<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 1999
1933 ACT FILE NO. 333-77365
1940 ACT FILE NO. 811-06040
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
(Check appropriate box or boxes)
[ ] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] PRE-EFFECTIVE AMENDMENT NO. 7
[ ] POST-EFFECTIVE AMENDMENT NO.
AND/OR
[ ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] AMENDMENT NO. 15
NUVEEN
MUNICIPAL MARKET OPPORTUNITY FUND, INC.
Enter Name of Registrant as Specified in Charter
333 WEST WACKER DRIVE, CHICAGO, ILLINOIS 60606
Address of Principal Executive Offices (Number, Street, City, State and Zip
Code)
(312) 917-7700
Registrant's Telephone Number, including Area Code
GIFFORD R. ZIMMERMAN, ESQ.-VICE PRESIDENT AND SECRETARY
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
Name and Address (Number, Street, City, State and Zip Code) of Agent for Service
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
Thomas S. Harman Gary S. Schpero
Morgan, Lewis & Bockius LLP Simpson Thacher & Bartlett
1800 M Street, N.W. 425 Lexington Avenue
Washington, DC 20036 New York, NY 10017
</TABLE>
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this Registration Statement
If any of the securities being registered on this Form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Auction Rate Cumulative
Preferred Stock Series W....... 3,200 shares $25,000 $80,000,000 $22,240
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATES AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
The undersigned registrant hereby undertakes that: (1) For purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(I) or (4) or 497(b) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective. (2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
NUVEEN MUNICIPAL MARKET OPPORTUNITY FUND, INC.
CROSS REFERENCE SHEET
PART A -- PROSPECTUS
<TABLE>
<CAPTION>
ITEMS IN PART A OF FORM N-2 LOCATION IN PROSPECTUS
--------------------------- ----------------------
<C> <S> <C>
Item 1. Outside Front Cover Cover Page
Item 2. Inside Front and Outside Back Cover Page Inapplicable
Item 3. Fee Table and Synopsis Inapplicable
Item 4. Financial Highlights Financial Highlights
Item 5. Plan of Distribution Cover Page; Prospectus Summary; The
Auction; Underwriting
Item 6. Selling Shareholders Inapplicable
Item 7. Use of Proceeds Use of Proceeds; Investment Objectives
and Policies
Item 8. General Description of the Registrant Cover Page; Prospectus Summary; The
Fund; Investment Objective and Policies;
Description of MuniPreferred; Common
Stock
Item 9. Management Prospectus Summary; Management of the
Fund; Other Service Providers
Item 10. Capital Stock, Long-Term Debt, and Other
Securities Capitalization; Investment Objectives
and Policies; Description of
MuniPreferred; The Auction; Common
Stock; Control of the Fund; Tax Matters
Item 11. Defaults and Arrears on Senior
Securities Inapplicable
Item 12. Legal Proceedings Legal Proceedings
Item 13. Table of Contents of the Statement of
Additional Information Table of Contents for the Statement of
Additional Information
</TABLE>
PART B -- STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
LOCATION IN DOCUMENT OF
ITEMS IN PART B OF FORM N-2 ADDITIONAL INFORMATION
--------------------------- -----------------------
<C> <S> <C>
Item 14. Cover Page Cover Page
Item 15. Table of Contents Cover Page
Item 16. General Information and History Inapplicable
Item 17. Investment Objective and Policies Investment Objectives and Policies;
Certain Trading Strategies of the Fund;
Portfolio Transactions
Item 18. Management Management of the Fund; Portfolio
Transactions
Item 19. Control Persons and Principal Holders of
Securities Management of the Fund; Certain Owners
of Record
Item 20. Investment Advisory and Other Services Management of the Fund; Experts
Item 21. Brokerage Allocation and Other Practices Portfolio Transactions
Item 22. Tax Status Tax Matters
Item 23. Financial Statements
</TABLE>
PART C -- OTHER INFORMATION
Items 24-33 have been answered in Part C of this Registration Statement.
<PAGE> 3
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 29, 1999
PROSPECTUS
NUVEEN MUNICIPAL MARKET OPPORTUNITY FUND, INC.
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK ("MUNIPREFERRED(R)")
3,200 SHARES SERIES W
LIQUIDATION PREFERENCE $25,000 PER SHARE
---------------------
This Prospectus Part A may not be distributed unless accompanied by the Part
B of the Nuveen Exchange-Traded Funds MuniPreferred Prospectus, to which any
reference in this Part A applies. This Prospectus sets out the information that
a prospective investor should know before investing in the Fund. You should
retain both Parts of the Prospectus for future reference. INVESTING IN
MUNIPREFERRED SHARES INVOLVES CERTAIN RISKS, WHICH ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE B-5 OF THIS PROSPECTUS.
Nuveen Municipal Market Opportunity Fund, Inc. (the "Fund") is a closed-end,
diversified management investment company. The Fund's primary investment
objective is current income exempt from regular Federal income tax. The Fund's
secondary investment objective is to enhance portfolio value relative to the
municipal bond market by investing in tax-exempt municipal bonds that, in the
opinion of the Fund's investment adviser, are underrated or undervalued or that
represent municipal market sectors that are undervalued. The Fund seeks to
achieve its investment objectives by investing substantially all of its assets
(more than 80%) in a diversified portfolio of tax-exempt municipal bonds rated
within the four highest grades (Baa or BBB or better) by Moody's or Standard &
Poor's, except that the Fund may invest up to 20% of its assets in unrated
municipal bonds that, in the opinion of the Fund's adviser, are of comparable
quality to those so rated. There is no assurance that the Fund will achieve its
objectives.
Dividends paid to MuniPreferred shareholders, to the extent payable from
tax-exempt income earned on the Fund's investments, will be exempt from regular
Federal income tax. All or a portion of the Fund's exempt-interest dividends may
be subject to the alternative minimum tax and therefore MuniPreferred shares may
not be suitable for persons subject to this tax. The Fund is required to
allocate net capital gains and other taxable income, if any, proportionately
between common shares and MuniPreferred shares, based on the percentage of total
dividends distributed to each class for that year. The Fund, in the case of the
ordinary seven-day rate periods or special rate periods of no more than 28 days,
will give notice of taxable income to be included in a dividend on MuniPreferred
shares in advance of the auction for these shares, and may give advance notice
to MuniPreferred shareholders during longer rate periods. Under certain
circumstances the Fund will be required to make shareholders whole for taxes
owing on dividends paid to shareholders that include taxable income and gain.
The amount of taxable income and gain allocated to MuniPreferred shares will
depend on the amount of taxable income and gain the Fund realizes.
The Fund's principal office is located at 333 West Wacker Drive, Chicago,
Illinois 60606, and its telephone number is (800) 257-8787. A Statement of
Additional Information dated has been filed with the Securities and
Exchange Commission and is incorporated by reference in its entirety into this
Prospectus. You may receive a copy of the Statement of Additional Information,
the table of contents of which appears at page B-28 of this Prospectus, at no
charge by calling the Fund at (800) 257-8787. The Securities and Exchange
Commission maintains a web site (http://www.sec.gov) that contains the Statement
of Additional Information, other documents incorporated by reference, and other
information the Fund has filed electronically with the Commission, including
proxy statements and reports filed under the Securities Exchange Act of 1934.
