL C. MACLEAN
----------------------------------
Daniel C. Maclean, Vice President
EXHIBIT (H)
2,480 SHARES AUCTION PREFERRED STOCK, SERIES A
2,480 SHARES AUCTION PREFERRED STOCK, SERIES B
2,480 SHARES AUCTION PREFERRED STOCK, SERIES C
DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
UNDERWRITING AGREEMENT
September __, 1999
PAINEWEBBER INCORPORATED
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
Dreyfus Strategic Municipal Bond Fund, Inc., a Maryland corporation
(the "Fund"), proposes to issue and sell to the underwriters named in Schedule 1
hereto (the "Underwriters"), an aggregate of 2,480 shares of preferred stock,
par value $.001 per share, designated Auction Preferred Stock, Series A of the
Fund, 2,480 shares of preferred stock designated Auction Preferred Stock, Series
B and 2,480 shares of preferred stock designated Auction Preferred Stock, Series
C, each with a liquidation preference of $25,000 per share (collectively, the
"APS").
The Dreyfus Corporation ("Dreyfus"), a New York corporation, acts as
the Fund's investment adviser pursuant to an Investment Advisory Agreement by
and between the Fund and Dreyfus, dated as of August 24, 1994 (the "Investment
Advisory Agreement") and as the Fund's administrator pursuant to an
Administration Agreement by and between the Fund and Dreyfus, dated as of
November 1, 1995 (the "Administration Agreement"). Boston Safe Deposit and Trust
Company acts as the custodian (the "Custodian") of the Fund's cash and portfolio
assets pursuant to a Custody Agreement, dated as of November 2, 1989 (the
"Custody Agreement"). First Data Investor Services Group, Inc., a subsidiary of
First Data Corporation, acts as the Fund's transfer agent, dividend disbursing
agent and registrar (the "Transfer Agent") pursuant to a Transfer Agency and
Registrar Agreement, dated as of November 2, 1989 (the "Transfer Agency
Agreement"). Bankers Trust Company acts as the Fund's auction agent (the
"Auction Agent") pursuant to an Auction Agency Agreement, dated as of September
__, 1999 (the "Auction Agent Agreement"). The Fund has entered into a Letter
Agreement with The Depository Trust Company ("DTC"), dated as of September __,
1999 (the "DTC Agreement").
The Fund and Dreyfus each hereby confirms as follows their agreements
with the Underwriters.
1. SALE AND PURCHASE; COMPENSATION
(a) The Fund will issue and sell to each Underwriter, and each
Underwriter will purchase from the Fund, the number of APS set forth opposite
such Underwriter's name in Schedule 1 hereto, at the purchase price per share of
$______.
(b) The obligations of the Underwriters under this Underwriting
Agreement are undertaken on the basis of the representations and are subject to
the conditions set forth in this Underwriting Agreement.
2. PAYMENT AND DELIVERY. Delivery by the Fund of the APS (the "APS
Closing") to the Underwriters against payment of the purchase price by wire
transfer of Federal Funds or similar same day funds to the Fund for the APS,
will take place at the offices of PaineWebber Incorporated (the "Managing
Representative"), 1285 Avenue of the Americas, New York, New York or such other
location as is agreed upon by the parties hereto, or through the facilities of
DTC or another mutually agreeable facility, at 9:00 a.m., New York City time, on
the third business day following the date of this Underwriting Agreement, or at
such time on such other date, not later than ten business days after the date of
this Underwriting Agreement, as may be agreed upon by the Fund and the Managing
Representative (the "APS Closing Date").
A certificate in definitive form representing each series of the APS
to be purchased by the Underwriters registered in the name of Cede & Co., as
nominee for DTC, shall be delivered by or on behalf of the Fund to DTC for the
account of the Underwriters.
3. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC OFFERING. The Fund
has filed with the Securities and Exchange Commission (the "Commission"),
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
the published rules and regulations adopted by the Commission under the
Securities Act (the "Securities Act Rules") and the Investment Company Act (the
"Investment Company Act Rules"), a Notification of Registration on Form N-8A
(the "Notification") pursuant to Section 8 of the Investment Company Act and a
registration statement on Form N-2 (File Nos. 333-84123 and 811-5877) relating
to the APS (the "registration statement"), including a preliminary prospectus
(including any preliminary statement of additional information), and such
amendments to such registration statement as may have been required to the date
of this Underwriting Agreement. The preliminary prospectus (including any
preliminary statement of additional information) is to be used in connection
with the offering and sale of the APS. The term "Preliminary Prospectus" as used
herein means any preliminary prospectus (including any preliminary statement of
additional information) included at any time as a part of the registration
statement and any preliminary prospectus (including any preliminary statement of
additional information) omitted therefrom pursuant to the Securities Act Rules.
The Fund has furnished the Managing Representative copies of such
registration statement, each amendment to such registration statement filed by
the Fund with the Commission and the Preliminary Prospectus filed by the Fund
with the Commission or used by the Fund. If the registration statement has not
become effective, a further amendment (the "Final Amendment") to such
registration statement, including the forms of final prospectus (including any
final statement of additional information), necessary to permit such
registration statement to become effective will promptly be filed by the Fund
with the Commission. If such registration statement has become effective and any
prospectus (including any statement of additional information) contained therein
omits certain information at the time of effectiveness pursuant to Rule 430A of
the Securities Act Rules, a final prospectus (the "Rule 430A Prospectus")
containing such omitted information will be filed by the Fund with the
Commission in accordance with Rule 497(h) of the Securities Act Rules. The
registration statement as amended at the time it becomes or became effective
(the "Effective Date"), including financial statements and all exhibits, and any
information deemed to be included by Rule 430A, is called the "Registration
Statement." The term "Prospectus" means the prospectus (including any statement
of additional information) in the form in which it is first filed with the
Commission pursuant to Rule 497(b), (h) or (j) of the Securities Act Rules, as
the case may be.
The Fund and Dreyfus understand that the Underwriters propose to make
a public offering of the APS, as described in the Prospectus, as soon after the
Effective Date (or, if later, after the date this Underwriting Agreement is
signed) as the Managing Representative deems advisable. The Fund confirms that
the Underwriters and dealers have been authorized to distribute the Preliminary
Prospectus relating to the APS included in the initial filing of the
registration statement and are authorized to distribute the Prospectus and any
amendments or supplements thereto.
4. REPRESENTATIONS.
(a) The Fund represents to each Underwriter as follows:
(i) On (A) the Effective Date and the date on which the
Prospectus is first filed with the Commission pursuant to Rule 497(b),
(h) or (j) of the Securities Act Rules, as the case may be, (B) the
date on which any post-effective amendment to the Registration
Statement (except any post-effective amendment which is filed with the
Commission after the later of (x) one year from the date of this
Underwriting Agreement or (y) the date on which the distribution of
the APS is completed) became or becomes effective or any amendment or
supplement to the Prospectus was or is filed with the Commission and
(C) the APS Closing Date, the Registration Statement, the Prospectus
and any such amendment or supplement thereto and the Notification
complied or will comply in all material respects with the requirements
of the Securities Act, the Investment Company Act, the Securities Act
Rules and the Investment Company Act Rules, as the case may be. On the
Effective Date and on the date that any post-effective amendment to
the Registration Statement (except any post-effective amendment which
is filed with the Commission after the later of (x) one year from the
date of this Underwriting Agreement or (y) the date on which the
distribution of the APS is completed) became or becomes effective,
neither the Registration Statement nor any such amendment did or will
contain any untrue statement of a material fact or omit to state a
material fact required to be stated in it or necessary to make the
statements in it not misleading. At the Effective Date and, if
applicable, the date the Prospectus or any amendment or supplement to
the Prospectus was or is filed with the Commission and at the APS
Closing Date, the Prospectus did not or will not, as the case may be,
contain any untrue statement of a material fact or omit to state a
material fact required to be stated in it or necessary to make the
statements in it, in light of the circumstances under which they were
made, not misleading. The foregoing representations in this Section
4(a)(i) do not apply to statements or omissions relating to the
Underwriters made in reliance on and in conformity with information
furnished in writing to the Fund by the Underwriters expressly for use
in the Registration Statement, the Prospectus, or any amendments or
supplements thereto, as described in Section 7(f) hereof.
(ii) The Fund has been duly organized and is validly existing as
a corporation under the laws of its jurisdiction of incorporation, the
Articles of Incorporation of the Fund, as amended through the date
hereof and the Articles Supplementary dated September __, 1999 (the
"Articles Supplementary") adopted in connection with the issuance of
the APS (the "Articles of Incorporation" (which term shall include the
Articles Supplementary)), and the By-Laws of the Fund, as amended
through the date hereof (the "By-Laws"), confer upon the Fund full
power and authority to conduct all the activities conducted by it, to
own or lease all assets owned (or to be owned) or leased (or to be
leased) by it and to conduct its business as described in the
Registration Statement and Prospectus; the Fund is duly licensed and
qualified to do business and in good standing in each jurisdiction in
which its ownership or leasing of property or its conducting of
business requires such qualification, except where the failure to be
so qualified or be in good standing would not have a material adverse
effect on the Fund; and the Fund owns, possesses or has obtained and
currently maintains all governmental licenses, permits, consents,
orders, approvals and other authorizations, whether foreign or
domestic, necessary to carry on its business as contemplated in the
Prospectus. The Fund has no subsidiaries.
(iii) The capitalization of the Fund is as set forth in the
Registration Statement and the Prospectus. The shares of common stock
of the Fund, par value $.001 per share (the "Common Stock"), and the
APS conform in all material respects to the description of them in the
Prospectus. All the outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and nonassessable
(except as described in the Registration Statement). The APS to be
issued and delivered to and paid for by the Underwriters in accordance
with this Underwriting Agreement against payment therefor as provided
by this Underwriting Agreement have been duly authorized and when
issued and delivered to the Underwriters will have been validly issued
and will be fully paid and nonassessable (except as described in the
Registration Statement). No person is entitled to any preemptive or
other similar rights in connection with the issuance of the APS.
(iv) The Fund is duly registered with the Commission under the
Investment Company Act as a diversified, closed-end management
investment company, and, subject to the filing of the Final Amendment,
if not already filed, all action under the Securities Act, the
Investment Company Act, the Securities Act Rules and the Investment
Company Act Rules, as the case may be, necessary to make the public
offering and consummate the sale of the APS as provided in this
Underwriting Agreement has or will have been taken by the Fund.
(v) The Fund has full power and authority to enter into each of
this Underwriting Agreement, the Investment Advisory Agreement, the
Administration Agreement, the Custody Agreement, the Transfer Agency
Agreement, the Auction Agency Agreement and the DTC Agreement
(collectively, the "Fund Agreements") and to perform all of the terms
and provisions hereof and thereof to be carried out by it and (A) each
Fund Agreement has been duly and validly authorized, executed and
delivered by or on behalf of the Fund, (B) each Fund Agreement does
not violate in any material respect any of the applicable provisions
of the Investment Company Act, the Investment Advisers Act of 1940
(the "Advisers Act") and the Investment Company Act Rules and the
rules and regulations adopted by the Commission under the Advisers Act
(the "Advisers Act Rules"), as the case may be, and (C) assuming due
authorization, execution and delivery by the other parties thereto,
each Fund Agreement constitutes the legal, valid and binding
obligation of the Fund enforceable in accordance with its terms, (1)
subject, as to enforcement, to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to general
equitable principles (regardless of whether enforcement is sought in a
proceeding in equity or at law) and (2) except as rights to indemnity
thereunder may be limited by federal or state securities laws.
(vi) None of (A) the execution and delivery by the Fund of the
Fund Agreements, (B) the issue and sale by the Fund of the APS as
contemplated by this Underwriting Agreement and (C) the performance by
the Fund of its obligations under any of the Fund Agreements or
consummation by the Fund of the other transactions contemplated by the
Fund Agreements conflicts with or will conflict with, or results or
will result in a breach of, the Articles of Incorporation or By-Laws
or any material agreement or instrument to which the Fund is a party
or by which the Fund is bound, or any law, rule or regulation, or
order of any court, governmental instrumentality, securities exchange
or association or arbitrator, whether foreign or domestic, having
jurisdiction over the Fund, other than state securities or "blue sky"
laws applicable in connection with the purchase and distribution of
the APS by the Underwriters pursuant to this Underwriting Agreement.
(vii) The Fund is not currently in breach of, or in default
under, in any material respect, any written agreement or instrument to
which it is a party or by which it or its property is bound or
affected.
(viii) No person has any right to the registration of any
securities of the Fund because of the filing of the Registration
Statement.
(ix) No consent, approval, authorization or order of any court or
governmental agency or body or securities exchange or association,
whether foreign or domestic, is legally required by the Fund for the
consummation by the Fund of the transactions to be performed by the
Fund or the performance by the Fund of all the terms and provisions to
be performed by or on behalf of it in each case as contemplated in the
Fund Agreements, except such as (A) have been obtained under the
Securities Act, the Investment Company Act, the Advisers Act, the
Securities Act Rules, the Investment Company Act Rules, and the
Advisers Act Rules, and (B) may be required by the American Stock
Exchange or under state securities or "blue sky" laws, in connection
with the purchase and distribution of the APS by the Underwriters
pursuant to this Underwriting Agreement.
(x) Ernst & Young LLP, whose report appears in the Prospectus,
are independent public accountants with respect to the Fund as
required by the Securities Act, the Investment Company Act, the
Securities Act Rules and the Investment Company Act Rules.
(xi) The financial statements included in the Registration
Statement and the Prospectus present fairly in all material respects,
in accordance with generally accepted accounting principles in the
United States applied on a consistent basis, the financial condition
of the Fund at the dates and for the periods indicated.
(xii) The Fund will maintain a system of internal accounting
controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with management's general or
specific authorization; (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain
accountability for assets; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and
(D) the recorded accountability for assets is compared with existing
assets through an asset reconciliation procedure or otherwise at
reasonable intervals and appropriate action is taken with respect to
any differences.
(xiii) Other than as set forth in the Prospectus, subsequent to
the date of the financial statements in the Registration Statement and
Prospectus, (A) the Fund has not incurred any liabilities or
obligations, direct or contingent (whether or not in the ordinary
course of business), or entered into any transactions, not in the
ordinary course of business, that are material to the Fund, (B) there
has not been any material change in the Common Stock or any material
adverse change, or any development involving a prospective material
adverse change, in or affecting the general affairs, management,
financial position, shareholders' equity or results of operations of
the Fund, that might materially and adversely affect the property or
assets thereof, (C) except for the Fund's regular monthly dividend,
there has been no dividend or distribution paid or declared in respect
of any class of the Fund's shares of Common Stock, and (D) the Fund
has not issued any senior security or materially increased any debt.
(xiv) There is no action, suit or proceeding before or by any
court, commission, regulatory body, administrative agency or other
governmental agency or body, foreign or domestic, now pending, or, to
the knowledge of the Fund, threatened against or affecting the Fund,
which (A) is reasonably expected to result in any material adverse
change in the condition, financial or otherwise, or business affairs
of the Fund or is reasonably expected to materially adversely affect
the properties or assets of the Fund or (B) is of a character required
to be described in the Registration Statement or the Prospectus; and
there are no contracts, franchises or other documents that are of a
character required to be described in, or that are required to be
filed as exhibits to, the Registration Statement that have not been
described or filed as required.
(xv) The Fund intends to direct the investment of the proceeds of
the offering of the APS in such a manner as to comply with the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code").
(xvi) The shares of Common Stock are listed on the New York Stock
Exchange.
(xvii) All advertisements and other sales literature
(collectively, "sales materials") authorized in writing or prepared by
the Fund for use in connection with the public offering of the APS
complied and comply in all material respects with the requirements of
the Securities Act, the Securities Act Rules and the rules and
interpretations of the NASD and no such sales materials contained or
contain any untrue statement of a material fact or omitted or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading in light of the
circumstances in which they were made, including the Securities Act
and the Securities Act Rules.
(b) Dreyfus represents to each Underwriter as follows:
(i) On the Effective Date and on the date that any post-
effective amendment to the Registration Statement (except any
post-effective amendment which is filed with the Commission after the
expiration of such period as a prospectus is required by law to be
delivered by an underwriter or a dealer) became or becomes effective,
neither the Registration Statement nor any such amendment did or will
contain any untrue statement of a material fact or omit to state a
material fact required to be stated in it or necessary to make the
statements in it not misleading; provided, however, that the foregoing
shall apply only to statements in the Registration Statement
describing Dreyfus and its business. At the Effective Date and, if
applicable, the date the Prospectus or any amendment or supplement to
the Prospectus was or is filed with the Commission and at the APS
Closing Date, the Prospectus did not or will not, as the case may be,
contain any untrue statement of a material fact or omit to state a
material fact required to be stated in it or necessary to make the
statements in it, in light of the circumstances under which they were
made, not misleading; provided, however, that the foregoing shall
apply only to statements in the Prospectus describing Dreyfus and its
business.
(ii) Dreyfus has been duly organized, is validly existing as a
corporation under the laws of its jurisdiction of incorporation with
full corporate power and authority to conduct all of the activities
conducted by it, to own or lease all of the assets owned or leased by
it and to conduct its business as described in the Registration
Statement and Prospectus, and Dreyfus is duly licensed and qualified
to do business and in good standing in each jurisdiction in which it
is required to be so qualified, except to the extent that failure to
be so qualified or be in good standing would not have a material
adverse affect on Dreyfus; and Dreyfus owns, possesses or has obtained
and currently maintains all governmental licenses, permits, consents,
orders, approvals and other authorizations, whether foreign or
domestic, necessary to carry on its business as contemplated in the
Registration Statement and the Prospectus.
(iii) Dreyfus is (A) duly registered as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers
Act"), and (B) not prohibited by the Advisers Act, the Investment
Company Act, the Advisers Act Rules or the Investment Company Act
Rules from acting as the investment adviser for the Fund as
contemplated by the Investment Advisory Agreement, the Registration
Statement and the Prospectus.
(iv) Dreyfus has full power and authority to enter into each of
this Underwriting Agreement, the Investment Advisory Agreement and the
Administration Agreement (collectively, this Underwriting Agreement,
Investment Advisory Agreement and the Administration Agreement being
referred to as the "Dreyfus Agreements") and to carry out all the
terms and provisions hereof and thereof to be carried out by it; and
each Dreyfus Agreement has been duly and validly authorized, executed
and delivered by Dreyfus; none of the Dreyfus Agreements violate in
any material respect any of the applicable provisions of the
Investment Company Act, the Advisers Act, the Investment Company Act
Rules and the Advisers Act Rules; and assuming due authorization,
execution and delivery by the other parties thereto, each Dreyfus
Agreement constitutes a legal, valid and binding obligation of
Dreyfus, enforceable in accordance with its terms, (1) subject, as to
enforcement, to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and to general equitable
principles (regardless of whether enforcement is sought in a
proceeding in equity or at law) and (2) except as rights to indemnity
thereunder may be limited by federal or state securities laws.
(v) Neither (A) the execution and delivery by Dreyfus of any
Dreyfus Agreement nor (B) the consummation by Dreyfus of the
transactions contemplated by, or the performance of its obligations
under any Dreyfus Agreement conflicts or will conflict with, or
results or will result in a breach of, the articles of incorporation
or by-laws of Dreyfus or any material agreement or instrument to which
Dreyfus is a party or by which Dreyfus is bound, or any law, rule or
regulation, or order of any court, governmental instrumentality,
securities exchange or association or arbitrator, whether foreign or
domestic, applicable to Dreyfus.
(vi) No consent, approval, authorization or order of any court,
governmental agency or body or securities exchange or association,
whether foreign or domestic, is required for the consummation of the
transactions contemplated in, or the performance by Dreyfus of its
obligations under, any Dreyfus Agreement, as the case may be, except
such as (A) have been obtained under the Investment Company Act, the
Advisers Act, the Securities Act, the Investment Company Act Rules,
the Advisers Act Rules and the Securities Act Rules, and (B) may be
required under state securities or "blue sky" laws, in connection with
the purchase and distribution of the APS by the Underwriters pursuant
to this Underwriting Agreement.
(vii) The description of Dreyfus and its business, and the
statements attributable to the Investment Adviser, in the Registration
Statement and the Prospectus complies with the requirements of the
Securities Act, the Investment Company Act, the Securities Act Rules
and the Investment Company Act Rules.
(viii) There is no action, suit or proceeding before or by any
court, commission, regulatory body, administrative agency or other
governmental agency or body, foreign or domestic, now pending or, to
Dreyfus's knowledge, threatened against or affecting Dreyfus that
reasonably is expected to result in any material adverse change in the
condition, financial or otherwise, business affairs or business
prospects of Dreyfus or the ability of Dreyfus to fulfill its
respective obligations under any Dreyfus Agreement.
(ix) In the event that the Fund or Dreyfus makes available any
promotional materials (other than the sales materials) intended for
use only by qualified broker-dealers and registered representatives
thereof by means of an Internet web site or similar electronic means,
Dreyfus will install and maintain pre-qualification and
password-protection or similar procedures which will effectively
prohibit access to such promotional materials by persons other than
qualified broker-dealers and registered representatives thereof.
5. AGREEMENTS OF THE PARTIES.
(a) If the registration statement relating to the APS has not yet
become effective, the Fund will promptly file the Final Amendment, if not
previously filed, with the Commission, and will use its best efforts to cause
such registration statement to become effective and, as soon as the Fund is
advised, will advise the Managing Representative when the Registration Statement
or any amendment thereto has become effective. If the Registration Statement has
become effective and the Prospectus contained therein omits certain information
at the time of effectiveness pursuant to Rule 430A of the Securities Act Rules,
the Fund will file a 430A Prospectus pursuant to Rule 497(h) of the Securities
Act Rules as promptly as practicable, but no later than the second business day
following the earlier of the date of the determination of the offering price of
the APS or the date the Prospectus is first used after the Effective Date. If
the Registration Statement has become effective and the Prospectus contained
therein does not so omit such information, the Fund will file a Prospectus
pursuant to Rule 497(b) or (j) of the Securities Act Rules as promptly as
practicable, but no later than the fifth business day following the date of the
later of the Effective Date or the commencement of the public offering of the
APS after the Effective Date. In either case, the Fund will provide the Managing
Representative satisfactory evidence of the filing. The Fund will not file with
the Commission any Prospectus or any other amendment (except any post-effective
amendment which is filed with the Commission after the later of (x) one year
from the date of this Underwriting Agreement or (y) the date on which the
distribution of the APS is completed) or supplement to the Registration
Statement or the Prospectus unless a copy has first been submitted to the
Managing Representative a reasonable time before its filing and the Managing
Representative has not objected to it in writing within a reasonable time after
receiving the copy.
(b) For the period of three years from the date hereof, the Fund will
advise the Managing Representative promptly (1) of the issuance by the
Commission of any order in respect of the Fund or Dreyfus which relates to the
Fund, or which relates to any material arrangements or proposed material
arrangements involving the Fund and Dreyfus, (2) of the initiation or
threatening of any proceedings for, or receipt by the Fund of any notice with
respect to, the suspension of the qualification of the APS for sale in any
jurisdiction or the issuance of any order by the Commission suspending the
effectiveness of the Registration Statement, (3) of receipt by the Fund, or any
representative or attorney of the Fund, of any other communication from the
Commission relating in any material way to the Fund, the Registration Statement,
the Notification, any Preliminary Prospectus, the Prospectus or to the
transactions contemplated by this Underwriting Agreement and (4) the issuance by
any court, regulatory body, administrative agency or other governmental agency
or body, whether foreign or domestic, of any order, ruling or decree, or the
threat to initiate any proceedings with respect thereto, regarding the Fund,
which relates in any material way to the Fund or any material arrangements or
proposed material arrangements involving the Fund. The Fund will make every
reasonable effort to prevent the issuance of any order suspending the
effectiveness of the Registration Statement and, if any such order is issued, to
obtain its lifting as soon as possible.
(c) If not delivered prior to the date of this Underwriting Agreement,
the Fund will deliver to the Managing Representative, without charge, a signed
copy of the registration statement and of any amendments (except any
post-effective amendment which is filed with the Commission after the later of
(x) one year from the date of this Underwriting Agreement or (y) the date on
which the distribution of the APS is completed) and as many conformed copies of
the registration statement and any amendments thereto (except any post-
effective amendment which is filed with the Commission after the later of (x)
one year from the date of this Underwriting Agreement or (y) the date on which
the distribution of the APS is completed) (excluding exhibits) as the Managing
Representative may reasonably request.
(d) During such period as a prospectus is required by law to be
delivered by an underwriter or a dealer, the Fund will deliver, without charge,
to the Underwriters and any dealers, at such office or offices as the
Underwriters may designate, as many copies of the Prospectus as the Underwriters
may reasonably request, and, if any event occurs during such period as a result
of which it is necessary to amend or supplement the Prospectus, in order to make
the statements therein, in light of the circumstances existing when such
Prospectus is delivered to a purchaser of APS, not misleading in any material
respect, or if during such period it is necessary to amend or supplement the
Prospectus to comply with the Securities Act, the Investment Company Act, the
Securities Act Rules or the Investment Company Act Rules, the Fund promptly will
prepare, submit to the Managing Representative, file with the Commission and
deliver, without charge, to the Underwriters and to dealers (whose names and
addresses the Managing Representative will furnish to the Fund) to whom APS may
have been sold by the Underwriters, and to other dealers on request, amendments
or supplements to the Prospectus so that the statements in such Prospectus, as
so amended or supplemented, will not, in light of the circumstances existing
when such Prospectus is delivered to a purchaser, be misleading in any material
respect and will comply with the Securities Act, the Investment Company Act, the
Securities Act Rules and the Investment Company Act Rules. Delivery by the
Underwriters of any such amendments or supplements to the Prospectus will not
constitute a waiver of any of the conditions in Section 6 hereof.
(e) The Fund will make generally available to holders of the Fund's
securities, as soon as practicable but in no event later than the last day of
the 18th full calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement, if applicable, satisfying the
provisions of Section 11(a) of the Securities Act and, at the option of the
Fund, Rule 158 of the Securities Act Rules.
(f) The Fund will take such actions as the Managing Representative
reasonably requests in order to qualify the APS for offer and sale under the
securities or "blue sky" laws of such jurisdictions as the Underwriters
reasonably designate; provided that the Fund shall not be required in connection
therewith or as a condition thereof to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction.
(g) The Fund will pay, or reimburse if paid by the Managing
Representative, whether or not the transactions with respect to the Fund
contemplated by this Underwriting Agreement are consummated or this Underwriting
Agreement is terminated (irrespective of who the party terminating any such
agreement is or the reason therefor), all costs and expenses incident to the
performance of the obligations of the Fund under this Underwriting Agreement,
including but not limited to the following: (i) the fees, disbursements and
expenses of the Fund's counsel and accountants in connection with the
registration of the APS and all other expenses in connection with the
preparation, printing and filing of the Registration Statement, any Preliminary
Prospectus and the Prospectus and amendments and supplements thereto and of any
sales materials and the mailing and delivering of copies thereof to the
Underwriters and dealers; (ii) the cost of printing or reproducing this
Underwriting Agreement and any other documents in connection with the offering,
purchase, sale and delivery of the APS (including advertising expenses of the
Underwriters, if any); (iii) the cost of preparing share certificates; (iv) the
expenses (including, but not limited to, travel, hotels and other
accommodations) incurred by the Fund's or Dreyfus's directors, officers,
employees and other personnel in connection with meetings held with registered
brokers in connection with the offering of the APS, the preparing to market and
the marketing of the APS; (v) any fees charged by securities rating services for
rating the APS; (vi) the fees and expenses of DTC and its nominee, the Custodian
and the Auction Agent; (vii) the fees and expenses, if any, including reasonable
fees, expenses and disbursements of legal counsel, in connection with the
registration and qualification of the APS under state securities or "blue sky"
laws; and (viii) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for. It is
understood, however, that, except as provided in this Section 5 and Section 7
hereof, the Underwriters will pay all of their own costs and expenses, including
the fees of their counsel and stock transfer taxes, if any, on resale of any of
the APS by them.
(h) If the transactions contemplated by this Underwriting Agreement
are not consummated, except as otherwise provided herein, no party will be under
any liability to any other party, except that (1) if this Underwriting Agreement
is terminated by (x) the Fund or Dreyfus pursuant to any of the provisions
hereof (otherwise than pursuant to Section 8 hereof) or (y) by the Underwriters
because of any inability, failure or refusal on the part of the Fund or Dreyfus
to comply with any material terms hereunder or because any of the conditions in
Section 6 are not satisfied, the Fund or Dreyfus will reimburse the Underwriters
for all out-of-pocket expenses (including the reasonable fees, disbursements and
other charges of their counsel) reasonably incurred by them in connection with
the proposed purchase and sale of the APS and (2) no Underwriter who has failed
or refused to purchase the APS agreed to be purchased by it under this
Underwriting Agreement, in breach of its obligations pursuant to this
Underwriting Agreement, will be relieved of liability to the Fund and Dreyfus
and the other Underwriters for damages occasioned by its default.
(i) Without the prior written consent of the Managing Representative,
the Fund will not offer, sell or register with the Commission, or announce an
offering of, any equity securities of the Fund, within 180 days after the
Effective Date, except for the APS as described in the Prospectus and any
issuances of shares of Common Stock pursuant to the dividend reinvestment plan
established by the Fund.
(j) The Fund will direct the investment of the net proceeds of the
offering of the APS in such a manner as to comply with the investment objective
and policies of the Fund as described in the Prospectus.
(k) No later than the APS Closing Date, the Underwriters will provide,
and will cause any selling group member to whom they have sold APS to provide,
the Auction Agent with a list of the record names of the persons to whom they
have sold APS, the number of APS sold to each such person, and the number of APS
they are holding as of the APS Closing Date; provided that in lieu of thereof,
an Underwriter may provide the Auction Agent with a list indicating itself as
the sole holder of all the APS sold by such Underwriter.
(l) The Fund will use its best efforts to cause the APS, prior to the
APS Closing Date, to be assigned a rating of "AAA" by Standard & Poor's Ratings
Group ("Standard & Poor's").
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters to purchase the APS are subject to the accuracy on the date of this
Underwriting Agreement, and on the APS Closing Date, of the representations of
the Fund and Dreyfus in this Underwriting Agreement, to the accuracy and
completeness of all statements made by the Fund or Dreyfus or any of their
respective officers in any certificate delivered to the Managing Representative
or its counsel pursuant to this Underwriting Agreement, to performance by the
Fund and Dreyfus of their respective obligations under this Underwriting
Agreement and to each of the following additional conditions:
(a) The registration statement must have become effective by 5:30
p.m., New York City time, on the date of this Underwriting Agreement or such
later date and time as the Managing Representative consents to in writing. The
Prospectus must have been filed in accordance with Rule 497(b), (h) or (j), as
the case may be, of the Securities Act Rules.
(b) No order suspending the effectiveness of the Registration
Statement may be in effect and no proceedings for such purpose may be pending
before or, to the knowledge of counsel to the Underwriters, threatened by the
Commission, and any requests for additional information on the part of the
Commission (to be included in the Registration Statement or the Prospectus or
otherwise) must be complied with or waived to the reasonable satisfaction of the
Managing Representative.
(c) Since the dates as of which information is given in the
Registration Statement and the Prospectus, (1) there must not have been any
material change in the Common Stock, the APS or the liabilities of the Fund
except as set forth in or contemplated by the Prospectus; (2) there must not
have been any material adverse change in the general affairs, management,
business, financial condition or results of operations of the Fund or Dreyfus
whether or not arising from transactions in the ordinary course of business as
set forth in or contemplated by the Prospectus; (3) the Fund must not have
sustained any material loss or material interference with its business from any
court or from legislative or other governmental action, order or decree, whether
foreign or domestic, or from any other occurrence not described in the
Registration Statement and Prospectus; and (4) there must not have occurred any
event that makes untrue or incorrect in any material respect any statement or
information contained in the Registration Statement or Prospectus or that is not
reflected in the Registration Statement or Prospectus but should be reflected
therein in order to make the statements or information therein (in the case of
the Prospectus, in light of the circumstances in which they were made) not
misleading in any material respect; if, in the judgment of the Managing
Representative, any such development referred to in clause (1), (2), (3) or (4)
of this paragraph (c) makes it impracticable or inadvisable to consummate the
sale and delivery of the APS pursuant to this Underwriting Agreement by the
Underwriters, at the initial public offering price of the APS.