This Prospectus (comprised of Parts A and B) does not contain all of the
information in the Fund's registration statement, including amendments,
exhibits, and schedules. Statements in this Prospectus about the contents of any
contract or other document are not necessarily complete and in each instance
reference is made to the copy of the contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by this reference.
The Fund is offering the shares of MuniPreferred, Series W, listed above.
The shares are referred to in this Prospectus as "New MuniPreferred." Except as
otherwise described in this Prospectus, the terms of this offering and all other
series of MuniPreferred the Fund previously offered are the same. The dividend
rate for the initial rate period (the period from the date of issue through
, 1999) will be %. For subsequent rate periods, MuniPreferred shares
pay dividends based on a rate set at auction, usually held weekly. Prospective
purchasers should carefully review the auction procedures described beginning at
Page B-18 of this Prospectus and should note: (1) a buy order (called a "bid
order") or sell order is a commitment to buy or sell MuniPreferred shares based
on the results of an auction; (2) auctions will be conducted by telephone; and
(3) purchases and sales will be settled on the next business day after the
auction. MuniPreferred shares are not listed on an exchange. You may only buy or
sell MuniPreferred shares through an order placed at an auction with or through
a broker-dealer that has entered into an agreement with the auction agent and
the Fund, or in a secondary market maintained by certain broker-dealers. These
broker-dealers are not required to maintain this market and it may not provide
you with liquidity.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
(R) Registered Trademark of John Nuveen & Co. Incorporated
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------------- ----------------
<S> <C> <C>
Public Offering Price $ 25,000 $ 80,000,000
---------------- ----------------
Sales Load $ $
---------------- ----------------
Proceeds to Fund (before expenses) $ $
================ ================
</TABLE>
The public offering price per share will be increased by the amount of
dividends, if any, that have accumulated from the date the New MuniPreferred
shares are first issued.
---------------------
The underwriters are offering the shares of the New MuniPreferred subject to
various conditions. It is expected that the shares of New MuniPreferred will be
delivered to the underwriters through the facilities of The Depository Trust
Company on or about , 1999.
---------------------
SALOMON SMITH BARNEY
A.G. EDWARDS & SONS, INC.
BT ALEX. BROWN
GOLDMAN, SACHS & CO.
JOHN NUVEEN & CO. INCORPORATED
LEGG MASON WOOD WALKER
INCORPORATED
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES
RAYMOND JAMES & ASSOCIATES, INC.
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
NEITHER THE FUND NOR THE UNDERWRITERS HAVE AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. THE FUND IS NOT MAKING AN OFFER OF THESE SECURITIES IN
ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION PROVIDED BY THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE ON THE FRONT OF THIS PROSPECTUS.
<PAGE> 5
PROSPECTUS SUMMARY
The following information is a summary of more detailed information
included in Parts A and B of this Prospectus and the Fund's Statement of
Additional Information.
THE FUND AND ITS ADVISER
Nuveen Municipal Market Opportunity Fund, Inc. (the "Fund") is a
closed-end, diversified management investment company. Nuveen Advisory Corp.
("Nuveen Advisory") is the Fund's investment adviser. Nuveen Advisory is
responsible for the selection and on-going monitoring of the Fund's investment
portfolio. As of March 31, 1999 the Fund had 45,319,832 shares of common stock
outstanding, and 12,000 MuniPreferred shares outstanding.
THE OFFERING
The Fund is offering 3,200 shares of New MuniPreferred. The purchase price
for this series is $25,000 per share.
INVESTMENT OBJECTIVES
The Fund's primary investment objective is current income exempt from
regular Federal income tax. The Fund's secondary investment objective is to
enhance portfolio value relative to the municipal bond market by investing in
tax-exempt municipal bonds that, in the opinion of Nuveen Advisory, are
underrated or undervalued. The Fund seeks to achieve its investment objectives
by investing substantially all of its assets (more than 80%) in a diversified
portfolio of tax-exempt municipal bonds rated at the time of purchase within the
four highest grades (Baa or BBB or better) by Moody's Investors Service, Inc.
("Moody's") or Standard and Poor's Corporation ("Standard & Poor's"), except
that the Fund may invest up to 20% of its assets in unrated municipal bonds
that, in Nuveen Advisory's opinion, have credit characteristics equivalent to,
and are of comparable quality to, municipal bonds rated Baa or BBB or better.
There is no assurance that the Fund will achieve its investment objectives. See
"Investment Objectives and Policies."
RISK FACTORS
Risk is inherent in all investing. Therefore, before investing you should
consider certain risks carefully when you invest in the Fund. See "Risk Factors"
at Page B-5 of this Prospectus. The primary risks of investing in MuniPreferred
shares are: 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 MuniPreferred shares, 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; a rating agency
could downgrade MuniPreferred shares, which could affect liquidity; the Fund may
be forced to redeem your shares to meet regulatory or rating agency requirements
or may voluntarily redeem your shares under certain circumstances; and in
extraordinary circumstances the Fund may not earn sufficient income from its
investments to pay dividends.
TRADING MARKET
MuniPreferred shares are not listed on an exchange. Instead, you may buy or
sell MuniPreferred shares at an auction that normally is held weekly, by
submitting orders to a broker-dealer that has entered into an agreement with the
auction agent and the Fund (a "Broker-Dealer"), or to a broker-dealer that has
entered into a separate agreement with a Broker-Dealer. In addition to the
auctions, Broker-Dealers and other broker-dealers may maintain a secondary
trading market in MuniPreferred shares outside of auctions, but may discontinue
this activity at any time. There is no assurance that a secondary market will
provide shareholders with liquidity. You may transfer shares outside of auctions
only to or through a Broker-Dealer, a broker-dealer that has entered into a
separate agreement with a Broker-Dealer, or other persons as the Fund permits.
See "The Auction -- Secondary Market" at Page B-25 of this Prospectus. New
MuniPreferred will trade at auction starting in the week following this
offering.
A-1
<PAGE> 6
The first auction date for New MuniPreferred will be Wednesday, ,
1999, the business day before the dividend payment date for the initial rate
period for New MuniPreferred. The auction date for New MuniPreferred shares
normally will be a Wednesday, and the start date for subsequent rate periods
normally will be the following business day, typically a Thursday, unless the
then-current rate period is a special rate period, or the day that normally
would be the auction date or the first day of the subsequent rate period is not
a business day.
DIVIDENDS AND RATE PERIODS
The dividend rate for the initial rate period on the shares offered in this
Prospectus will be %. For subsequent rate periods, New MuniPreferred shares
will pay dividends based on a rate set at these auctions, normally held weekly.