(d) The Managing Representative must have received on the APS Closing
Date a certificate, dated such date, of the President or a Vice President or a
Vice Chairman and the Controller, Treasurer, an Assistant Treasurer, chief
financial or accounting officer of each of the Fund and Dreyfus certifying that
(1) the signers have carefully examined the Registration Statement, the
Prospectus, and this Underwriting Agreement, (2) the representations of the Fund
(with respect to the certificates from such Fund officers) and the
representations of Dreyfus (with respect to the certificates from such officers
of Dreyfus) in this Underwriting Agreement are accurate on and as of the date of
the certificate, (3) there has not been any material adverse change in the
general affairs, management, business, financial condition or results of
operations of the Fund (with respect to the certificates from such Fund
officers) or Dreyfus (with respect to the certificates from such officers of
Dreyfus), that is reasonably expected to materially and adversely affect the
ability of the Fund or Dreyfus, as the case may be, to fulfill its obligations
under this Underwriting Agreement or the Investment Advisory Agreement, whether
or not arising from transactions in the ordinary course of business, (4) with
respect to the Fund only, to the knowledge of such officers after reasonable
investigation, no order suspending the effectiveness of the Registration
Statement, prohibiting the sale of any of the APS or otherwise having a material
adverse effect on the Fund has been issued and no proceedings for any such
purpose are pending before or threatened by the Commission or any other
regulatory body, whether foreign or domestic, (5) to the knowledge of the
officers of Dreyfus, after reasonable investigation, no order is reasonably
expected to have a material adverse effect on the ability of Dreyfus to fulfill
its obligations under this Underwriting Agreement or the Investment Advisory
Agreement, as the case may be, has been issued and no proceedings reasonably
expected to have such effect are pending before or threatened by the Commission
or any other regulatory body, whether foreign or domestic, and (6) the Fund
(with respect to the certificates from such Fund officers) and Dreyfus (with
respect to the certificates from such officers of Dreyfus) has performed all of
its respective agreements that this Underwriting Agreement requires it to
perform by the APS Closing Date (to the extent not waived in writing by the
Managing Representative).
(e) The Underwriters must receive on the APS Closing Date the opinions
dated such date substantially in the form of Annexes A and B to this
Underwriting Agreement from the counsel identified in each such Annex.
(f) The Underwriters must receive on the APS Closing Date from
Skadden, Arps, Slate, Meagher & Flom LLP and its affiliated entities, their
counsel, an opinion dated such date with respect to the Fund, the APS, the
Registration Statement and the Prospectus, this Underwriting Agreement and the
form and sufficiency of all proceedings taken in connection with the sale and
delivery of the APS. Such opinion and proceedings shall fulfill the requirements
of this Section 6(f) only if such opinion and proceedings are satisfactory in
all respects to the Managing Representative. The Fund and Dreyfus must have
furnished to such counsel such documents as counsel may reasonably request for
the purpose of enabling them to render such opinion.
(g) The Underwriters must receive on the date this Underwriting
Agreement is signed and delivered by the Underwriters a signed letter, dated
such date, substantially in the form of Annex C to this Underwriting Agreement
from the firm of accountants designated in such Annex. The Underwriters also
must receive on the APS Closing Date a signed letter from such accountants,
dated as of such date, confirming on the basis of a review in accordance with
the procedures set forth in their earlier letter that nothing has come to their
attention during the period from a date not more than five business days before
the date of this Underwriting Agreement, specified in the letter, to a date not
more than five business days before such date, that would require any change in
their letter referred to in the foregoing sentence.
(h) The APS shall have been accorded a rating of "AAA" by Standard &
Poor's and a letter to such effect, dated the APS Closing Date, shall have been
delivered to the Managing Representative.
(i) As of the APS Closing Date and assuming the receipt of the net
proceeds from the sale of the APS, the Investment Company Act Asset Coverage and
the Preferred Stock Basic Maintenance Amount (each as defined in the Prospectus)
each will be met.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Underwriting Agreement will comply only if they are in form
and scope reasonably satisfactory to counsel for the Underwriters, provided that
any such documents, forms of which are annexed hereto, shall be deemed
satisfactory to such counsel if substantially in such form.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification and contribution by the Fund and Dreyfus:
(i) Each of the Fund and Dreyfus, jointly and severally, will
indemnify and hold harmless each Underwriter, the directors, officers,
employees and agents of such Underwriter and each person, if any, who
controls such Underwriter within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act from and against any
and all losses, claims, liabilities, expenses and damages (including,
but not limited to, any and all investigative, legal and other
expenses reasonably incurred in connection with, and any and all
amounts paid in settlement of, any action, suit or proceeding between
any of the indemnified parties and any indemnifying parties or between
any indemnified party and any third party, or otherwise, or any claim
asserted), as and when incurred, to which such Underwriter or any such
person, or any of them, may become subject under the Securities Act,
the Exchange Act, the Investment Company Act, the Advisers Act or
other federal or state statutory law or regulation, at common law or
otherwise, whether foreign or domestic, insofar as such losses,
claims, liabilities, expenses or damages arise out of or are based on
(i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, the Preliminary
Prospectus, the Prospectus, the sales materials or any amendment or
supplement to the Registration Statement, the Preliminary Prospectus,
the Prospectus, or the sales materials or in any documents filed under
the Exchange Act and deemed to be incorporated by reference into the
Registration Statement, the Preliminary Prospectus or the Prospectus,
or in any application or other document executed by or on behalf of
the Fund or based on written information furnished by or on behalf of
the Fund filed in any jurisdiction in order to qualify the APS under
the securities laws thereof or filed with the Commission, (ii) the
omission or alleged omission to state, in any or all such documents, a
material fact required to be stated therein or necessary to make the
statements therein not misleading or (iii) any act or failure to act
or any alleged act or failure to act by such Underwriter in connection
with, or relating in any manner to, the APS or the offering
contemplated hereby, and which is included as part of or referred to
in any loss, claim, liability, expense or damage arising out of or
based upon matters covered by clause (i) or (ii) above (provided,
however, that neither the Fund nor Dreyfus shall be liable under this
clause (iii) to the extent it is finally judicially determined by a
court of competent jurisdiction that such loss, claim, liability,
expense or damage resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its
gross negligence, bad faith or willful misconduct); provided that
neither the Fund nor Dreyfus will be liable to the extent that such
losses, claims, liabilities, expenses or damages (A) arise from the
sale of the APS in the public offering to any person by any
Underwriter and is based on an untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity
with information furnished in writing to the Fund by any Underwriter
expressly for inclusion in the Registration Statement, the Preliminary
Prospectus, the Prospectus, the sales material or any such document
(or) (B) results solely from an untrue statement of material fact
contained in, or the omission of a material fact from, the Preliminary
Prospectus, which untrue statement or omission was completely
corrected in the Prospectus (as then amended or supplemented) if the
Fund shall sustain the burden of proving that the Underwriters sold
APS to the person alleging such loss, claim, liability, expense or
damage without sending or giving, at or prior to written confirmation
of such sale, a copy of the Prospectus (as then amended or
supplemented) if the Fund had previously furnished copies thereof to
the Underwriters within a reasonable amount of time prior to such sale
or such confirmation, and the Underwriters failed, to deliver the
corrected Prospectus, if required by law to have so delivered it and
if delivered would have been a complete defense against the person
asserting such loss, claim, liability, expense or damage; provided,
further, that the indemnification contained in this paragraph (a) with
respect to any Preliminary Prospectus shall not inure to the benefit
of the Underwriters (or to the benefit of any person controlling the
Underwriters) on account of any such loss, claim, damage, liability or
expense arising from the sale of the APS by the Underwriters to any
person if a copy of the Prospectus shall not have been delivered or
sent to such person within the time required by the Securities Act and
the Securities Act Rules and Regulations, and the untrue statement or
alleged untrue statement or omission or alleged omission of a material
fact contained in such Preliminary Prospectus was corrected in the
Prospectus, provided that the Fund has delivered the Prospectus to the
Underwriters in requisite quantity on a timely basis to permit such
delivery or sending. This indemnity agreement will be in addition to
any liability that the Fund or Dreyfus might otherwise have; provided,
however, that any Underwriter shall not seek indemnification from
Dreyfus as to a Claim (as defined below) until 90 days after such
Underwriter has notified the Fund pursuant to Section 7(c) of its
proposal to claim the right to indemnification or its right to
reimbursement of fees, disbursements and other charges (collectively,
a "Claim"), and the Fund failed to pay or reimburse such Underwriter
within such 90-day period for all amounts so claimed by such party to
be payable or reimbursable with respect to such Claim (on a case by
case basis) pursuant to this Section 7(a)(i); provided, however, that
if the Fund agrees in writing to pay such amounts claimed within such
90-day period, such Underwriter shall not seek indemnification from
Dreyfus until the Fund has had a reasonable time period to remit to
such Underwriter such amounts claimed, and such period shall be the
longer of 30 days after the 90-day period or such other period agreed
to in writing between the Fund and such Underwriter.
(ii) Notwithstanding Section 7(a)(i), Dreyfus will in addition
indemnify and hold harmless the Underwriter, the directors, officers,
employees and agents of such Underwriter and each person, if any, who
controls such Underwriter within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act from and against any
and all losses, claims, liabilities, expenses and damages (including,
but not limited to, any and all investigative, legal and other
expenses reasonably incurred in connection with, and any and all
amounts paid in settlement of, any action, suit or proceeding between
any of the indemnified parties and any indemnifying parties or between
any indemnified party and any third party, or otherwise, or any claim
asserted), as and when incurred, to which such Underwriter or any such
person, or any of them, may become subject under the Securities Act,
the Exchange Act, the Investment Company Act, the Advisers Act or
other federal or state statutory law or regulation, at common law or
otherwise, whether foreign or domestic, insofar as such losses,
claims, liabilities, expenses or damages arise out of or are based on
(i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, the Preliminary
Prospectus, the Prospectus, the sales materials or any amendment or
supplement to the Registration Statement, the Preliminary Prospectus,
the Prospectus, or the sales materials or in any documents filed under
the Exchange Act and deemed to be incorporated by reference into the
Registration Statement, the Preliminary Prospectus or the Prospectus,
or in any application or other document executed by or on behalf of
the Fund or based on written information furnished by or on behalf of
the Fund filed in any jurisdiction in order to qualify the APS under
the securities laws thereof or filed with the Commission, but only to
the extent that such untrue statement or alleged untrue statement
concerns statements therein describing Dreyfus and its business, (ii)
the omission or alleged omission to state, in any or all such
documents, a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent
that such omission or alleged omission concerns statements therein
describing Dreyfus and its business, or (iii) any act or failure to
act or any alleged act or failure to act by such Underwriter in
connection with, or relating in any manner to, the APS or the offering
contemplated hereby, and which is included as part of or referred to
in any loss, claim, liability, expense or damage arising out of or
based upon matters covered by clause (i) or (ii) above (provided,
however, that Dreyfus shall not be liable under this clause (iii) to
the extent it is finally judicially determined by a court of competent
jurisdiction that such loss, claim, liability, expense or damage
resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its gross negligence,
bad faith or willful misconduct); provided that Dreyfus will not be
liable to the extent that such losses, claims, liabilities, expenses
or damages (A) arise from the sale of the APS in the public offering
to any person by the Underwriter and is based on an untrue statement
or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information relating to the Underwriter
furnished in writing to the Fund by the Underwriter expressly for
inclusion in the Registration Statement, the Preliminary Prospectus,
the Prospectus, the sales material or any such document or (B) results
solely from an untrue statement of material fact contained in, or the
omission of a material fact from, such Preliminary Prospectus, which
untrue statement or omission was completely corrected in the
Prospectus (as then amended or supplemented) if Dreyfus shall sustain
the burden of proving that the Underwriter sold APS to the person
alleging such loss, claim, liability, expense or damage without
sending or giving, at or prior to written confirmation of such sale, a
copy of the Prospectus (as then amended or supplemented) if the Fund
had previously furnished copies thereof to the Underwriter within a
reasonable amount of time prior to such sale or such confirmation, and
the Underwriter failed, to deliver the corrected Prospectus, if
required by law to have so delivered it and if delivered wold have
been a complete defense against the person asserting such loss, claim,
liability, expense or damage; provided, further, that the
indemnification contained in this paragraph (a)(ii) with respect to
any Preliminary Prospectus shall not inure to the benefit of the
Underwriters (or to the benefit of any person controlling the
Underwriters) on account of any such loss, claim, damage, liability or
expense arising from the sale of the APS by the Underwriters to any
person if a copy of the Prospectus shall not have been delivered or
sent to such person within the time required by the Securities Act and
the Securities Act Rules and Regulations, and the untrue statement or
alleged untrue statement or omission or alleged omission of a material
fact contained in such Preliminary Prospectus was corrected in the
Prospectus, provided that the Fund has delivered the Prospectus to the
Underwriters in requisite quantity on a timely basis to permit such
delivery or sending. This indemnity agreement will be in addition to
any liability that Dreyfus might otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Fund and
Dreyfus, each person, if any, who controls the Fund or Dreyfus within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
each director of the Fund and each officer of the Fund who signs the
Registration Statement to the same extent as the foregoing indemnity from the
Fund or Dreyfus to the Underwriter, but only insofar as losses, claims,
liabilities, expenses or damages arise out of or are based on any untrue
statement or omission or alleged untrue statement or omission of a material fact
made in reliance on and in conformity with information relating to such
Underwriter furnished in writing to the Fund by such Underwriter expressly for
use in the Registration Statement, the Preliminary Prospectus or Prospectus.
This indemnity will be in addition to any liability that such Underwriter might
otherwise have; provided, however, that in no case shall such Underwriter be
liable or responsible for any amount in excess of the fees and commissions
received by such Underwriter (whether from the Fund or otherwise).
(c) Any party that proposes to assert the right to be indemnified
under this Section 7 will, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim is to be made against
an indemnifying party or parties under this Section 7, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission to so notify such indemnifying party will not
relieve it from any liability that it may have to any indemnified party under
the foregoing provision of this Section 7 unless, and only to the extent that,
such omission results in the forfeiture of substantive rights or defenses by the
indemnifying party. If any such action is brought against any indemnified party
and it notifies the indemnifying party of its commencement, the indemnifying
party will be entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after receiving
notice of the commencement of the action from the indemnified party, jointly
with any other indemnifying party similarly notified, to assume the defense of
the action, with counsel reasonably satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense. The indemnified party will
have the right to employ its own counsel in any such action, but the fees,
disbursements and other charges of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded (based on the advice of counsel) that there may
be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party, (3)
a conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel reasonably satisfactory to the indemnified
party to assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which cases the
reasonable fees disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. Subject to the requirements of
Investment Company Act Release No. 11330, all such fees, disbursements and other
charges will be reimbursed by the indemnifying party promptly as they are
incurred. It is understood that the indemnifying party or parties shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees, disbursements and other charges of more than
one separate firm (in addition to local counsel) admitted to practice in such
jurisdiction at any one time for all such indemnified party or parties. An
indemnifying party will not be liable for any settlement of any action or claim
effected without its written consent (which consent will not be unreasonably
withheld). No indemnifying party shall, without the prior written consent of
each indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
the matters contemplated by this Section 7 (whether or not any indemnified party
is a party thereto), unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising or
that may arise out of such claim, action or proceeding.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 7 is
applicable in accordance with its terms but for any reason is held to be
unavailable from the Fund, Dreyfus or the Underwriters, the Fund, Dreyfus and
the Underwriters will contribute to the total losses, claims, liabilities,
expenses and damages (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claim asserted, but after deducting any
contribution received by the Fund and Dreyfus from persons other than the
Underwriters, such as persons who control the Fund or Dreyfus within the meaning
of the Securities Act or the Exchange Act, officers of the Fund who signed the
Registration Statement and directors of the Fund, who may also be liable for
contribution) to which the Fund, Dreyfus and the Underwriters may be subject in
such proportion as shall be appropriate to reflect the relative benefits
received by the Fund and Dreyfus on the one hand and the Underwriters on the
other. The relative benefits received by the Fund and Dreyfus on the one hand
and the Underwriters on the other hand shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Fund bear to the total discounts, fees and commissions
received by the Underwriters (whether from the Fund or otherwise). If, but only
if, the allocation provided by the foregoing sentence is not permitted by
applicable law, the allocation of contribution shall be made in such proportion
as is appropriate to reflect not only such relative benefits referred to in the
foregoing sentence but also the relative fault of the Fund and Dreyfus on the
one hand and the Underwriters on the other hand in connection with respect to
the statements or omissions or alleged statements or omissions that resulted in
the losses, claims, liabilities, expenses or damages joint or several (including
any investigative, legal or other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), as well as any other relevant equitable considerations
appropriate in the circumstances. Such relative fault of the parties shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Fund, Dreyfus or the Underwriters, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission and any other
equitable considerations appropriate in the circumstances. The Fund, Dreyfus and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 7(d) were to be determined by pro rata allocation or by
any other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, liability, expense or damage, or action in
respect thereof, referred to above in this Section 7(d) shall be deemed to
include, for purposes of this Section 7(d) any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding any other provisions of
this Section 7(d), the Underwriters shall not be required to contribute any
amount in excess of the fees and commissions received by them (whether from the
Fund or otherwise)and no person found guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7(d), any person who controls a
party to this Underwriting Agreement within the meaning of the Securities Act
will have the same rights to contribution as that party, and each director of
the Fund and each officer of the Fund who signed the Registration Statement will
have the same rights to contribution as the Fund, subject in each case to the
provisions hereof. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action against such party in respect of
which a claim for contribution may be made under this Section 7(d), notify such
party or parties from whom contribution may be sought, but the omission so to
notify will not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have under this Section 7(d). No
party will be liable for contribution with respect to any action or claim
settled without its written consent (which consent shall not be unreasonably
withheld). The Underwriters' obligations to contribute pursuant to this Section
7 are several in proportion to the respective number of APS set forth opposite
their names in Schedule 1 (or such number of APS as determined pursuant to
Section 9 hereof) and not joint.
(e) Notwithstanding any other provisions in this Section 7, no party
shall be entitled to indemnification or contribution under this Underwriting
Agreement against any loss, claim, liability, expense or damage arising by
reason of such person's willful misfeasance, bad faith or gross negligence in
the performance of its duties hereunder, or by reason of such persons's reckless
disregard of such person's obligations and duties hereunder.
(f) The Fund and Dreyfus acknowledge that the statements (1) with
respect to the public offering of the APS as set forth on the cover page of, and
(2) in the second paragraph under the caption "Underwriting" relating to dealer
concessions and reallowances in the Prospectus constitute the only information
furnished in writing to the Fund by the Underwriters expressly for use in such
document. The Underwriters severally confirm that these statements are correct
in all material respects and were so furnished by or on behalf of the
Underwriters for use in the Prospectus.
8. TERMINATION. This Underwriting Agreement may be terminated by the
Managing Representative by notifying the Fund at any time:
(a) before the later of the effectiveness of the Registration
Statement and the time when any of the APS are first generally offered pursuant
to this Underwriting Agreement by the Managing Representative to dealers by
letter or telegram;
(b) at or before the APS Closing Date if, in the sole judgment of the
Managing Representative, payment for and delivery of any APS is rendered
impracticable or inadvisable because (1) trading in the APS or the Common Stock
of the Fund is suspended by the Commission or trading in the Common Stock is
suspended by the principal exchange that lists the Common Stock, (2) trading in
securities generally on the New York Stock Exchange or the Nasdaq Stock Market
or other comparable U.S. securities exchange shall have been suspended or
limited or minimum or maximum prices shall have been generally established on
such exchange or over-the-counter market, (3) additional material governmental
restrictions, not in force at the date of this Underwriting Agreement, have been
imposed upon trading in securities or trading has been suspended on any U.S.
securities exchange, (4) a general banking moratorium has been established by
U.S. federal or New York authorities or (5) any material adverse change in the
financial or securities markets in the United States or in political, financial
or economic conditions in the United States or any outbreak or material
escalation of hostilities or declaration by the United States of a national
emergency or war or other calamity or crisis shall have occurred the effect of
any of which is such as to make it, in the sole judgement of the Managing
Representative, impracticable or inadvisable to market the APS on the terms and
in the manner contemplated by the Prospectus; or
(c) at or before the APS Closing Date, if any of the conditions
specified in Section 6 have not been fulfilled when and as required by this
Underwriting Agreement.
9. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters
fails (other than for a reason sufficient to justify the termination of this
Underwriting Agreement) to purchase on the APS Closing Date the APS agreed to be
purchased on such date by such Underwriter or Underwriters, the Managing
Representative may find one or more substitute underwriters to purchase such APS
or make such other arrangements as the Managing Representative deems advisable,
or one or more of the remaining Underwriters may agree to purchase such APS in
such proportions as may be approved by the Managing Representative, in each case
upon the terms set forth in this Underwriting Agreement. If no such arrangements
have been made within 36 hours after such date, and
(a) the number of APS to be purchased by the defaulting Underwriters
on such date does not exceed 10% of the APS that the Underwriters are obligated
to purchase on the APS Closing Date, each of the nondefaulting Underwriters will
be obligated to purchase such APS on the terms set forth in this Underwriting
Agreement in proportion to their respective obligations under this Underwriting
Agreement, or
(b) the number of APS to be purchased by the defaulting Underwriters
on the APS Closing Date exceeds 10% of the APS to be purchased by all the
Underwriters on the APS Closing Date, the Fund will be entitled to an additional
period of 24 hours within which to find one or more substitute underwriters
reasonably satisfactory to the Managing Representative to purchase such APS on
the terms set forth in this Underwriting Agreement.
In any such case, either the Managing Representative or the Fund will
have the right to postpone the APS Closing Date for not more than five business
days in order that necessary changes and arrangements (including any necessary
amendments or supplements to the Registration Statement or the Prospectus) may
be effected by the Managing Representative and the Fund. If the number of APS to
be purchased on the APS Closing Date by such defaulting Underwriter or
Underwriters exceeds 10% of the APS that the Underwriters are obligated to
purchase on such date, and none of the nondefaulting Underwriters or the Fund
makes arrangements pursuant to this Section within the period stated for the
purchase of the APS that the defaulting Underwriters agreed to purchase, this
Underwriting Agreement will terminate without liability on the part of any
nondefaulting Underwriter, the Fund or Dreyfus, except as provided in Sections
5(g) and 7 hereof. This Section 9 will not affect the liability of any
defaulting Underwriter to the Fund or the nondefaulting Underwriters arising out
of such default. A substitute underwriter will become an Underwriter for all
purposes of this Underwriting Agreement.
10. MISCELLANEOUS.
(a) The reimbursement, indemnification and contribution agreements in
Sections 5(g) and 7 hereof and the representations of the Fund, Dreyfus and the
Underwriters in this Underwriting Agreement will remain in full force and effect
regardless of any termination of this Underwriting Agreement. The reimbursement,
indemnification and contribution agreements in Sections 5(g) and 7 hereof and
the representations and agreements of the Fund, Dreyfus and the Underwriters in
this Underwriting Agreement shall survive the APS Closing Date and shall remain
in full force and effect regardless of any investigation made by or on behalf of
any Underwriter, the Fund, Dreyfus or any controlling person and delivery of and
payment for the APS.
(b) This Underwriting Agreement is for the benefit of the
Underwriters, the Fund, Dreyfus and their successors and assigns, and, to the
extent expressed in this Underwriting Agreement, for the benefit of persons
controlling any of the Underwriters, the Fund, Dreyfus and directors and
officers of the Fund and Dreyfus, and their respective successors and assigns,
and no other person, partnership, association or corporation will acquire or
have any right under or by virtue of this Underwriting Agreement. The term
"successors and assigns" does not include any purchaser of the APS from any
Underwriter merely because of such purchase.
(c) All notices and communications under this Underwriting Agreement
will be in writing, effective only on receipt and mailed or delivered, by
messenger, facsimile transmission or otherwise, to the Underwriters in care of
PaineWebber Incorporated, Attn: Financial Institutions Group, 1285 Avenue of the
Americas, New York, New York 10019, to the Fund or Dreyfus at 200 Park Avenue,
New York, New York 10166.
(d) This Underwriting Agreement may be signed in multiple counterparts
that taken as a whole constitute one agreement.
(e) This Underwriting Agreement will be governed by and construed in
accordance with the laws of the State of New York without reference to choice of
law principles thereof.
Please confirm that the foregoing correctly sets forth the agreement
between us.
Very truly yours,
Dreyfus Strategic Municipal Bond Fund,
Inc.
By: ______________________________
Name:
Title:
The Dreyfus Corporation
By: ______________________________
Name:
Title:
Confirmed:
PaineWebber Incorporated
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
By: PaineWebber Incorporated
By: _____________________________
Name:
Title:
Acting on behalf of itself
and the Underwriters
named in Schedule 1
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
NUMBER OF SERIES NUMBER OF NUMBER OF
A APS TO SERIES B APA TO SERIES C APA TO
NAME BE PURCHASED BE PURCHASED BE PURCHASED
<S> <C> <C> <C>
Paine Webber Incorporated 2,480 2,480 2,480
</TABLE>
<PAGE>
ANNEX A
FORM OF OPINION OF
STROOCK, STROOCK & LAVAN LLP REGARDING THE FUND
1. The Registration Statement and all post-effective amendments, if any, are
effective under the Securities Act and, to the best of our knowledge, no
stop order with respect thereto has been issued and no proceeding for that
purpose has been instituted or is threatened by the Commission. Any filing
of the Prospectus or any supplements thereto required under Rule 497 of the
Securities Act Rules prior to the date hereof have been made in the manner
and within the time required by such Rule.
2. The Fund has been duly organized and is validly existing as a corporation
under the laws of the State of Maryland, with full corporate power and
authority to conduct all of the activities conducted by it, to own or lease
all assets owned (or to be owned) or leased (or to be leased) by it and to
conduct its business as described in the Registration Statement and
Prospectus, and the Fund is duly licensed and qualified to do business and
in good standing in each jurisdiction in which its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified or be in good standing would not have a material adverse effect
on the Fund. The Fund has no subsidiaries.
3. The capitalization of the Fund is as set forth in the Registration
Statement and the Prospectus. The shares of Common Stock and the APS
conform in all material respects to the description of them in the
Prospectus. All the outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and nonassessable. The APS to
be issued and delivered to the Underwriters in accordance with the
Underwriting Agreement against payment therefor as provided by the
Underwriting Agreement have been duly authorized and when issued and
delivered to the Underwriters will have been validly issued and will be
fully paid and nonassessable (except as described in the Registration
Statement). No person is entitled to any preemptive or other similar rights
in connection with the issuance of the APS.
4. The Fund is duly registered with the Commission under the Investment
Company Act as a diversified, closed-end management investment company
and all action under the Securities Act, the Investment Company Act, the
Securities Act Rules and the Investment Company Act Rules, as the case may
be, necessary to make the public offering and consummate the sale of the
APS as provided in the Underwriting Agreement has been taken by the Fund.
5. The Fund has full corporate power and authority to enter into each of the
Underwriting Agreement, the Investment Advisory Agreement, the Custody
Agreement, the Administration Agreement the Transfer Agency Agreement, the
Auction Agent Agreement and the DTC Agreement (collectively, the "Fund
Agreements") and to perform all of the terms and provisions thereof to be
carried out by it and (A) each Fund Agreement has been duly and validly
authorized, executed and delivered by the Fund, (B) each Fund Agreement
complies in all material respects with all applicable provisions of the
Investment Company Act, the Advisers Act, the Investment Company Act Rules
and the Advisers Act Rules, as the case may be, and (C) assuming due
authorization, execution and delivery by the other parties thereto, each
Fund Agreement constitutes the legal, valid and binding obligation of the
Fund enforceable in accordance with its terms, (1) subject, as to
enforcement, to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto, and
to general equitable principles (regardless of whether enforcement is
sought in a proceeding in equity or at law) and to termination under the
Investment Company Act, and (2) except as rights to indemnity thereunder
may be limited by Federal or state securities laws.
6. None of (A) the execution and delivery by the Fund of the Fund Agreements,
(B) the issue and sale by the Fund of the APS as contemplated by the
Underwriting Agreement and (C) the performance by the Fund of its
obligations under the Fund Agreements or consummation by the Fund of the
other transactions contemplated by the Fund Agreements conflicts with or
will conflict with, or results or will result in a breach of, the Articles
of Incorporation or the By-Laws of the Fund or any Material Agreement
("Material Agreement" means those material agreements or instruments, other
than Fund Agreements, which have been identified to us by representatives
of the Fund as all agreements and instruments which are material to the
business or financial condition of the Fund and which have been listed on
Schedule A hereto) to which the Fund is a party or by which the Fund is
bound, or any law, rule or regulation known to us to be applicable to the
Fund, or, to our knowledge, order of any court, governmental
instrumentality, securities exchange or association or arbitrator, whether
foreign or domestic, having jurisdiction over the Fund, except that we
express no opinion as to the securities or "blue sky" laws applicable in
connection with the purchase and distribution of the APS by the
Underwriters pursuant to the Underwriting Agreement.
7. To our knowledge, based on inquiry of appropriate officers and
representatives of the Fund, the Fund is not currently in breach of, or in
default under, in any material respect, any written agreement or instrument
to which it is a party or by which it or its property is bound or affected.
8. No consent, approval, authorization or order of any court or governmental
agency or body or securities exchange or association, whether foreign or
domestic, is legally required by the Fund for the consummation by the Fund
of the transactions to be performed by the Fund or the performance by the
Fund of all the terms and provisions to be performed by or on behalf of it
in each case as contemplated in the Fund Agreements, except such as (A)
have been obtained under the Securities Act, the Investment Company Act,
the Advisers Act, the Securities Act Rules, the Investment Company Act
Rules and the Advisers Act Rules and (B) may be required by the American
Stock Exchange or under state securities or "blue sky" laws in connection
with the purchase and distribution of the APS by the Underwriters pursuant
to the Underwriting Agreement.
9. To our knowledge, based, as to the existence thereof, solely on inquiry of
appropriate officers and representatives of the Fund and not on any docket
search or any other independent inquiry, there is no action, suit or
proceeding before or by any court, commission, regulatory body,
administrative agency or other governmental agency or body, foreign or
domestic, now pending or threatened against or affecting the Fund, which is
required to be disclosed in the Prospectus that is not disclosed in the
Prospectus, and to the best of our knowledge, based on inquiry of
appropriate officers and representatives of the Fund, there are no
contracts, franchises or other documents that are of a character required
to be described in, or that are required to be filed as exhibits to, the
Registration Statement that have not been adequately described or filed as
required.
10. The Common Stock is listed on the New York Stock Exchange.
11. The Fund does not require any tax or other rulings to enable it to qualify
as a regulated investment company under Subchapter M of the Code.
12. Each of the sections in the Prospectus entitled "Taxes" and in the
Statement of Additional Information entitled "Taxes" is a fair summary of
the principal United States Federal income tax rules currently in effect
applicable to the Fund and to the purchase, ownership and disposition of
the APS.
13. The Registration Statement (except the financial statements and schedules
and other financial data included therein as to which we express no view),
at the time it became effective, and the Prospectus (except as aforesaid),
as of the date thereof, complied as to form in all material respects to the
requirements of the Securities Act, the Investment Company Act and the
rules and regulations of the Commission thereunder.
In rendering our opinion, we have relied, as to factual matters, upon
the attached written certificates and statements of officers of the Fund. As to
matters of Maryland law, we have relied with your consent on the opinion of
Venable, Baetjer and Howard, LLP dated as of an even date herewith.