In most instances, dividends are also paid weekly, on the day following the end
of the rate period. The rate set at auction will not exceed the Maximum Rate.
See "Description of MuniPreferred -- Dividends and Rate Periods -- Maximum Rate"
at Page B-12 of this Prospectus.
Dividends on New MuniPreferred shares will accumulate at the initial rate
beginning on Thursday, , 1999. Dividends will be paid on shares of
New MuniPreferred on Thursday, and normally thereafter on each
Thursday. If the Thursday on which dividends otherwise would be paid is not a
business day, then your dividends will be paid on the first business day that
falls before that Thursday.
The initial rate period will be seven days. Subsequent rate periods
generally will be seven days. If the Fund designates a special rate period of
14, 21, or 28 days, the dividend payment date will be the second, third, or
fourth Thursday (if it is a business day), respectively, after the first day of
the special rate period. The dividend payment date for a special rate period of
more than 28 days will be set out in the notice designating a special rate
period. See "Description of MuniPreferred -- Dividends and Rate
Periods -- Designation of Special Rate Periods" at Page B-12 of this Prospectus.
TAXATION
Because under normal circumstances the Fund will invest substantially all
of its assets in municipal bonds that pay interest exempt from regular Federal
income tax, the income you receive will be similarly exempt. Your income may be
subject to state and local taxes. All or a portion of the income from these
bonds will be subject to the Federal alternative minimum tax, so MuniPreferred
shares may not be a suitable investment if you are subject to this tax. Taxable
income or gain earned by the Fund will be allocated proportionately to holders
of MuniPreferred shares and common shares, based on the percentage of total
dividends paid to each class for that year. Accordingly, certain specified
MuniPreferred dividends may be subject to income tax on income or gains
attributed to the Fund. The Fund intends to notify shareholders, before any
applicable auction for a rate period of 28 days or less, of the amount of any
taxable income and gain to be paid for the period relating to that auction. For
longer rate periods, the Fund may notify shareholders. Under certain
circumstances, the Fund will make shareholders whole for taxes owing on
dividends paid to shareholders that include taxable income and gain. See "Tax
Matters" at Page B-25 of this Prospectus.
RATINGS
Shares of each series of MuniPreferred are issued with a rating of "Aaa"
from Moody's Investors Service, Inc. ("Moody's") and "AAA" from Standard &
Poor's Corporation ("Standard & Poor's"). Because the Fund is required to
maintain at least one of these ratings, it must own portfolio securities of a
sufficient value and with adequate credit quality to meet the rating agencies'
guidelines. See "Description of MuniPreferred -- Asset Maintenance and Rating
Agency Guidelines -- Rating Agencies" at Page B-16 of this Prospectus.
REDEMPTION
Although the Fund does not ordinarily redeem MuniPreferred shares, it may
be required to redeem shares if, for example, the Fund does not meet an asset
coverage ratio required by law or correct a failure to meet a rating agency
guideline in a timely manner. The Fund voluntarily may redeem MuniPreferred
shares under certain conditions. See "Description of
MuniPreferred -- Redemption" and "Description of
A-2
<PAGE> 7
MuniPreferred -- Asset Maintenance and Rating Agency Guidelines -- Rating
Agencies" at Pages B-14 and B-16 of this Prospectus.
LIQUIDATION PREFERENCE
The liquidation preference of New MuniPreferred shares will be $25,000 per
share plus any accumulated, unpaid dividends.
FINANCIAL HIGHLIGHTS
The table below shows financial information for the Fund, expressed in
terms of one share outstanding throughout the period. The information in the
table is covered by the report of Ernst & Young LLP except where noted. The
report is contained in the Statement of Additional Information and is available
from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED 10/31
------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value beginning of
period............................. $ 15.85 $ 15.66 $ 15.77 $ 14.69 $ 16.58 $ 15.37 $ 15.16
---------- ---------- ---------- ---------- -------- ---------- --------
Operating performance:
Net investment income.............. 1.25 1.29 1.30 1.33 1.33 1.39 1.42
Net realized & unrealized gain
(loss) from investments.......... .15 .20 (.10) 1.12 (1.81) 1.28 .17
---------- ---------- ---------- ---------- -------- ---------- --------
Total from investment operations.... 1.40 1.49 1.20 2.45 (.48) 2.67 1.59
---------- ---------- ---------- ---------- -------- ---------- --------
Dividends from net investment
income:
To Common shareholders............. (1.01) (1.04) (1.05) (1.09) (1.13) (1.23) (1.14)
To Preferred shareholders#......... (.24) (.26) (.26) (.28) (.23) (.21) (.23)
Distributions from capital gains:
To Common shareholders............. (.03) -- -- -- (.04) (.02) (.01)
To Preferred shareholders#......... (.01) -- -- -- (.01) -- --
---------- ---------- ---------- ---------- -------- ---------- --------
Total distributions.......... (1.29) (1.30) (1.31) (1.37) (1.41) (1.46) (1.38)
---------- ---------- ---------- ---------- -------- ---------- --------
Organization and offering costs and
preferred share underwriting
discounts.......................... -- -- -- -- -- -- --
---------- ---------- ---------- ---------- -------- ---------- --------
Net asset value end of period....... $ 15.96 $ 15.85 $ 15.66 $ 15.77 $ 14.69 $ 16.58 $ 15.37
========== ========== ========== ========== ======== ========== ========
Per Common share market value end of
period............................. $ 15.9375 $ 16.1250 $ 15.2500 $ 15.0000 $13.2500 $ 17.2500 $15.3750
Total investment return on market
value**............................ 5.40% 13.01% 8.82% 21.98% (17.27)% 20.86% 3.17%
Total return on net asset value**... 7.45% 8.12% 6.15% 15.30% (4.57)% 16.53% 9.24%
Ratios/Supplemental data:
Net assets end of period (in
thousands)....................... $1,021,207 $1,011,202 $1,000,987 $1,005,798 $957,443 $1,037,592 $975,368
Ratio of expenses to average net
assets##......................... .77% .77% .77% .76% .78% .76% .74%
Ratio of net investment income to
average net assets##............. 5.55% 5.78% 5.81% 6.04% 5.96% 6.05% 6.40%
Portfolio turnover rate............ 13% 20% 19% 13% 18% 13% 5%
<CAPTION>
YEAR ENDED 10/31
-------------------
1991 1990+
-------- --------
<S> <C> <C>
Net asset value beginning of
period............................. $ 13.98 14.05
-------- --------
Operating performance:
Net investment income.............. 1.44 .72
Net realized & unrealized gain
(loss) from investments.......... 1.18 .03
-------- --------
Total from investment operations.... 2.62 .75
-------- --------
Dividends from net investment
income:
To Common shareholders............. (1.10) (.45)
To Preferred shareholders#......... (.34) (.18)
Distributions from capital gains:
To Common shareholders............. -- --
To Preferred shareholders#......... -- --
-------- --------
Total distributions.......... (1.44) (.63)
-------- --------
Organization and offering costs and
preferred share underwriting
discounts.......................... -- (.19)
-------- --------
Net asset value end of period....... $ 15.16 $ 13.98
======== ========
Per Common share market value end of
period............................. $ 16.000 $13.7500
Total investment return on market
value**............................ 25.17% (5.43)%
Total return on net asset value**... 16.98% 2.74%
Ratios/Supplemental data:
Net assets end of period (in
thousands)....................... $958,781 $901,754
Ratio of expenses to average net
assets##......................... .75% .73%*
Ratio of net investment income to
average net assets##............. 6.70% 6.31%*
Portfolio turnover rate............ 7% 1%
</TABLE>
- ---------------
* Annualized.