While we have not verified, and are not passing upon and do not assume
any responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus, we have participated
in conferences with certain officers and other representatives of the Fund,
Dreyfus, counsel for Dreyfus, representatives of the independent auditors for
the Fund and your representatives, at which the contents of the Registration
Statement and Prospectus and related matters were discussed and, on the basis of
the foregoing (relying as to materiality to a large extent on the opinions of
officers and other representatives of the Fund and Dreyfus), no facts have come
to our attention that lead us to believe that the Registration Statement (except
with respect to the financial statements, schedules and other financial data,
including therein, as to which we make no statement), at the time it became
effective, contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading or that the Prospectus (except with respect to the
financial statements, schedules and other financial data included therein, as to
which we make no statement), as of its date, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
<PAGE>
ANNEX B
FORM OF OPINION OF INTERNAL COUNSEL
REGARDING THE DREYFUS CORPORATION
1. Dreyfus has been duly formed and is validly existing as a corporation under
the laws of its jurisdiction of incorporation with full power and authority
to conduct all of the activities conducted by it, to own or lease all of
the assets owned or leased by it and to conduct its business as described
in the Registration Statement and Prospectus, and Dreyfus is duly licensed
and qualified and in good standing in each other jurisdiction in which it
is required to be so qualified and Dreyfus owns, possesses or has obtained
and currently maintains all governmental licenses, permits, consents,
orders, approvals and other authorizations, whether foreign or domestic,
necessary for Dreyfus to carry on its business as contemplated in the
Registration Statement and the Prospectus.
2. Dreyfus is duly registered as an investment adviser under the Advisers Act
and is not prohibited by the Advisers Act, the Investment Company Act, the
Advisers Act Rules or the Investment Company Act Rules from acting as
investment adviser for the Fund as contemplated by the Investment Advisory
Agreement, the Registration Statement and the Prospectus.
3. Dreyfus has full power and authority to enter into each of the Underwriting
Agreement, the Investment Advisory Agreement, and the Shareholder Servicing
Agreement (collectively, the "Dreyfus Agreements") and to carry out all the
terms and provisions thereof to be carried out by it, and each such
agreement has been duly and validly authorized, executed and delivered by
Dreyfus; each Dreyfus Agreement complies in all material respects with all
provisions of the Investment Company Act, the Advisers Act, the Investment
Company Act Rules and the Advisers Act Rules; and assuming due
authorization, execution and delivery by the other parties thereto, each
Dreyfus Agreement constitutes a legal, valid and binding obligation of
Dreyfus, enforceable in accordance with its terms, (1) subject, as to
enforcement, to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and to general equitable principles
(regardless of whether enforcement is sought in a proceeding in equity or
at law) and (2) as rights to indemnity thereunder may be limited by federal
or state securities laws.
4. Neither (A) the execution and delivery by Dreyfus of any Dreyfus Agreement
nor (B) the consummation by Dreyfus of the transactions contemplated by, or
the performance of its obligations under any Dreyfus Agreement conflicts or
will conflict with, or results or will result in a breach of, the Articles
of Incorporation or Bylaws of Dreyfus or any agreement or instrument to
which Dreyfus is a party or by which Dreyfus is bound, or any law, rule or
regulation, or order of any court, governmental instrumentality, securities
exchange or association or arbitrator, whether foreign or domestic,
applicable to Dreyfus.
5. No consent, approval, authorization or order of any court, governmental
agency or body or securities exchange or association, whether foreign or
domestic, is required for the consummation of the transactions contemplated
in, or the performance by Dreyfus of its obligations under, any Dreyfus
Agreement, except such as have been obtained under the Investment Company
Act, the Advisers Act, the Securities Act, the Investment Company Act
Rules, the Advisers Act Rules and the Securities Act Rules.
6. The description of Dreyfus and its business, and the statements
attributable to Dreyfus, in the Registration Statement and the Prospectus
complies with the requirements of the Securities Act, the Investment
Company Act, the Securities Act Rules and the Investment Company Act Rules
and do not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein not misleading.
7. There is no action, suit or proceeding before or by any court, commission,
regulatory body, administrative agency or other governmental agency or
body, foreign or domestic, now pending or, to our knowledge, threatened
against or affecting Dreyfus of a nature required to be disclosed in the
Registration Statement or Prospectus or that might reasonably result in any
material adverse change in the condition, financial or otherwise, business
affairs or business prospects of Dreyfus or the ability of Dreyfus to
fulfill its respective obligations under any Dreyfus Agreement.
In connection with the registration of the APS, Dreyfus has been
advised by myself and/or other counsel on the legal staff of Dreyfus as to the
requirements of the Securities Act, the Investment Company Act and the
applicable rules and regulations of the Commission thereunder and have rendered
other legal advice and assistance to Dreyfus in the course of the preparation of
the Registration Statement and the Prospectus. Rendering such assistance
involved, among other things, discussions and inquiries concerning various legal
and related subjects and reviews of certain corporate records, documents and
proceedings. We also participated in conferences with representatives of the
Fund and its accountants and Dreyfus at which the contents of the Registration
Statement and Prospectus and related matters were discussed. With your
permission, we have not undertaken, except as otherwise indicated herein, to
determine independently, and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements in the Registration Statement or
Prospectus. On the basis of the information which was developed in the course of
the performance of the services referred to above, no information has come to
our attention that would lead us to believe that the Registration Statement, at
the time it became effective, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements describing Dreyfus and its business not misleading or
that the Prospectus, as of its date and as of the date hereof, contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements describing Dreyfus and
its business, in the light of the circumstances under which they were made, not
misleading or that any amendment or supplement to the Prospectus, as of its
respective date, and as of the date hereof, contained any untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements in the Prospectus describing Dreyfus and its business, in
the light of the circumstances under which they were made, not misleading.
<PAGE>
ANNEX C
FORM OF ACCOUNTANT'S LETTER
September ___, 1999
PAINEWEBBER INCORPORATED
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
We have audited the statement of assets and liabilities of Dreyfus Strategic
Municipal Bond Fund Inc. (the "Fund"), including the statement of investments,
as of November 30, 1998, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended and financial highlights for each of the five years in the
period then ended (the "November 30, 1998 Financial Statements"), incorporated
by reference in the Registration Statement on Form N-2 filed by the Fund under
the Securities Act of 1933 (the "Act") (No. 333-84123) and under the Investment
Company Act of 1940 (the "1940 Act") (No. 811-05877); our report with respect
thereto also is incorporated by reference in such Registration Statement as
amended by Pre-Effective Amendment No. 1 under the Act and Amendment No. 10
under the 1940 Act to be filed with the Securities Exchange Commission on
September 17, 1999, herein referred to as the "Registration Statement".
In connection with the Registration Statement:
1. We are independent auditors with respect to the Fund within the meaning of
the Act and the applicable published rules and regulations thereunder.
2. In our opinion the November 30, 1998 Financial Statements audited by us
and incorporated by reference in the Registration Statement comply as to
form in all material respects with the applicable accounting requirements
of the Act, the 1940 Act and the related published rules and regulations
thereunder.
3. For the purposes of this letter, we have read the minutes of all meetings
of the shareholders, the Board of Directors and all committees thereof as
set forth in the minute books of the Fund, officials of the Fund having
advised us that the Minutes of all such meetings through ____________, 1999
were set forth therein.
4. We have not audited any financial statements of the Fund as of any date or
for any period subsequent to November 30, 1998. The purpose (and therefore
the scope) of our audit as of November 30, 1998, was to enable us to
express our opinion on the November 30, 1998 Financial Statements.
Therefore, we are unable to express and do not express an opinion on the
financial position, results of operations, or changes in net assets of the
Fund as of any date or for any period subsequent to September 30, 1998. With
respect to the period from November 30, 1998 to September __, 1999, we have:
(a) read the unaudited statement of assets and liabilities, including the
schedule of investments, as of May 31, 1999, and the related
statement of operations for the six months then ended, the statement
of changes in net assets for the six months then ended and for the two
years in the period ended November 30, 1998 and financial highlights
for the six months then ended and for the five years in the period
ended November 30, 1998 (the "May 31, 1999 Semi Annual Financial
Statements"), incorporated by reference in the Registration Statement,
officials of the Fund having advised us that no such financial
statements as of any date or for any period subsequent to May 31,
1999, were available; and
(b) inquired of certain officials of the Fund who have responsibility for
financial and accounting matters as to: (i) whether the May 31, 1999
Semi Annual Financial Statements referred to under 3.a. above comply
as to form in all material respects with the applicable accounting
requirements of the Act, the 1940 Act and the related published rules
and regulations and (ii) whether the May 31, 1999 Semi Annual
Financial Statements are in conformity with generally accepted
accounting principles applied on a basis substantially consistent with
that of the November 30, 1998 Financial Statements, incorporated by
reference in the Registration Statement.
The foregoing procedures do not constitute an audit conducted in accordance with
generally accepted auditing standards. Also, they would not necessarily reveal
matters of significance with respect to the comments in the following paragraph.
Accordingly, we make no representations as to the sufficiency of the foregoing
procedures for your purposes.
5. Nothing came to our attention as a result of the foregoing procedures that
caused us to believe that:
(i) the May 31, 1999 Semi Annual Financial Statements described in 3.a.
above, incorporated by reference in the Registration Statement, do not
comply as to form in all material respects with the applicable
accounting requirements of the Act, the 1940 Act and the published
rules and regulations thereunder; and
(ii) the March 31, 1999 Semi Annual Financial Statements are not in
conformity with generally accepted accounting principles applied on a
basis substantially consistent with that of the November 30, 1998
Financial Statements.
6. As mentioned under 3.a. above, Fund officials have advised us that no
financial statements as of any date or for any period subsequent to May
31, 1999 are available; accordingly, the procedures carried out by us with
respect to changes in financial statement items after May 31, 1999 have,
of necessity, been even more limited than those with respect to the periods
referred to in 3. above. We have inquired of certain officials of the Fund
who have responsibility for financial and accounting matters as to whether
there was any change at September __, 1999 (our work did not extend to the
period from September __, 1999 to September 21, 1999, inclusive) in the
capital stock or net assets of the Fund or any increase in the long-term
debt of the Fund as compared with the amounts shown on the May 31, 1999
Semi Annual Financial Statements incorporated by reference in the
Registration Statement. On the basis of these inquiries, nothing came to
our attention that caused us to believe that there was any such change in
capital stock or net assets of the Fund or any such increase in the
long-term debt of the Fund, except for a decrease in net assets from
$___________ as of May 31, 1999 to $___________ as of September __, 1999
and except in all instances for changes or increases that the Registration
Statement discloses have occurred or may occur.
7. For purposes of this letter, we have read the following information as set
forth in the Registration Statement and have performed the additional
procedures stated below with respect to such information.
PAGE PROCEDURES AND FINDINGS
12 "Capitalization." - We compared the dollar amounts shown in the column
titled "Actual" to information found in the accounting records of the Fund
provided by management and found them to be in agreement. We compared the
dollar amounts shown under the caption "Actual" with the dollar amounts
shown under the caption "As Adjusted" and found them to be in agreement
with the exception of the inclusion of $186,000,000 of Preferred Stock and
"Capital in excess of par value attributable to common stock," which we
have been advised by management, has been adjusted for estimated offering
costs and sales load expenses of $_________ attributable to the Preferred
Stock (however, we do not comment as to the reasonableness of the offering
costs and sales load expenses or whether such issuance will actually take
place). We express no opinion on the reasonableness of the amounts in that
they were based on accounting records which were not audited by us.
12 "Portfolio Composition." - We recalculated the "Number of Issues," "Value
(In Thousands)" and "Percent" amounts shown in the table in the section
"Portfolio Composition" based upon information found in the accounting
records of the Fund provided by management and found no exceptions. We
express no opinion on the reasonableness of the amounts in that they were
based on accounting records which were not audited by us.
33 "Investment Company Act Preferred Stock Asset Coverage." - We proved the
arithmetic accuracy of the percentage computation shown, after rounding. We
express no opinion on the reasonableness of the amounts in that they were
based on analyses prepared by management of the Fund which were not audited
by us.
42 "Description of Capital Structure." - We recalculated the net asset value
per share of common stock at August 31, 1999 based on information found in
the accounting records of the Fund provided by management and found such
information to be in agreement. We express no opinion on the reasonableness
of the amounts in that they were based on accounting records which were not
audited by us.
8. It should be understood that we make no representations as to questions of
legal interpretation or as to the sufficiency for your purposes of the
procedures enumerated in the preceding paragraph; also, such procedures
would not necessarily reveal any material misstatement of the information
identified in 6. above. Further, we have addressed ourselves solely to the
foregoing data as set forth in the Registration Statement and make no
representations as to the adequacy of disclosure or as to whether any
material facts have been omitted.
9. Our audit of the November 30, 1998 Financial Statements, referred to in
the introductory paragraph of this letter was comprised of audit tests and
procedures deemed necessary for the purpose of expressing an opinion on
such financial statements taken as a whole. For neither the date referred
to therein nor any other period did we perform audit tests for the purpose
of expressing an opinion on individual balances of accounts or summaries of
selected transactions such as those enumerated above and accordingly, we do
not express an opinion thereon.
10. This letter is solely for the information of the addressees and to assist
the underwriters in conducting and documenting their investigation of the
affairs of the Fund in connection with the offering of the securities
covered by the Registration Statement, and is not to be used, circulated,
quoted or otherwise referred to for any other purpose, including but not
limited to, the registration, purchase or sale of securities, nor is it to
be filed with or referred to in whole or in part in the Registration
Statement or any other document, except that reference may be made to it in
the underwriting agreement or in any list of closing documents pertaining
to the offering of the securities covered by the Registration Statement.
Very truly yours,
EXHIBIT (J)
CUSTODY AGREEMENT
THIS AGREEMENT is made as of November 2, 1989 between DREYFUS
STRATEGIC MUNICIPAL BOND FUND, INC. (the "Fund"), a Maryland corporation having
its principal office and place of business at 767 Fifth Avenue, New York, New
York 10153, and BOSTON SAFE DEPOSIT AND TRUST COMPANY (the "Custodian"), a
Massachusetts trust company having its principal place of business at One Boston
Place, Boston, Massachusetts 02108.
W I T N E S S E T H:
That for and in consideration of the mutual premises and convenants
hereinafter set forth, the Fund and the Custodian agree as follows:
1. DEFINITIONS.
Whenever used in this Agreement or in any Schedules to this Agreement,
the following words and phrases, unless the context otherwise requires, shall
have the following meanings:
(a) "Charter" shall mean the Articles of Incorporation of the Fund
dated September 26, 1989 as now in effect and as the same may be
amended from time to time.
(b) "Authorized Person" shall be deemed to include the President, any
Vice President, the Secretary, any Assistant Secretary, the Treasurer
or Assistant Treasurer or any other person, whether or not any such
person is an officer or employee of the Fund, duly authorized by the
Board of Directors of the Fund to give Oral Instructions and Written
Instructions on behalf of the Fund and listed in a certification in
the form annexed hereto as Appendix A or such other certification as
may be received by the Custodian from time to time.
(c) "Book-Entry System" shall mean the Federal Reserve/ Treasury
book-entry system for United States and federal agency securities, its
successor or successors and its nominee or nominees.
(d) "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission
under Section 17A of the Securities Exchange Act of 1934, as amended,
its successor or successors and its nominee or nominees, in which the
Custodian is specifically authorized by the Fund's Board to make
deposits. The term "Depository" shall further mean and include any
other person to be named in Written Instructions authorized to act as
a depository under the 1940 Act, its successor or successors and its
nominee or nominees.
(e) "Money Market Securities" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to interest and
principal by the Government of the United States or agencies or
instrumentalities thereof, commercial paper, bank certificates of
deposit, bankers' acceptances and short-term corporate obligations,
where the purchase or sale of such securities normally requires
settlement in federal funds on the same day as such purchase or sale,
and repurchase and reverse repurchase agreements with respect to any
of the foregoing types of securities.
(f) "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Authorized Person or a person
reasonably believed by the Custodian to be an Authorized Person.
(g) "Prospectus" shall mean the Fund's current prospectus relating to
the registration of the Fund's Shares under the Securities Act of
1933, as amended.