** Total investment return on market value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and changes
in stock price per share. Total return on net asset value is the combination
of reinvested dividend income, reinvested capital gains, if any, and changes
in net asset value per share.
# The amounts shown are based on common share equivalents.
## Ratios do not reflect the effect of dividend payments to Preferred
shareholders.
+ For the period March 21, 1990 to October 31, 1990.
A-3
<PAGE> 8
THE FUND
The Fund is a closed-end, diversified management investment company
registered under the Investment Company Act of 1940 (the "1940 Act"). The Fund
was organized as a Minnesota corporation on January 23, 1990, and may issue up
to 1 million shares of MuniPreferred and up to 200 million shares of common
stock. In April 1990, the Fund issued 42,963,400 shares of common stock. In May
1990, the Fund issued 6,000 shares of MuniPreferred stock in three offerings
(2,000 shares each of Series M, T, and F). On January 6, 1994, the Fund
conducted a 2-for-1 preferred stock split which was effected by dividing each
outstanding share of MuniPreferred into two shares, with a liquidation
preference of $25,000 per share, for an aggregate of 12,000 MuniPreferred
shares. The Fund had 45,319,832 shares of common stock outstanding as of March
31, 1999. The common stock trades on the New York Stock Exchange under the
symbol "NMO." The Fund's principal office is located at 333 West Wacker Drive,
Chicago, Illinois 60606, and its telephone number is (800) 257-8787.
The table below provides information on MuniPreferred shares since their
issuance.
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
YEAR ENDED EXCLUSIVE OF TREASURY ASSET COVERAGE INVOLUNTARY LIQUIDATING
10/31 SECURITIES PER SHARE* PREFERENCE PER SHARE
- ---------- --------------------- -------------- -----------------------
<S> <C> <C> <C>
1990.............................. 6,000 $150,292 $ 50,000
1991.............................. 6,000 $159,797 $ 50,000
1992.............................. 6,000 $162,561 $ 50,000
1993.............................. 6,000 $172,932 $ 50,000
1994.............................. 12,000 $ 79,787 $ 25,000
1995.............................. 12,000 $ 83,817 $ 25,000
1996.............................. 12,000 $ 83,416 $ 25,000
1997.............................. 12,000 $ 84,267 $ 25,000
1998.............................. 12,000 $ 85,101 $ 25,000
</TABLE>
- ---------------
* Calculated by dividing net assets by the number of MuniPreferred shares
outstanding.
The following provides information about the Fund's outstanding shares as
of March 31, 1999:
<TABLE>
<CAPTION>
AMOUNT HELD BY THE
FUND OR FOR ITS
TITLE OF CLASS AMOUNT AUTHORIZED ACCOUNT AMOUNT OUTSTANDING
- -------------- ----------------- ------------------ ------------------
<S> <C> <C> <C>
Common............................ 200,000,000 0 45,319,832
MuniPreferred..................... 1,000,000 0 12,000
</TABLE>
USE OF PROCEEDS
The Fund will use the net proceeds of the offering, about $
after payment of the sales load and offering costs, to buy municipal bonds (see
"Investment Objectives and Policies -- Portfolio Investments"). The Fund expects
to invest almost all of the proceeds in long-term municipal bonds within eight
to ten weeks after the offering concludes, but if it cannot, it will invest in
municipal bonds with shorter effective maturities or in high quality, short-term
tax-exempt securities. In the unlikely event that the Fund cannot find suitable
short-term, tax-exempt securities, the Fund may buy short-term taxable
securities. The income on these securities would be subject to regular Federal
income tax.
A-4
<PAGE> 9
CAPITALIZATION
(UNAUDITED)
The following table sets forth the capitalization of the Fund as of October
31, 1998 and as adjusted to give effect to the issuance of the shares of New
MuniPreferred offered hereby.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
-------------- --------------
<S> <C> <C>
Shareholders' Equity:
Preferred Stock, $25,000 stated value per share, at
liquidation value;
1,000,000 shares authorized (12,000 shares issued and
15,200 shares issued, as adjusted respectively)...... $ 300,000,000 $ 380,000,000
Common Stock, $.01 par value per share; 200,000,000 shares
authorized, 45,194,829 shares outstanding*............. 451,948 451,948
Paid-in surplus........................................... 630,704,214 629,781,974
Balance of undistributed net investment income............ 923,953 923,953
Accumulated net realized gain (loss) from investment
transactions........................................... 794,802 794,802
Net unrealized appreciation of investments................ 88,331,824 88,331,824
-------------- --------------
Net Assets........................................ $1,021,206,741 $1,100,284,501
============== ==============
</TABLE>
- ---------------
* None of these outstanding shares are held by or for the account of the Funds.
A-5
<PAGE> 10
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The Fund's primary investment objective is current income exempt from
regular Federal income tax. The Fund's secondary investment objective is to
enhance portfolio value relative to the municipal bond market through
investments in tax-exempt municipal bonds that, in Nuveen Advisory's opinion,
are underrated or undervalued or that represent municipal market sectors that
are undervalued.
The Fund seeks to achieve its investment objectives by investing
substantially all of its assets (more than 80%) in a diversified portfolio of
tax-exempt municipal bonds rated at the time of purchase within the four highest
grades (Baa or BBB or better) by Moody's or Standard and Poor's, except that the
Fund may invest up to 20% of its assets in unrated municipal bonds which, in
Nuveen Advisory's opinion, have credit characteristics equivalent to, and are of
comparable quality to, municipal bonds rated Baa or BBB or better. The Fund will
not invest in any rated municipal bonds that are rated lower than Baa by Moody's
or BBB by Standard & Poor's at the time of purchase. Municipal bonds rated Baa
or BBB or better are considered "investment grade" securities. Bonds rated Baa
are considered medium grade obligations that lack outstanding investment
characteristics and in fact have speculative characteristics as well, while
municipal bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. See Appendix A to the Statement of Additional
Information for a description of securities ratings.
Underrated municipal bonds are those municipal bonds whose ratings do not,
in Nuveen Advisory's opinion, reflect their true value. They may be underrated
because of the time that has elapsed since their last ratings, or because rating
agencies have not fully taken into account positive factors, or for other
reasons. Undervalued municipal bonds are those bonds that, in Nuveen Advisory's
opinion, are worth more than their market value. They may be undervalued because
there is a temporary excess of supply in that particular sector (such as
hospital bonds, or bonds of a particular municipal issuer). Nuveen Advisory may
buy such a bond even if the value of that bond is consistent with the value of
other bonds in that sector. Municipal bonds also may be undervalued because
there has been a general decline in the market price of municipal bonds for
reasons that do not apply to the particular municipal bonds that Nuveen Advisory
considers undervalued. Nuveen Advisory believes that the prices of these
municipal bonds should ultimately reflect their true value. Therefore, the
Fund's secondary investment objective of enhancing portfolio value relative to
the municipal bond market refers to the Fund's objective of attempting to
realize above-average capital appreciation in a rising market, and to experience
less than average capital losses in a declining market. Capital appreciation,
alone, is not an investment objective. Rather, the Fund seeks to enhance
portfolio value relative to the municipal bond market by prudently selecting
municipal bonds, regardless of whether the market is rising or declining.
PORTFOLIO INVESTMENTS
Except to the extent that the Fund buys temporary investments as described
below, the Fund will, as a fundamental policy, invest substantially all of its
assets (more than 80%) in tax-exempt municipal bonds that are rated at the time
of purchase within the four highest grades (Baa or BBB or better) by Moody's or
Standard and Poor's, except that the Fund may invest up to 20% of its assets in
unrated municipal bonds which, in Nuveen Advisory's opinion, have credit
characteristics equivalent to, and are of comparable quality to, municipal bonds
so rated. These policies and the Fund's investment objectives are fundamental
policies, which cannot be changed without the approval of the holders of a
majority of the outstanding shares of common shares and MuniPreferred shares,
voting together, and of the holders of a majority of the outstanding
MuniPreferred shares, voting separately. For this purpose, "a majority of the
outstanding shares" means the vote of (1) 67% or more of the shares present at a
meeting, if the holders of more than 50% of the shares are present or
represented by proxy; or (2) more than 50% of the shares, whichever is less.
The Fund is diversified for purposes of the 1940 Act. Consequently, as to
75% of its total assets, the Fund may not invest more than 5% of its total
assets in the securities of any single issuer.
A-6
<PAGE> 11
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated the
date hereof, each underwriter named below has severally agreed to purchase, and
the Fund has agreed to sell to such underwriter, the number of New MuniPreferred
shares set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Salomon Smith Barney Inc.
A.G. Edwards & Sons, Inc.
BT Alex. Brown Incorporated
Goldman, Sachs & Co.
John Nuveen & Co. Incorporated
Legg Mason Wood Walker, Incorporated
PaineWebber Incorporated
Prudential Securities Incorporated
Raymond James & Associates, Inc.
-----
Total............................................... 3,200
=====
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase the shares included in this offering are subject to the
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the New MuniPreferred shares if
they purchase any of the shares.
The underwriters, for whom Salomon Smith Barney Inc. is acting as
representative, propose to offer some of the shares directly to the public at
the public offering price set forth on the cover page of this Prospectus and
some of the shares to certain dealers at the public offering price less a
concession not in excess of $137.50 per share. The sales load the Fund will pay
of $225 per share is equal to .90% of the initial offering price. The
underwriters may allow, and such dealers may reallow, a concession not in excess
of $25 per share on sales to certain other dealers. After the initial public
offering, the underwriters may change the public offering price and the
concession. Investors must pay for any New Muni-Preferred shares purchased in
the initial public offering on or before , 1999.
The Fund anticipates that the underwriters may from time to time act as
brokers or dealers in executing the Fund's portfolio transactions after they
have ceased to be underwriters. The underwriters are active underwriters of, and
dealers in, securities and act as market makers in a number of such securities,
and therefore can be expected to engage in portfolio transactions with the Fund.
John Nuveen & Co. Incorporated may engage in these transactions only in
compliance with the 1940 Act.
The Fund anticipates that the underwriters or one of their respective
affiliates may, from time to time, act in auctions as Broker-Dealers as set
forth under "The Auction."
John Nuveen & Co. Incorporated, one of the underwriters, is the parent
company of Nuveen Advisory.
The Fund and Nuveen Advisory have agreed to indemnify the underwriters
against certain liabilities, including liabilities arising under the 1933 Act,
or to contribute payments the underwriters may be required to make for any of
those liabilities.
LEGAL OPINIONS
Morgan, Lewis & Bockius LLP, Washington, D.C., will pass on certain legal
matters for the Fund, and Simpson Thacher & Bartlett will pass on certain legal
matters for the underwriters. Morgan, Lewis & Bockius LLP and Simpson Thacher &
Bartlett will rely as to certain matters under Minnesota law on the opinion of
Dorsey & Whitney LLP, Minneapolis, Minnesota.
A-7
<PAGE> 12
EXPERTS
The financial statements of the Fund at 10/31/98 and the selected per share
data and ratios set forth under the caption "Financial Highlights" for the
period March 21, 1990 to 10/31/98, appearing in Part A of this Prospectus, have
been audited by Ernst & Young LLP, Sears Tower, 223 South Wacker Drive, Chicago,
Illinois 60606, independent auditors, as set forth on their report appearing
elsewhere in this Registration Statement, and are included in reliance upon that
report given upon Ernst & Young's authority as experts in accounting and
auditing. Ernst & Young audits and reports on the Fund's annual financial
statements, reviews certain regulatory reports and the Fund's Federal income tax
returns, and performs other professional accounting, auditing, tax and advisory
services when engaged to do so by the Fund.
A-8
<PAGE> 13
NUVEEN
EXCHANGE-TRADED FUNDS
MuniPreferred(R) Shares
Prospectus Part B
The Prospectus offering MuniPreferred shares for a Nuveen closed-end fund
(each, a "Fund") is divided into two parts. Part A of the Prospectus relates
exclusively to a particular closed-end fund and provides specific information
about the Fund's portfolio, investment objectives, and financial highlights.
Part B of the Prospectus provides a more general description of the municipal
bonds in which each Fund invests and related risks, and more general information
about MuniPreferred shares, including the auction at which MuniPreferred shares
are traded, dividends and rate periods, tax status, and voting rights. You
should read both parts of the Prospectus and retain them for future reference.
Except as provided in Part A or this Part B, the information contained in this
Part B will apply to each Fund.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
(R)Registered Trademark of John Nuveen & Co. Incorporated
MUNICIPAL BONDS
States, local governments and municipalities issue municipal bonds to raise
money for public purposes such as building public facilities, refinancing
outstanding obligations, and financing internal operating expenses. Municipal
bonds are generally either general obligation bonds, which are backed by the
full faith and credit of the issuer and may be repaid from any revenue source,
or revenue bonds, which may be repaid only from the revenues of a specific
facility or source. Each Fund also may buy municipal bonds that represent
interests in lease obligations. These bonds carry special risks because the
issuer may not be required to appropriate money annually to make payments under
the lease. To reduce this risk, a Fund will only buy these bonds where the
issuer has a strong incentive to continue making appropriations until the
municipal bond matures. The Funds do not have any limits on investing in lease
obligations that do not contain a "non-appropriation" clause. A Fund may invest
no more than 10% of its net assets in municipal bonds issued by U.S. possessions
or territories, which pay interest exempt from regular Federal income tax.