(h) "Shares" refers to the Shares of Common Stock, $.001par value, as
may be issued by the Fund from time to time.
(i) "Security" or Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and
other securities and investments from time to time of the Fund,
including futures contracts and options on futures contracts.
(j) "Transfer Agent" shall mean the person which performs the transfer
agent, dividend disbursing agent and shareholder servicing agent
functions for the Fund.
(k) "Written Instructions" shall mean a written communication actually
received by the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized Person by
telex or facsimile machine or any other such system whereby the
receiver of such communication is able to verify through codes or
otherwise with a reasonable degree of certainty the authenticity of
the sender of such communication.
(l) he 111940 Act" refers to the Investment Company Act of 1940, and
the rules and regulations thereunder, all as amended from time to
time.
2. APPOINTMENT OF CUSTODIAN.
(a) The Fund hereby constitutes and appoints the Custodian as
custodian of all of the securities and monies at any time owned by or
in the possession of the Fund during the period of this Agreement.
(b) The Custodian hereby accepts appointment as such custodian for the
Fund and agrees to perform the duties hereof as hereinafter set forth.
3. COMPENSATION.
(a) The Fund will compensate the Custodian for its services rendered
under this Agreement in accordance with the fees set forth in the Fee
Agreement dated November 2, 1989. Such Fee Agreement does not include
out-of-pocket disbursements of the Custodian for which the Custodian
shall be entitled to bill separately. Out-of-pocket disbursements
shall include, but shall not be limited to, the items specified in
Appendix C and incorporated herein, which Schedule may be modified by
the Custodian upon not less than thirty days' prior written notice to
the Fund.
(b) The Custodian will bill the Fund as soon as practicable after the
end of each calendar month, and said billings will be detailed in
accordance with the Schedule. The Fund will promptly pay to the
Custodian the amount of such billing.
4. CUSTODY OF CASH AND SECURITIES.
(a) RECEIPT AND HOLDING OF ASSETS. The Fund will deliver or cause to
be delivered to the Custodian all Securities and monies owned by it,
including cash received from the issuance of its Shares, at any time
during the period of this Agreement. The Custodian will not be
responsible for such Securities and monies until actually received by
it. The Fund shall instruct the Custodian from time to time in its
sole discretion, by means of Written Instructions, or in connection
with the purchase or sale of Money Market Securities, by means of Oral
Instructions or Written Instructions, as to the manner in which and in
what amounts Securities and monies of the Fund are to be deposited on
behalf of the Fund in the Book-Entry System or a Depository and
specifically allocated on the books of the Custodian to the Fund;
provided, however, that prior to the initial deposit of Securities of
the Fund in the Book Entry System or the Depository, the Custodian
shall have received Written Instructions specifically approving such
deposit by the Custodian in the Book-Entry System or a Depository.
(b) ACCOUNTS AND DISBURSEMENTS. The Custodian shall establish and
maintain a separate account for the Fund and shall credit to the
separate account of the Fund all monies received by it for the account
of such Fund and shall disburse the same only:
1. In payment for Securities purchased for the Fund, as provided
in Section 5 hereof;
2. For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for the
account of the Fund: interest, taxes, management, accounting,
transfer agent and legal fees and operating expenses of the Fund
whether or not such expenses are, in whole or in part, to be
capitalized or treated as deferred expenses;
3. For payment of the amount of dividends received respect of
Securities sold short;
4. In payment of dividends or distributions with respect to the
Shares of the Fund, as provided in Section 7 hereof;
5. In payment of original issue or other taxes with respect to
the Shares of the Fund;
6. In payment for Shares which have been repurchased by the Fund,
in the open market or otherwise;
7. Pursuant to Written Instructions or, with respect to Money
Market Securities, oral Instructions or Written Instructions,
setting forth the name and address of the person to whom the
payment is to be made, the amount to be paid and the purpose for
which payment is to be made; or
8. In payment of fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to the Fund, as
provided in Section 3(a) and Section 10(h) hereof.
(c) CONFIRMATION AND STATEMENTS. Promptly after the close of business
on each day, the Custodian shall furnish the Fund with confirmations
and a summary of all transfers to or from the account of the Fund
during said day. Where securities purchased by the Fund are in a
tangible bulk of securities registered in the name of the Custodian
(or its nominee) or shown on the Custodian's account on the books of
the Depository or the Book-Entry System, the Custodian shall by book
entry or otherwise identify the quantity of those securities belonging
to the Fund. At least monthly, the Custodian shall furnish the Fund
with a detailed statement of the Securities and monies held for the
Fund under this Agreement.
(d) REGISTRATION OF SECURITIES AND PHYSICAL SEPARATION. All Securities
held for the Fund which are issued or issuable only in bearer form,
except such Securities as are held in the Book-Entry System, shall be
held by the Custodian in that form; all other Securities held for the
Fund may be registered in the name of the Fund, in the name of any
duly appointed registered nominee of the Custodian as the Custodian
may from time to time determine, or in the name of the Book-Entry
System or a Depository or their successor or successors, or their
nominee or nominees. The Fund reserves the right to instruct the
Custodian as to the method of registration and safekeeping of the
Securities of the Fund. The Fund agrees to furnish to the Custodian
appropriate instruments to enable the Custodian to hold or deliver in
proper form for transfer, or to register in the name of its registered
nominee or in the name of the Book-Entry System or a Depository, any
securities which it may hold for the account of the Fund and which may
from time to time be registered in the name of the Fund. The Custodian
shall hold all such Securities which are not held in the Book-Entry
System or the Depository in a separate account for the Fund in the
name of the Fund physically segregated at all times from those of any
other person or persons.
(e) COLLECTION OF INCOME AND OTHER MATTERS AFFECTING SECURITIES.
Unless otherwise instructed to the contrary by Written Instructions,
the Custodian by itself, or through the use of the Book-Entry System
or the Depository with respect to Securities therein deposited, shall
with respect to all Securities held for the Fund in accordance with
this Agreement:
1. Collect on a timely basis all income due or payable;
2. Present on a timely basis for payment and collect the amount
payable upon all Securities which may mature or be called,
redeemed or retired, or otherwise become payable. Notwithstanding
the foregoing, the Custodian shall have no responsibility to the
Fund for monitoring or ascertaining any call, redemption or
retirement dates with respect to any put bonds which are owned by
the Fund and held by the Custodian or its nominee, nor shall the
Custodian have any responsibility or liability to the Fund for
any loss by the Fund for any missed payment or other default
resulting therefrom; unless the Custodian received timely
notification from the Fund specifying the time, place and manner
for the presentment of any such put bond owned by the Fund and
held by the Custodian or its nominee. The Custodian shall not be
responsible and assumes no liability to the Fund for the accuracy
or completeness of any notification the Custodian may furnish to
the Fund with respect to put bonds;
3. Surrender Securities in temporary form for definitive
Securities;
4. Execute any necessary declarations or certificates of
ownership under the Federal income tax laws or the laws or
regulations of any other taxing authority now or hereafter in
effect; and
5. Hold directly, or through the Book-Entry System or a
Depository with respect to Securities therein deposited, for the
account of the Fund all rights and similar Securities issued with
respect to any Securities held by the Custodian hereunder for the
Fund.
(f) DELIVERY OF SECURITIES AND EVIDENCE OF AUTHORITY. Upon receipt of
Written Instructions and not otherwise, except for subparagraphs 5, 6,
7, 8, 9, 10, 11 and 12 which may be effected by Oral or Written
Instructions, the Custodian, directly or through the use of the
Book-Entry System or a Depository, shall:
1. Execute and deliver or cause to be executed and delivered to
such persons as may be designated in such Written Instructions
proxies, consents, authorizations and any other instruments
whereby the authority of the Fund as owner of any Securities may
be exercised;
2. Deliver or cause to be delivered any Securities held for the
Fund in exchange for other Securities or cash issued or paid in
connection with the liquidation, reorganization, refinancing,
merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege;
3. Deliver or cause to be delivered any Securities held for the
Fund to any protective committee, reorganization committee or
other person in connection with the reorganization, refinancing,
merger consolidation or recapitalization or sale of assets of any
corporation, and receive and hold under the terms of this
Agreement in the separate account for the Fund such certificates
of deposit, interim receipts or other instruments or documents as
may be issued to it to evidence such delivery;
4. Make or cause to be made such transfers or exchanges of the
assets specifically allocated to the separate account of the Fund
and take such other steps as shall be stated in said Written
Instructions to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund;
5. Deliver Securities owned by the Fund upon sale of such
Securities for the account of the Fund pursuant to Section 5;
6. Deliver Securities owned by the Fund upon the receipt of
payment in connection with any repurchase agreement related to
such Securities entered into by the Fund;
7. Deliver Securities owned by the Fund to the issuer thereof or
its agent when such Securities are called, redeemed, retired or
otherwise become payable; provided, however, that in any such
case the cash or other consideration is to be delivered to the
Custodian. Notwithstanding the foregoing, the Custodian shall
have no responsibility to the Fund for monitoring or ascertaining
any call, redemption or retirement dates with respect to any put
bonds which are owned by the Fund and held by the Custodian or
its nominee, nor shall the Custodian have any responsibility or
liability to the Fund for any loss by the Fund for any missed
payment or other default resulting therefrom unless the Custodian
received timely notification from the Fund specifying the time,
place and manner for the presentment of any such put bond owned
by the Fund and held by the Custodian or its nominee. The
Custodian shall not be responsible and assumes no liability to
the Fund for the accuracy or completeness of any notification the
Custodian may furnish to the Fund with respect to put bonds;
8. Deliver Securities owned by the Fund to the issuer thereof, or
its agent, for transfer into the name of the Fund or into the
name of any nominee or nominees of the Custodian or into the name
or nominee name of any agent appointed pursuant to Section 10(f)
or into the name or nominee name of any sub-custodian appointed
pursuant to Section 10(e); or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided, however, that
in any such case, the new Securities are to be delivered to the
Custodian;
9. Deliver Securities owned by the Fund to the broker for
examination in accordance with "street delivery" custom;
10. Deliver Securities owned by the Fund in accordance with the
provisions of any agreement among the Fund, the Custodian and a
broker-dealer registered under the Securities Exchange Act of
1934 (the "Exchange Act") and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), relating to
compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;
11. Deliver Securities owned by the Fund in accordance with the
provisions of any agreement among the Fund, the Custodian, and a
futures commission merchant registered under the Commodities
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract Market,
or any similar organization or organizations, regarding account
deposits in connection with transactions by the Fund;
12. Deliver Securities owned by the Fund for delivery in
connection with any loans of Securities made by the Fund but only
against receipt of adequate collateral as agreed upon from time
to time by the Custodian and the Fund which may be in the form of
cash or obligations issued by the United States government, its
agencies or instrumentalities;
13. Deliver Securities owned by the Fund for delivery as security
in connection with any borrowings by the, Fund requiring a pledge
of Fund assets, but only against receipt of amounts borrowed;
14. Deliver Securities owned by the Fund upon receipt of
instructions from the Fund for delivery to the Transfer Agent or
to the holders of Shares in connection with distributions in
kind, as may be described from time to time in the Fund's
Prospectus, in satisfaction of requests by holders of Shares for
redemption; and
15. Deliver Securities owned by the Fund for any other proper
business purpose, but only upon receipt of, in addition to
Written Instructions, a certified copy of a resolution of the
Board of Directors signed by an Authorized Person and certified
by the Secretary of the Fund specifying the Securities to be
delivered, setting forth the purpose for which such delivery is
to be made, declaring such purpose to be a proper business
purpose, and naming the person or persons to whom delivery of
such Securities shall be made.
(g) ENDORSEMENT AND COLLECTION OF CHECKS, ETC. The Custodian is hereby
authorized to endorse and collect all checks, drafts or other orders
for the payment of money received by the Custodian for the account of
the Fund; provided, however, that the Custodian shall not be liable
for any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of
the Fund until the Custodian actually receives and collects such money
directly or by the final crediting of the account representing the
Fund' interest in the Book-Entry System or the Depository.
5. PURCHASE AND SALE OF INVESTMENTS OF THE FUND.
(a) Promptly after each purchase of Securities for the Fund, the Fund
shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, Written
Instructions, and (ii) with respect to each purchase of Money Market
Securities, either Written Instructions or Oral Instructions, in
either case specifying with respect to each purchase: (1) the name of
the issuer and the title of the Securities; (2) the number of shares
or the principal amount purchased and accrued interest, if any; (3)
the date of purchase and settlement; (4) the purchase price per unit;
(5) the total amount payable upon such purchase; (6) the name of the
person from whom or the broker through whom the purchase was made, if
any; (7) whether or not such purchase is to be settled through the
Book-Entry System or the Depository; and (8) whether the Securities
purchased are to be deposited in the Book-Entry System or the
Depository. The Custodian shall receive the Securities purchased by or
for the Fund and upon receipt of such Securities shall pay out of the
monies held for the account of the Fund the total amount payable upon
such purchase, provided that the same conforms to the total amount
payable as set forth in such Written Instructions or Oral
Instructions.
(b) Promptly after each sale of Securities of the Fund, the Fund shall
deliver to the Custodian (i) with respect to each sale of Securities
which are not Money Market Securities, Written Instructions and (ii)
with respect to each sale of Money Market Securities, either Written
or Oral Instructions, in either case specifying with respect to such
sale: (1) the name of the issuer and the title of the Securities; (2)
the number of shares or principal amount sold, and accrued interest,
if any; (3) the date of sale; (4) the sale price per unit; (5) the
total amount payable to the Fund upon such sale; (6) the name of the
broker through whom or the person to whom the sale was made; and (7)
whether or not such sale is to be settled through the Book-Entry
System or the Depository. The Custodian shall deliver or cause to be
delivered the Securities to the broker or other person designated by
the Fund upon receipt of the total amount payable to the Fund upon
such sale, provided that the same conforms to the total amount payable
to the Fund as set forth in such Written or such Oral Instructions.
Subject to the foregoing, the Custodian may accept payment in such
form as shall be satisfactory to it, and may deliver Securities and
arrange for payment in accordance with the customs prevailing among
dealers in securities.
6. LENDING OF SECURITIES.
(a) Within 24 hours after each loan of Securities by the Fund as
disclosed in its Prospectus, the Fund shall deliver or cause to be
delivered to the Custodian Written Instructions specifying with
respect to each such loan: (1) the name of the issuer and the title of
the Securities; (2) the number of shares or the principal amount
loaned; (3) the date of loan and delivery; (4) the total amount to be
delivered to the Custodian, including the amount of cash collateral
and the premium, if any, separately identified; (5) the name of the
broker, dealer or financial institution to which the loan was made;
and (6) whether the Securities loaned are to be delivered through the
Book-Entry System or the Depository.
(b) Promptly after each termination of a loan of Securities, the Fund
shall deliver to the Custodian Written Instructions specifying with
respect to each such loan termination and return of Securities: (1)
the name of the issuer and the title of the Securities to be returned;
(2) the number of shares or the principal amount to be returned; (3)
the date of termination; (4) the total amount to be delivered by the
Custodian (including the cash collateral for such Securities minus any
offsetting credits as described in said Written Instructions); (5) the
name of the broker, dealer or financial institution from which the
Securities will be returned; and (6) whether such return is to be
effected through the Book-Entry System or the Depository. The
Custodian shall receive all Securities returned from the broker,
dealer or financial institution to which such Securities were loaned
and upon receipt thereof shall pay, out of the monies held for the
account of the Fund, the total amount payable upon such return of
Securities as set forth in the Written Instructions. Securities
returned to the Custodian shall be held as they were prior to such
loan.
7. PAYMENT OF DIVIDENDS OR DISTRIBUTIONS.
(a) The Fund shall furnish to the Custodian a copy of the resolution
of the Board of Directors of the Fund certified by the Secretary or an
Assistant Secretary (i) authorizing the declaration of dividends or
distributions with respect to the Fund on a specified periodic basis
and authorizing the Custodian to rely on oral or Written Instructions
specifying the date of the declaration of such dividend or
distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined and the amount
payable per share to the shareholders of record as of the record date,
or (ii) setting forth the date of declaration of any dividend or
distribution by the Fund, the date of payment thereof, the record date
as of which shareholders entitled to payment shall be determined and
the amount payable per share to the shareholders of record as of the
record date.