Each Fund may buy municipal bonds that pay a variable or floating rate of
interest that changes with changes in specified market rates or indices, such as
a bank prime rate or a tax-exempt money market index. As used in this
Prospectus, the term "municipal bonds" includes municipal securities with
relatively short-term maturities. Some of these short-term securities may be
variable or floating rate securities. The Funds, however, intend to emphasize
investments in municipal bonds with long- or intermediate-term maturities.
Yields on municipal bonds depend on many factors, including the condition
of the general money market and the municipal bond market, the size of a
particular offering, and the maturity and rating of a particular municipal bond.
Moody's and Standard & Poor's ratings represent their opinions of the quality of
a particular municipal bond, but these ratings are general and are not absolute
quality standards. Therefore, municipal bonds with the same maturity, coupon,
and rating may have different yields, while municipal bonds with the same
maturity and coupon and different ratings may have the same yield. The market
value of municipal bonds will vary with changes in interest rates and in the
ability of their issuers to make interest and principal payments.
Obligations of municipal bond issuers are subject to bankruptcy,
insolvency, and other laws affecting the rights and remedies of creditors. These
obligations also may be subject to future Federal or state laws or referenda
that extend the time to payment of interest and/or principal, or that constrain
the enforcement of
B-1
<PAGE> 14
these obligations or the power of municipalities to levy taxes. Legislation or
other conditions may materially affect the power of a municipal bond issuer to
pay interest and/or principal when due.
PORTFOLIO INVESTMENTS
Each Fund buys municipal bonds with different maturities and intends to
maintain an average portfolio maturity of 15 to 30 years, although this may be
shortened depending on market conditions. As a result, a Fund's portfolio may
include long-term and intermediate-term municipal bonds. If the long-term
municipal bond market is unstable, a Fund may temporarily invest up to 100% of
its assets in temporary investments. Temporary investments are high quality,
generally uninsured, short-term municipal bonds that may either be tax-exempt or
taxable. Each Fund will buy taxable temporary investments only if suitable
tax-exempt temporary investments are not available at reasonable prices and
yields. Each Fund will invest only in taxable temporary securities that are U.S.
Government securities or corporate debt securities rated within the highest
grade by Moody's or Standard & Poor's, and that mature within one year from the
date of issuance. The Funds' policies on securities ratings only apply when the
Fund buys a security, and a Fund is not required to sell securities that have
been downgraded. See Appendix A to the Statement of Additional Information for a
description of securities ratings. Each Fund also may invest in taxable
temporary investments that are certificates of deposit from U.S. banks with
assets of at least $1 billion, or repurchase agreements. Each Fund is required
to allocate taxable income on temporary investments, if any, proportionately
between common shares and MuniPreferred shares, based on the percentage of total
dividends distributed to each class for that year.
INSURED FUNDS: MUNICIPAL BOND INSURANCE
The following discussion relates only to the following Funds: Nuveen
Insured Quality Municipal Fund, Inc.; Nuveen Insured Municipal Opportunity Fund,
Inc.; Nuveen Premier Insured Municipal Income Fund, Inc.; and Nuveen Insured
Premium Income Municipal Fund 2.
Each insured municipal bond a Fund acquires will be covered by a specific
insurance policy (either original issue insurance or secondary market insurance)
or portfolio insurance. While each Fund has obtained several policies of
portfolio insurance, a Fund may emphasize investments in municipal bonds insured
under specific insurance policies. Each Fund has obtained portfolio insurance
from the insurers described in Appendix C to the Statement of Additional
Information and may in the future obtain portfolio insurance from other
insurers. In any event, each Fund has obtained and in the future will only
obtain portfolio insurance issued by insurers whose claims-paying ability
Moody's rates "Aaa" or Standard & Poor's rates "AAA." There is no limit on the
percentage of a Fund's assets that may be invested in municipal bonds insured by
any one insurer.
Municipal bonds covered by a specific insurance policy, rather than by
portfolio insurance, will be rated "Aaa" by Moody's or "AAA" by Standard &
Poor's, because of the rating of the insurer's claims-paying ability. Municipal
bonds covered by portfolio insurance, however, will be rated based primarily on
the credit characteristics of the issuer, without regard to the portfolio
insurance, and generally will be rated below "Aaa" or "AAA." While a Fund holds
a municipal bond covered by portfolio insurance, it will, effectively, be of the
same credit quality as a municipal bond covered by a specific insurance policy.
Each Fund's policy of buying municipal bonds insured by insurers whose
claims-paying ability is rated "Aaa" or "AAA" applies only when the Fund buys
the municipal bond. If either rating agency downgrades an insurer's
claims-paying ability, the Fund is not required to sell bonds covered by that
insurer's policies. If a rating agency downgrades its rating of an insurer, it
likely would downgrade its rating of a municipal bond covered by that insurer's
original issuance insurance or secondary market insurance. Municipal bonds in
the Fund's portfolio covered by that insurer's portfolio insurance also would be
downgraded. Moody's and Standard & Poor's continually assess the claims-paying
ability of insurers and the creditworthiness of municipal bond issuers, and the
Fund cannot guarantee that Moody's and Standard & Poor's will not downgrade
their ratings. The value of municipal bonds covered by portfolio insurance that
are in default or in
B-2
<PAGE> 15
significant risk of default will be determined by separately establishing a
value for the municipal bond and a value for the portfolio insurance.
Original Issue Insurance. The issuer of municipal bonds or a third party
buys original issue insurance for a particular issue of municipal bonds at the
time the municipal bonds are issued. Under this insurance, the insurer
unconditionally guarantees to the holder of the municipal bond the timely
payment of principal and interest when and as these payments become due if the
issuer does not pay them. However, if the due date of the principal is
accelerated because of mandatory or optional redemption (other than acceleration
because of a mandatory sinking fund payment), default or otherwise, the payments
guaranteed may be made in the amounts and at the times as principal payments
would have been due had there not been any acceleration. The insurer is
responsible for these payments less any amounts the holders receive from any
trustee for the municipal bonds issuer or from any other source. Original issue
insurance does not guarantee the payment of any redemption premium (except for
certain premium payments for certain small issue industrial development and
pollution control municipal bonds), the value of the Fund's shares or the market
value of municipal bonds, or payments of any tender purchase price upon the
tender of the municipal bonds. Original issue insurance also does not insure
against nonpayment of principal or interest on municipal bonds resulting from
the insolvency, negligence or any other act or omission of the trustee or other
paying agent for these bonds.
Original issue insurance remains in effect as long as the municipal bonds
it covers remain outstanding and the insurer remains in business, regardless of
whether the Fund ultimately disposes of these municipal bonds. Consequently,
original issue insurance may be considered to represent an element of market
value of the municipal bonds so insured, but the exact effect, if any, of this
insurance on the market value cannot be estimated.