(b) Prior to the payment date specified in such resolution, oral
Instructions, or Written Instructions, as the case may be, the Fund
shall deliver to the Custodian Oral Instructions or Written
Instructions specifying the total amount payable to the Transfer
Agent.
(c) Upon the payment date specified in such resolution, oral
Instructions, or Written Instructions, as the case may be, the
Custodian shall pay to the Transfer Agent out of monies specifically
allocated to and held for the account of the Fund the total amount
payable to the Transfer Agent.
8. INDEBTEDNESS.
(a) The Fund will cause to be delivered to the Custodian by any bank
(excluding the Custodian) from which the Fund borrows money using
securities as collateral for such borrowings, a notice or undertaking
in the form currently employed by any such bank setting forth the
amount which such bank will loan to the Fund against delivery of a
stated amount of collateral. The Fund shall promptly deliver to the
Custodian Written or Oral Instructions stating with respect to each
such borrowing: (1) the name of the bank;
(2) the amount and terms of the borrowing, which may be set forth by
incorporating by reference an attached promissory note, duly endorsed
by the Fund, or other loan agreement; (3) the time and date, if known,
on which the loan is to be entered into (the "borrowing date"); (4)
the date on which the loan becomes due and payable; (5) the total
amount payable to the Fund on the borrowing date; (6) the market value
of Securities to be delivered as collateral for such loan, including
the name of the issuer, the title and the number of shares or the
principal amount of any particular Securities; (7) whether the
Custodian is to deliver such collateral through the Book-Entry System
or the Depository; and (8) a statement that such loan is in
conformance with the 1940 Act and the Fund's Prospectus.
(b) Upon receipt of the Written or Oral Instructions referred to in
subparagraph (a) above, the Custodian shall deliver on the borrowing
date the specified collateral and the executed promissory note, if
any, against delivery by the lending bank of the total amount of the
loan payable, provided that the same conforms to the total amount
payable as set forth in the Written or Oral Instructions. The
Custodian may, at the option of the lending bank, keep such collateral
in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or
loan agreement. The Custodian shall deliver as additional collateral
in the manner directed by the Fund from time to time such Securities
as may be specified in Written or Oral Instructions to collateralize
further any transaction described in this Section 8. The Fund shall
cause all Securities released from collateral status to be returned
directly to the Custodian, and the Custodian shall receive from time
to time such return of collateral as may be tendered to it. In the
event that the Fund fails to specify in Written or Oral Instructions
all of the information required by this Section 8, the Custodian shall
not be under any obligation to deliver any Securities or to seek the
return of the collateral; provided, however, that the Custodian shall
promptly notify the Fund of any information required by this Section 8
and not specified in Written or Oral Instructions. Collateral returned
to the Custodian shall be held hereunder as it was prior to being used
as collateral.
9. PERSONS HAVING ACCESS TO ASSETS OF THE FUND.
(a) No Director, employee or agent of the Fund, and no officer,
director, employee or agent of the Fund's investment adviser, shall
have physical access to the assets of the Fund held by the Custodian
or be authorized or permitted to withdraw any investments of the Fund,
nor shall the Custodian deliver any assets of the Fund to any such
person. No officer, director, employee or agent of the Custodian who
holds any similar position with the Fund or its investment adviser
shall have access to the assets of the Fund.
(b) Nothing in this Section shall prohibit any officer, employee or
agent of the Fund, or any officer, director, employee or agent of the
Fund's investment adviser, from giving Oral Instructions or Written
Instructions to the Custodian or executing a certificate so long as it
does not result in delivery of or access to assets of the Fund as
prohibited by paragraph (a) of this Section.
10. CONCERNING THE CUSTODIAN.
(a) STANDARD OF CONDUCT. Except as otherwise provided herein, neither
the Custodian nor its nominee shall be liable for any loss or damage,
including counsel fees, resulting from its action or omission to act
or otherwise, except for any such loss or damage arising out of its
own negligence, bad faith or willful misconduct. The Custodian may,
with respect to questions of law, apply for and obtain the advice and
opinion of counsel to the Fund (at the expense of the Fund) or of its
own counsel and shall be fully protected with respect to anything done
or omitted by it in good faith in conformity with such advice or
opinion. The Custodian shall be liable to the Fund for any loss or
damage resulting from the use of the Book-Entry System or the
Depository arising by reason of any negligence, misfeasance or
misconduct on the part of the Custodian or any of its employees or
agents.
(b) LIMIT OF DUTIES. Without limiting the generality of the foregoing,
the Custodian shall be under no duty or obligation to inquire into,
and shall not be liable for:
1. The validity of the issue of any Securities purchased by the
Fund, the legality of the purchase thereof, or the propriety of
the amount paid therefor;
2. The legality of the sale of any Securities by the Fund or the
propriety of the amount for which the same are sold;
3. The legality of the issue or sale of any Shares, or the
sufficiency of the amount to be received therefor;
4. The legality of the repurchase of any Shares, or the propriety
of the amount to be paid therefor;
5. The legality of the declaration or payment of any dividend or
other distribution of the Fund; or
6. The legality of any borrowing for temporary or emergency
administrative purposes.
(c) AMOUNTS DUE FROM TRANSFER AGENT. The Custodian shall not be under
any duty or obligation to take action to effect collection of any
amount due to the Fund from the Transfer Agent nor to take any action
to effect payment or distribution by the Transfer Agent of any amount
paid by the Custodian to the Transfer Agent in accordance with this
Agreement.
(d) COLLECTION WHERE PAYMENT REFUSED. The Custodian shall not be under
any duty or obligation to take action to effect collection of any
amount, if the Securities upon which such amount is payable are in
default, or if payment is refused after due demand or presentation,
unless and until (a) it shall be directed to take such action by
Written Instructions and (b) it shall be assured to its satisfaction
of reimbursement of its costs and expenses in connection with any such
action.
(e) APPOINTMENT OF SUB-CUSTODIANS. The Custodian may appoint one or
more qualified institutions, including but not limited to banking
institutions, to act as Depository or Depositories or as Sub-Custodian
or Sub-Custodians of Securities and monies at any time owned by the
Fund, upon terms and conditions specified in a Board Resolution, the
terms of which have been mutually agreed upon from time to time by the
Custodian and the Fund. The Custodian shall use reasonable care in
selecting any such Depository and/or Sub-Custodian and shall oversee
the maintenance of any Securities or monies of the Fund by the
Sub-Custodian. In addition, the Custodian may from time to time
appoint one or more of the institutions listed in Exhibit A hereto, or
such other institutions as may hereafter be approved by vote of the
Directors of the Fund, as foreign sub-custodians for the Fund's
securities located outside the United States, provided that any such
institution shall constitute an "Eligible Foreign Custodian" within
the meaning of Rule 17f-5 under the 1940 Act.
The Custodian shall maintain such records as shall be necessary
to identify the assets of the Fund held by any foreign sub-custodians.
The Custodian shall furnish to the Fund such periodic reports as the
Fund shall reasonably request with respect to the assets of the Fund
held by each foreign sub-custodian, and shall furnish to the Fund such
notices of transfers of securities, deposits or other assets to or
from the Fund's account by any foreign sub-custodian as the Fund shall
request.
The Custodian shall advise the Fund promptly if it learns that
any foreign agent or sub-custodian no longer constitutes an "Eligible
Foreign Custodian" and of any failure by any foreign sub-custodian to
observe any material term of its appointment.
The Custodian may authorize one or more of the foreign
sub-custodians to use the facilities of one or more foreign central
securities depositories or clearing agencies listed in Exhibit D
hereto, or as may hereafter be approved by vote of the Directors of
the Fund; provided that any such organization shall constitute an
"Eligible Foreign Custodian".
In the event that any foreign sub-custodian fails to perform any
of its obligations under the terms of its appointment, the Custodian
shall use its best efforts to cause such foreign sub-custodian to
perform such obligations. At the written request of the Fund, the
Custodian shall use its best efforts to assert and collect any claim
for liability for any loss or damage incurred by the Fund arising out
of the failure of any such subcustodian to perform such obligations.
(f) APPOINTMENT OF AGENTS. The Custodian may at any time or times in
its discretion appoint, and may at any time remove, any other bank or
trust company which is itself qualified under the 1940 Act to act as a
custodian, as its agent to carry out such of the provisions of this
Agreement as the Custodian may from time to time direct.
(g) NO DUTY TO ASCERTAIN AUTHORITY. The Custodian shall not be under
any duty or obligation to ascertain whether any Securities at any time
delivered to or held by it for the Fund are such as may properly be
held by the Fund under the provisions of its Charter and the
Prospectus.
(h) PAYMENTS TO THE CUSTODIAN. The Custodian may charge against any
money held by it for the account of the Fund any expenses incurred by
the Custodian in the performance of its duties pursuant to this
Agreement with respect to the Fund. The Custodian shall also be
entitled to charge against any money of the Fund held by it the amount
of any loss, damage, liability or expense incurred with respect to the
Fund including counsel fees, for which it shall be entitled to
reimbursement under the provisions of this Agreement.
(i) RELIANCE ON CERTIFICATES AND INSTRUCTIONS. The Custodian shall be
entitled to rely upon any certificate, notice or other instrument in
writing received by the Custodian and reasonably believed by the
Custodian to be genuine and to be signed by an Authorized Person. The
Custodian shall be entitled to rely upon any Written Instructions or
Oral Instructions actually received by the Custodian pursuant to the
applicable Sections of this Agreement and reasonably believed by the
Custodian to be genuine and to be given by an Authorized Person. The
Fund agrees to forward to the Custodian Written Instructions from an
Authorized Person confirming such Oral Instructions in such manner so
that such Written Instructions are received by the Custodian, whether
by hand delivery, telex or otherwise, by the close of business on the
same day that such Oral Instructions are given to the Custodian. The
Fund agrees that the fact that such confirming instructions are not
received by the Custodian shall in no way affect the validity of the
transactions or enforceability of the transactions hereby authorized
by the Fund. The Fund agrees that the Custodian shall incur no
liability to the Fund in acting upon Oral Instructions given to the
Custodian hereunder concerning such transactions, provided such
instructions reasonably appear to have been received from a duly
Authorized Person.
11. RECORDS. The Custodian shall create and maintain all records
relating to its activities and obligations under this Agreement in
such a manner as will meet the obligations of the Fund under the 1940
Act, with particular attention to Section 31 thereof, Rules 31a-1 and
31a-2 thereunder, applicable federal and state tax laws and any law or
administrative rules or procedures which may be applicable to the
Fund. All such records shall be the property of the Fund and shall at
all times during regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the
Fund and employees and agents of the Securities and Exchange
Commission.
12. OPINION OF FUND'S INDEPENDENT ACCOUNTANTS. The Custodian shall
take all reasonable action as the Fund may from time to time request,
to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to the activities hereunder in
connection with the preparation of Amendments to the Fund's
Registration Statement, and Form N-SAR or other annual reports to the
Securities and Exchange Commission, and with respect to any other
requirements of such Commission.
13. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS. The Custodian
shall provide the Fund with reports by independent public accountants
on the accounting system, internal accounting controls and procedures
for safeguarding Securities, including securities deposited and/or
maintained in a Depository or Book-Entry System, relating to the
services provided by the Custodian under this Agreement.
14. MISCELLANEOUS.
(a) Annexed hereto as Appendix A is a certification signed by the
Secretary or an Assistant Secretary of the Fund setting forth the
names and the signatures of the present Authorized Persons. The Fund
agrees to furnish to the Custodian a new certification in similar form
in the event that any such present Authorized Person ceases to be such
an Authorized Person or in the event that other or additional
Authorized Persons are elected or appointed. Until such new
certification shall be received, the Custodian shall be fully
protected in acting under the provisions of this Agreement upon Oral
Instructions or signatures of the present Authorized Persons as set
forth in the last delivered certification.
(b) Annexed hereto as Appendix B is a certification signed by the
Secretary or an Assistant Secretary of the Fund setting forth the
names and the signatures of the present officers of the Fund. The Fund
agrees to furnish to the Custodian a new certification in similar form
in the event any such present officer ceases to be an officer of the
Fund or in the event that other or additional officers are elected or
appointed. Until such new certification shall be received, the
Custodian shall be fully protected in acting under the provisions of
this Agreement upon the signature of the officer as set forth in the
last delivered certification.
(c) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Custodian, shall be sufficiently
given if addressed to the Custodian and mailed or delivered to it at
its offices at 31 St. James Avenue, Boston, Massachusetts 02116,
Attention: Mert Thompson, or at such other place as the Custodian may
from time to time designate in writing.
(d) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Fund, shall be sufficiently given
if addressed to the Fund and mailed or delivered to it at its offices
at 767 Fifth Avenue, New York, New York 10153, Attention: Daniel C.
Maclean, Esq., or at such other place as the Fund may from time to
time designate in writing.
(e) This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same
formality as this Agreement.
(f) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Fund
without the written consent of the Custodian, or by the Custodian
without the written consent of the Fund authorized or approved by a
resolution of the Board of Directors of the Fund, and any attempted
assignment without such written consent shall be null and void.
(g) This Agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts.
(h) This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original but such counterparts
shall, together, constitute only one agreement.
(i) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
15. TERMINATION OF AGREEMENT
(a) This Agreement shall become effective on the date hereof and shall
remain in force unless terminated pursuant to the provisions of
sub-section (b) of this Section 15.
(b) This Agreement may be terminated at any time without payment of
any penalty, upon 60 days, written notice, by vote of the holders of a
majority of the outstanding voting securities of the Fund, by vote of
a majority of the Board of Directors of the Fund, or by the Custodian.
In the event such notice is given by the Fund, it shall be accompanied
by a certified resolution of the Board of Directors of the Fund,
electing a successor custodian or custodians. In the event such notice
is given by the Custodian, the Fund shall, on or before the
termination date, deliver to the Custodian a certified resolution of
the Board of Directors of the Fund, designating a successor custodian
or custodians. In the absence of such designation, the Custodian may
designate a successor custodian which shall be qualified to so act
under the 1940 Act. If the Fund fails to designate a successor
custodian, upon the delivery by the Custodian of all Securities and
monies then owned by the Fund to a successor custodian designated by
the Custodian, the Custodian shall thereby be relieved of all duties
and responsibilities pursuant to this Agreement.
(c) Upon the date set forth in such notice under this Section 15, this
Agreement shall terminate to the extent specified in such notice, and
the Custodian shall upon receipt of a notice of acceptance by the
successor custodian on that date deliver directly to the successor
custodian all Securities and monies then held by the Custodian, after
deducting all fees, expenses and other amounts for the payment or
reimbursement of which it shall then be entitled.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their duly authorized officers as of the date
first set forth above.
DREYFUS STRATEGIC MUNICIPAL
BOND FUND, INC.
By:
--------------------------------
BOSTON SAFE DEPOSIT AND TRUST
COMPANY
By:
--------------------------------
<PAGE>
(b) This Agreement may be terminated at any time without payment of
any penalty, upon 60 days' written notice, by vote of the holders of a
majority of the outstanding voting securities of the Fund, by vote of
a majority of the Board of Directors of the Fund, or by the Custodian.
In the event such notice is given by the Fund, it shall be accompanied
by a certified resolution of the Board of Directors of the Fund,
electing a successor custodian or custodians. In the event such notice
is given by the Custodian, the Fund shall, on or before the
termination date, deliver to the Custodian a certified resolution of
the Board of Directors of the Fund, designating a successor custodian
or custodians. In the absence of such designation, the Custodian may
designate a successor custodian which shall be qualified to so act
under the 1940 Act. If the Fund fails to designate a successor
custodian, upon the delivery by the Custodian of all Securities and
monies then owned by the Fund to a successor custodian designated by
the Custodian, the Custodian shall thereby be relieved of all duties
and responsibilities pursuant to this Agreement.