Secondary Market Insurance. After a municipal bond is issued, the Fund or
a third party may purchase insurance on that security. Secondary market
insurance generally provides the same type of coverage as original issue
insurance and, as with original issue insurance, secondary market insurance
remains in effect as long as the municipal bonds it covers remain outstanding
and the insurer remains in business, regardless of whether the Fund ultimately
disposes of these municipal bonds.
One of the purposes of acquiring secondary market insurance for a
particular municipal bond is to enable the Fund to enhance the value of the
security. The Fund, for example, might seek to buy a particular municipal bond
and obtain secondary market insurance for it if, in Nuveen Advisory's opinion,
the market value of the security, as insured, would exceed the current value of
the security without insurance plus the cost of the secondary market insurance.
Similarly, if the Fund owns but wishes to sell a municipal bond that is then
covered by portfolio insurance, the Fund might seek to obtain secondary market
insurance for it if, in Nuveen Advisory's opinion, the net proceeds of the
Fund's sale of the security, as insured, would exceed the current value of the
security plus the cost of the secondary market insurance. In determining whether
to insure municipal bonds the Fund owns, an insurer will apply its own
standards, which correspond generally to the standards it has established for
determining the insurability of new issues of municipal bonds. See "Original
Issue Insurance" above.
Portfolio Insurance. Each Fund has purchased several policies of portfolio
insurance, each of which would guarantee the payment of principal and interest
on specified eligible municipal bonds the Fund has bought. Except as described
below, portfolio insurance generally provides the same type of coverage as
original issue insurance or secondary market insurance. Municipal bonds insured
under one portfolio insurance policy would generally not be insured under any
other policy the Fund buys. A municipal bond is eligible for coverage under a
policy if it meets certain requirements of the insurer. If a municipal bond is
already covered by original issue insurance or secondary market insurance, then
the security is not required to be additionally insured under any portfolio
insurance policy that the Fund may buy.
Each portfolio insurance policy will terminate for any municipal bond that
has been redeemed or that the Fund has sold, on the date of redemption or the
settlement date of sale, and an insurer will not have any liability thereafter
under a policy for any municipal bond, except that if the redemption date or
settlement date occurs after a record date and before the related payment date
for any municipal bond, the policy will terminate for that municipal bond on the
business day immediately following the payment date.
B-3
<PAGE> 16
One or more portfolio insurance policies may provide the Fund, under an
irrevocable commitment of the insurer, with the option to exercise the right to
obtain permanent insurance for a municipal bond that the Fund will sell. The
Fund would exercise the right to obtain permanent insurance upon payment of a
single, predetermined insurance premium payable from the sale proceeds of the
municipal bond. The Fund expects to exercise the right to obtain permanent
insurance for a municipal bond only if, in Nuveen Advisory's opinion, upon the
exercise the net proceeds from the sale of the municipal bond, as insured, would
exceed the proceeds from the sale of the security without insurance.
The permanent insurance premium for each municipal bond is determined based
upon the insurability of each security as of the date the Fund originally bought
the security. This premium will not be increased or decreased for any change in
the security's creditworthiness, unless the security is in default as to payment
of principal or interest, or both. If this happens, the permanent insurance
premium will be subject to an increase predetermined at the date of the Fund's
purchase.
Each Fund generally intends to retain any insured bonds covered by
portfolio insurance that are in default or in significant risk of default and to
place a value on the insurance, which ordinarily will be the difference between
the market value of the defaulted bond and the market value of similar bonds of
minimum investment grade (that is, rated "Baa" or "BBB") that are not in
default. In certain circumstances, however, Nuveen Advisory may determine that
an alternative value for the insurance, such as the difference between the
market value of the defaulted bond and either its par value or the market value
of similar bonds that are not in default or in significant risk of default, is
more appropriate. To the extent that the Fund holds defaulted municipal bonds,
it may be limited in its ability to manage its investment portfolio and to
purchase other bonds. Except as described above for bonds covered by portfolio
insurance that are in default or subject to significant risk of default, the
Fund will not place any value on the insurance in valuing the municipal bonds it
holds.
Because each portfolio insurance policy will terminate for a particular
covered bond on the date a Fund sells that bond, the insurer will be liable only
for those payments of principal and interest that are then due and owing (unless
the Fund obtains permanent insurance). Portfolio insurance will not enhance the
marketability of the Fund's bonds, whether or not the bonds are in default or in
significant risk of default. On the other hand, because original issue insurance
and secondary market insurance will remain in effect as long as the municipal
bonds they cover are outstanding, these insurance policies may enhance the
marketability of these bonds even when they are in default or in significant
risk of default, but the exact effect, if any, on marketability, cannot be
estimated. Accordingly, the Fund may determine to retain or, alternatively, to
sell municipal bonds covered by original issue insurance or secondary market
insurance that are in default or in significant risk of default.
Each Fund generally pays the premiums for a portfolio insurance policy
monthly, and premiums are adjusted for purchases and sales of municipal bonds
covered by the policy during the month. The yield on the Fund's portfolio is
reduced to the extent of the insurance premiums the Fund pays which, in turn,
will depend upon the characteristics of the covered municipal bonds. If the Fund
were to buy secondary market insurance for any municipal bond then covered by a
portfolio insurance policy, the coverage and the obligation to pay monthly
premiums under the portfolio policy would cease.
INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental policies of each Fund
which may not be changed without the approval of the holders of a majority of
the outstanding shares of common and MuniPreferred shares (voting together as a
single class) and of the holders of a majority of the outstanding shares of
MuniPreferred shares (voting as a separate class).
Each Fund may not:
- Invest more than 25% of its total assets in securities of issuers in any
one industry, other than municipal bonds issued by states and local
governments and their instrumentalities or agencies (not including those
backed only by the assets and revenues of non-governmental users), and
municipal bonds issued or guaranteed by the U.S. Government or its
instrumentalities or agencies; and
B-4
<PAGE> 17
- Invest more than 5% of its total assets in securities of any one issuer
(not including securities of the U.S. Government and its agencies, or the
investment of 25% of the Fund's total assets).
See the Statement of Additional Information for additional fundamental and
non-fundamental policies of each Fund.
Moody's and Standard & Poor's, in connection with establishing and
maintaining ratings on the Fund's MuniPreferred shares, restrict a Fund's
ability to borrow money, sell securities short, lend securities, buy and sell
futures contracts, and write put or call options. Each Fund does not expect that
these restrictions will adversely affect its ability to achieve its investment
objectives. These restrictions are not fundamental policies and a Fund may
change them without shareholder approval.