(c) Upon the date set forth in such notice under this Section 15, this
Agreement shall terminate to the extent specified in such notice, and
the Custodian shall upon receipt of a notice of acceptance by the
successor custodian on that date deliver directly to the successor
custodian all Securities and monies then held by the Custodian, after
deducting all fees, expenses and other amounts for the payment or
reimbursement of which it shall then be entitled.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their duly authorized officers as of the date
first set forth above.
DREYFUS STRATEGIC MUNICIPAL
BOND FUND, INC.
By: /S/ RICHARD J. MOYNIHAN
---------------------------
BOSTON SAFE DEPOSIT AND TRUST
COMPANY
By: /S/ JEAN C. TEMPLE
----------------------------
Exhibit (K)
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made as of November 1, 1995, by and
between THE DREYFUS CORPORATION, a New York corporation ("Dreyfus"), and DREYFUS
STRATEGIC MUNICIPAL BOND FUND, INC., a Maryland corporation (the "Fund").
WHEREAS, the Fund is registered as a closed-end diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain Dreyfus to render certain
administration services to the Fund and Dreyfus is willing to render such
services;
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints Dreyfus to act as
Administrator of the Fund on the terms set forth in this Agreement. Dreyfus
accepts such appointment and agrees to render the services herein set forth for
the compensation herein provided.
2. DELIVERY OF DOCUMENTS. The Fund has furnished Dreyfus with copies
properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Directors authorizing the
appointment of Dreyfus to provide certain administration services to the Fund
and approving this Agreement;
(b) The Fund's Articles of Incorporation filed with the Maryland
Department of Assessments and Taxation on September 26, 1989 and all amendments
thereto (the "Articles");
(c) The Fund's By-Laws and all amendments thereto (the "By-Laws");
(d) The Investment Advisory Agreement between The Dreyfus Corporation
(the "Adviser" for purposed herein) and the Fund dated as of November 2, 1989
(the "Advisory Agreement");
(e) The Custodian Agreement between Boston Safe Deposit and Trust
Company (the "Custodian") and the Fund dated as of November 2, 1989 (the
"Custodian Agreement");
(f) The Transfer Agency Agreement between The Shareholder Services
Group, Inc. (the "Transfer Agent") and the Fund dated as of November 2, 1989;
(g) The Fund's most recent Registration Statement on Form N-2 (the
"Resistration Statement") under the Securities Act of 1933 and under the 1940
Act (File Nos. 33-31248 and 811-5877). as filed with the SEC on October 26, 1989
relating to shares of the Fund's Common Stock, $.001 par value (the "Shares"),
and all amendments thereto; and
(h) The Fund's most recent prospectus (the "Prospectus").
The Fund will furnish Dreyfus from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing. Furthermore, the Fund will provide Dreyfus any other documents that
Dreyfus may reasonably request and will notify Dreyfus as soon as possible of
any matter materially affecting the performance of Dreyfus of its services under
this Agreement.
3. DUTIES AS ADMINISTRATOR. Subject to the supervision and direction
of the Board of Directors of the Fund, Dreyfus, as Administrator, will assist in
supervising various aspects of the Fund's administrative operations and
undertakes to perform the following specific services:
(a) Maintaining office facilities (which may be in the offices of
Dreyfus or a corporate affiliate);
(b) Furnishing statistical and research data, data processing
services, clerical services, and internal executive and administrative services
and stationery and office supplies in connection with the foregoing;
(c) Accounting and bookkeeping services (including the maintenance of
such accounts, books and records of the Fund as may be required by Section 31(a)
of the 1940 Act and the rule thereunder);
(d) Internal auditing;
(e) Valuing the Fund's assets and calculating the net asset value of
the shares of the Fund at the close of trading on the New York Stock Exchange on
the last day on which the NYSE is open for trading of each week and month.
(f) Accumulating information for and, subject to approval by the
Fund's Treasurer, preparing reports to the Fund's shareholders of record and the
SEC including. but not necessarily limited to, Annual Reports and Semi-Annual
Reports on Form N-SAR;
(g) Preparing and filing various reports or other documents required
by Federal, state and other applicable laws and regulations and by stock
exchanges on which the shares of the Fund are listed, other than those filed or
required to be filed by the Fund's Adviser or Transfer Agent;
(h) Preparing and filing the Fund's tax returns;
(i) Assisting in the monitoring and development of compliance
procedures to assist the Adviser in monitoring compliance with the Fund's
investment objectives, policies, restrictions, tax matters and applicable laws
and regulations; and
(j) Preparing and furnishing the Fund (at the Fund's request) with
performance information (including yield and total return information)
calculated in accordance with applicable U.S. securities laws and reporting to
external databases such information as may reasonably be requested.
In performing all services under this Agreement, Dreyfus shall act in
conformity with Fund's Articles of Incorporation and By-Laws; the 1940 Act and
the Investment Advisers Act of 1940, as the same may from time to time be
amended; and the investment objectives, investment policies and other practices
and policies set forth in the Fund's Registration Statement as such Registration
Statement and practices and policies may be amended from time to time.
4. ALLOCATION OF EXPENSES. Dreyfus shall bear all expenses in
connection with the' performance of its services under this Agreement.
(a) Dreyfus will from time to time employ or associate with itself
such person or persons as Dreyfus may believe to be particularly suited to
assist it in performing services under this Agreement. Such person or persons
may be officers and employees who are employed by both Dreyfus and the Fund. The
compensation of such person or persons shall be paid by Dreyfus and no
obligation shall be incurred on behalf of the Fund in such respect.
(b) Dreyfus shall not be required to pay any of the following expenses
incurred by the Fund: custodial expenses; membership dues in the Investment
Company Institute or any similar organization; transfer agency expenses;
investment advisory expenses; costs of printing and mailing stock certificates,
prospectuses, reports and notices; interest on borrowed money; brokerage
commissions; taxes and fees payable to Federal, state and other governmental
agencies; fees of Directors of the Fund who are not affiliated with Dreyfus;
outside auditing expenses; outside legal expenses; or other expenses not
specified in this Article 4 which may be properly payable by the Fund.
(c) For the services to be rendered, the facilities to be furnished
and the payments to be made by Dreyfus, as provided for in this Agreement,
Dreyfus shall be compensated by the Fund pursuant to an amended Fee Agreement
among the Fund, Dreyfus, Boston Safe Deposit and Trust Company and The
Shareholder Services Group, Inc., dated as of November 1, 1995.
(d) The Fund will compensate Dreyfus for its services rendered
pursuant to this Agreement in accordance with the fees set forth above. Such
fees do not include out-of-pocket disbursements of the Administrator for which
the Administrator shall be entitled to bill separately. Out-of-pocket
disbursements shall include, but shall not be limited to, the items specified in
Schedule A, annexed hereto and incorporated herein, which schedule may be
modified by the Administrator upon not less than thirty days' prior written
notice to the Fund.
(e) Dreyfus will bill the Fund as soon as practicable after the end of
each calendar month, and said billings will be detailed in accordance with the
out-of-pocket schedule. The Fund will promptly pay to Dreyfus the amount of such
billing.
5. LIMITATION OF LIABILITY. Dreyfus shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of its obligations and duties under this Agreement, except
a loss resulting from Dreyfus' willful misfeasance, bad faith or gross
negligence in the performance of such obligations and duties, or by reason of
its reckless disregard thereof. The Fund will indemnify Dreyfus against and hold
it harmless from any and all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) resulting from any claim,
demand, action or suit not resulting from the willful misfeasance, bad faith or
gross negligence of Dreyfus in the performance of such obligations and duties.
6. TERMINATION OF AGREEMENT.
(a) This Agreement shall become effective on the date hereof and shall
remain in force unless terminated pursuant to the provisions of subsection (b)
of this Section 6.
(b) This Agreement may be terminated at any time without payment of
any penalty, upon 60 days' written notice, by vote of the holders of a majority
of the outstanding voting securities of the Fund, or by vote of a majority of
the Board of Directors of the Fund, or by Dreyfus.
7. AMENDMENT TO THIS AGREEMENT. No provision of this Agreement may be
changed, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, discharge or
termination is sought.
8. MISCELLANEOUS.
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or Dreyfus shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
Dreyfus Strategic Municipal Bond Fund, Inc.
200 Park Avenue
New York, New York 10166
Attention: Daniel C. Maclean, Esq.
To Dreyfus:
The Dreyfus Corporation, Inc.
200 Park Avenue
New York, New York 10166
Attention: Jeffrey Nachman
(b) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable without the written consent of the
other party.
(c) This Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts.
(d) This Agreement may be executed in any number of counterparts each
of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed and delivered by their duly authorized officers as of the date,
first written above.
THE DREYFUS CORPORATION
By:
----------------------------
DREYFUS STRATEGIC MUNICIPAL BOND
FUND, INC.
By: /S/ ELIZABETH BACHMAN
------------------------------
<PAGE>
EXHIBIT A
DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
Out-of-Pocket Expenses
Administration Agreement
I. Out-of-pocket expenses include, but are not limited to, the following:
- Postage
- Telephone
- Telecommunications charges
- Duplicating
- Pricing services
- Forms and supplies
- Travel
<PAGE>
EXHIBIT (L)
STROOCK & STROOCK & LAVAN LLP
180 MAIDEN LANE
NEW YORK, NEW YORK 10038-4982
September 21, 1999
Dreyfus Strategic Municipal Bond Fund, Inc.
200 Park Avenue
New York, New York 10166
Ladies and Gentlemen:
We have acted as counsel to Dreyfus Strategic Municipal Bond Fund, Inc. (the
"Fund") in connection with the preparation of a Registration Statement on Form
N-2, Registration No. 333-84123 (the "Registration Statement"), covering shares
of preferred stock designated "Auction Preferred Stock, Series A," "Auction
Preferred Stock Series B," and "Auction Preferred Stock, Series C," each with a
par value of $.001 and a liquidation preference of $25,000 (collectively, the
"APS").
We have examined copies of the Charter and By-Laws of the Fund, the Registration
Statement, the form of Articles Supplementary relating to the APS (the "Articles
Supplementary") filed as an exhibit to the Registration Statement, and such
other documents, records, papers, statutes and authorities as we deemed
necessary to form a basis for the opinion hereinafter expressed. In our
examination of such material, we have assumed the genuineness of all signatures
and the conformity to original documents of all copies submitted to us. As to
various questions of fact material to such opinion, we have relied upon
statements and certificates of officers and representatives of the Fund and
others.
Attorneys involved in the preparation of this opinion are admitted only to the
bar of the State of New York. As to various questions arising under the laws of
the State of Maryland, we have relied on the opinion of Venable, Baetjer and
Howard, LLP, a copy of which is attached hereto. Qualifications set forth in
their opinion are deemed incorporated herein.
Based upon the foregoing, we are of the opinion that when the Articles
Supplementary have been filed with the Maryland State Department of Assessments
and Taxation, the shares of APS to be offered for sale pursuant to the
Prospectus will have been duly authorized and, when sold, issued and paid for as
contemplated by the Prospectus and authorized by the Board of Directors of the
Fund, will have been validly and legally issued and will be fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus included in
the Registration Statement. In giving such permission, we do not admit hereby
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
STROOCK & STROOCK & LAVAN LLP
<PAGE>
VENABLE, BAETJER AND HOWARD, LLP
TWO HOPKINS PLAZA, SUITE 1800
BALTIMORE, MARYLAND 21201-2978
September 21, 1999
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
RE: DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
Ladies and Gentlemen:
We have acted as special Maryland counsel for Dreyfus Strategic Municipal Bond
Fund, Inc., a Maryland corporation (the "Fund"), in connection with its offering
of 2,480 shares of preferred stock designated "Auction Preferred Stock, Series
A," 2,480 shares of "Auction Preferred Stock, Series B" and 2,480 shares of
preferred stock designated "Auction Preferred Stock, Series C," each with a par
value of $.001 and a liquidation preference of $25,000 (collectively, the
"APS").
As Maryland special counsel for the Fund, we are familiar with its Charter
and Bylaws. We have examined the prospectus included in its Registration
Statement on Form N-2 with respect to the APS (Securities Act Registration File
No. 333-84123, Investment Company Act File No. 811-05877) (the "Registration
Statement"), substantially in the form in which it is to become effective (the
"Prospectus"). We are also familiar with the form of Articles Supplementary
relating to the APS (the "Articles Supplementary") that have been filed as an
exhibit to the Registration Statement. We have further examined and relied upon
a certificate of the Maryland State Department of Assessments and Taxation
("SDAT") to the effect that the Fund is duly incorporated and existing under the
laws of the State of Maryland and is in good standing and duly authorized to
transact business in the State of Maryland.
We have also examined and relied on such other corporate records of the
Fund and documents and certificates with respect to factual matters as we have
deemed necessary to render the opinion expressed herein. We have assumed,
without independent verification, the genuineness of all signatures on documents
submitted to us, the authenticity of all documents submitted to us as originals,
and the conformity with originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion that when the Pricing
Committee of the Board of Directors has determined the Initial Dividend Rates,
Initial Dividend Payment Dates, and Initial Dividend Periods for the APS, all as
defined in the Articles Supplementary, pursuant to authority delegated to it by
the Board of Directors, and the Articles Supplementary have been filed with
SDAT, the shares of APS to be offered for sale pursuant to the Prospectus will
have been duly authorized and, when thereafter, sold, issued and paid for as
contemplated by the Prospectus, will have been validly and legally issued and
will be fully paid and nonassessable.
This letter expresses our opinion with respect to the Maryland General
Corporation Law governing matters such as due organization and the authorization
and issuance of stock. It does not extend to the securities or "Blue Sky" laws
of Maryland, to federal securities laws or to other laws.
You may rely on this opinion in rendering your opinion to the Fund that is
to be filed as an exhibit to the Registration Statement. We consent to the
filing of this opinion as an exhibit to the Registration Statement. We do not
thereby admit that we are "experts" within the meaning of the Securities Act of
1933 and the rules and regulations thereunder. This opinion may not be relied
upon for any other purpose or by any other person without our prior written
consent.
Very truly yours,
VENABLE, BAETJER AND HOWARD, LLP
EXHIBIT (S)
RESOLVED, that the Registration Statement and any and all amendments
thereto may be signed by any one of Margaret W. Chambers, Stephanie D.
Pierce, Douglas C. Conroy, Christopher J. Kelley, Kathleen K. Morrisey or
Elba Vasquez, as the attorney-in-fact for the proper officers of the Fund,
with full power of substitution and resubstitution; and that the
appointment of each such person as such attorney-in-fact hereby is
authorized and approved; and that such attorneys-in-fact, and each of them,
shall have full power and authority to do and perform each and every act
and thing requisite and necessary to be done in connection with such
Registration Statement and any and all amendments and supplements thereto,
as fully to all intents and purposes as the officer for whom he or she is
acting as attorney-in-fact, might or could do in person; and it was further
* * * * * * * * * * * * * * *
POWER OF ATTORNEY
The undersigned hereby constitute and appoint Margaret W. Chambers,
Stephanie D. Pierce, Douglas C. Conroy, Christopher J. Kelley, Kathleen K.
Morrisey and Elba Vasquez, and each of them, with full power to act without the
other, his or her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him or her, and in his or her name, place
and stead, in any and all capacities (until revoked in writing) to sign any and
all amendments to the Registration Statement of the Fund (including
post-effective amendments and amendments thereto), and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his or her substitutes, may lawfully do or
cause to be done by virtue thereof.
/s/ JOSEPH S. DIMARTINO
- ----------------------------- July 1, 1999
Joseph S. DiMartino
/s/ DAVID W. BURKE
- ----------------------------- July 1, 1999
David W. Burke
/s/ HODDING CARTER, II
- ----------------------------- July 1, 1999
Hodding Carter II
/s/ EHUD HOUMINER
- ----------------------------- July 1, 1999
Ehud Houminer
/s/ RICHARD C. LEONE
- ----------------------------- July 1, 1999
Richard C. Leone
/s/ HANS C. MAUTNER
- ----------------------------- July 1, 1999
Hans C. Mautner
/s/ ROBIN A. PRINGLE
- ----------------------------- August 21, 1999
Robin A. Pringle
/s/ JOHN E. ZUCCOTTI
- ----------------------------- July 1, 1999
John E. Zuccotti