Except to the extent that a Fund invests in temporary investments, each
Fund will invest substantially all of its assets in municipal bonds that pay
interest that is exempt from regular Federal income tax. No Fund has set any
limit on the percentage of its portfolio that may be invested in municipal bonds
subject to the Federal alternative minimum tax. Because a substantial part of
the income from these bonds is expected to be subject to the Federal alternative
minimum tax, MuniPreferred shares may not be a suitable investment for
shareholders subject to this tax. Suitability will depend on a comparison of the
Fund's likely after-tax yield with the likely after-tax yield from comparable
tax-exempt investments not subject to the alternative minimum tax, and with
fully taxable investments, in light of an investor's tax position. Special
considerations apply to corporate shareholders. Dividends paid on MuniPreferred
shares may include an allocated portion of net capital gain or other Federal
taxable income. See "Tax Matters" and "The Auction -- Auction Dates; Advance
Notice of Allocation of Taxable Income."
RISK FACTORS
Risk is inherent in all investing. Investing in any investment company
security involves risk, including the risk that you may receive little or no
return on your investment or even that you may lose part or all of your
investment. Therefore, before investing you should consider carefully the
following risks that you assume when you invest in MuniPreferred shares.
Auction Risk. You may not be able to sell your MuniPreferred shares at an
auction if the auction fails; that is, if there are more MuniPreferred shares
offered for sale than there are buyers for those shares. The Fund believes this
event is unlikely. Also, if you place hold orders (orders to retain
MuniPreferred shares) at an auction only at a specified rate, and that bid rate
exceeds the rate set at the auction, you will not retain your MuniPreferred
shares. Finally, if you buy shares or elect to retain shares without specifying
a rate below which you would not wish to continue to hold those shares, and the
auction sets a below-market rate, you may receive a lower rate of return on your
shares than the market rate. See "Description of MuniPreferred" and "The
Auction -- Summary of Auction Procedures" and "-- Acceptance or Rejection of
Orders and Allocation of Shares."
Secondary Market Risk. If you try to sell your MuniPreferred shares
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. If the Fund has designated a special rate period (a rate
period of more than 7 days), changes in interest rates could affect the price
you would receive if you sold your shares in the secondary market.
Broker-dealers that maintain a secondary trading market for MuniPreferred shares
are not required to maintain this market, and the Fund is not required to redeem
shares either if an auction or an attempted secondary market sale fails because
of a lack of buyers. MuniPreferred shares are not registered on a stock exchange
or the NASDAQ stock market. If you sell your MuniPreferred shares to a
broker-dealer between auctions, you may receive less than the price you paid for
them, especially when market interest rates have risen since the last auction.
Accrued MuniPreferred dividends, however, should at least partially compensate
for the increased market interest rates.
Ratings and Asset Coverage Risk. While Moody's and Standard & Poor's
assign ratings of "Aaa" or "AAA" to MuniPreferred shares (except for
MuniPreferred shares of the Nuveen Michigan Quality Income Municipal Fund, Inc.,
which are assigned ratings of Aa1 and AA+), the ratings do not eliminate or
necessarily
B-5
<PAGE> 18
mitigate the risks of investing in MuniPreferred shares. A rating agency could
downgrade MuniPreferred shares, which may make your shares less liquid at an
auction or in the secondary market, though probably with higher resulting
dividend rates. If a rating agency downgrades MuniPreferred shares, or if the
asset coverage for MuniPreferred shares declines to less than 200%, the Fund is
required to alter its portfolio or redeem MuniPreferred shares. The Fund may
voluntarily redeem MuniPreferred shares under certain circumstances.
Interest Rate Risk. The Fund issues MuniPreferred shares, which pay
dividends based on short-term interest rates, and uses the proceeds to buy
municipal bonds, which pay interest based on long-term yields. Long-term
municipal bond yields are typically, although not always, higher than short-term
interest rates. So long as the return on the Fund's long-term bond portfolio,
net of Fund expenses, exceeds MuniPreferred dividend rates, the investment of
the proceeds of the issuance of MuniPreferred will generate more income than is
needed to pay MuniPreferred dividends, and the excess will be used to pay higher
dividends on common shares. Dividends paid to MuniPreferred shareholders could,
however, exceed the income from the portfolio securities purchased with the
proceeds from the sale of MuniPreferred. Short-term interest rates may
fluctuate. If short-term rates exceed the net rate of return on the Fund's bond
portfolio, the Fund could invest up to 100% of its assets in temporary,
short-term instruments. Only if MuniPreferred dividend rates were to greatly
exceed the Fund's net portfolio returns would the Fund need to sell municipal
bonds to pay MuniPreferred dividends, which would tend to reduce the amount of
the assets standing behind the MuniPreferred shares.
Inflation Risk. Inflation is the reduction in the purchasing power of
money resulting from the increase in the price of goods and services. Inflation
risk is the risk that the inflation adjusted (or "real") value of your
MuniPreferred investment or the income from that investment will be worth less
in the future. As inflation occurs, the real value of the MuniPreferred shares
and distributions declines. In an inflationary period, however, it is expected
that, through the auction process, MuniPreferred dividend rates would increase,
tending to offset this risk.
Credit Risk. Credit risk is the risk that an issuer of a municipal bond
will become unable to meet its obligation to make interest and principal
payments. If rating agencies lower their ratings of municipal bonds in a Fund's
portfolio, the value of those bonds could decline, which could jeopardize the
rating agencies' ratings of MuniPreferred shares. In that case, the Fund may be
forced to sell downgraded portfolio securities (possibly at a loss) and buy
higher-rated securities to replace them. In general, lower-rated municipal bonds
are perceived to carry a greater degree of risk that the issuer will lose its
ability to make interest and principal payments. Credit risk is reduced because
of the Fund's asset coverage ratio for MuniPreferred shares. See "Description of
MuniPreferred -- Asset Maintenance and Rating Agency Guidelines."
Year 2000 Risk. Nuveen Advisory relies on computer systems to manage the
Fund's investments, process shareholder transactions, and maintain shareholder
accounts. Because of the way computers historically have stored dates, some of
these systems currently may not be able to process activity occurring in the
year 2000. Nuveen Advisory is working with the Fund's service providers to adapt
their systems to address this "Year 2000" issue. Although there can be no
absolute assurance, Nuveen Advisory and the Fund expect that the necessary work
will be completed on a timely basis. In addition, Year 2000 issues may affect
the ability of municipal issuers to meet their interest and principal payment
obligations to their bond holders, and may adversely affect the bonds' credit
ratings and values. Municipal issuers may have greater Year 2000 risks than
other issuers. Nuveen Advisory is requesting information from municipal issuers
so that Nuveen Advisory can take the issuers' Year 2000 readiness, if made
available, into account in making investment decisions. There can be no
assurance that issuers will provide this information to Nuveen Advisory, or that
issuers will begin or complete the work necessary to address any Year 2000
issues on a timely basis.
State Concentration Risk. Some of the Funds invest primarily in bonds from
a single state. These Funds bear investment risk from the economic, political or
regulatory changes that could adversely affect municipal bond issuers in that
state and therefore the value of the Fund's investment portfolio. See Part A of
the Prospectus for a discussion of the specific risks for each state.
B-6
<PAGE> 19
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Each Fund's Board of Directors is responsible for the management of the
Fund, including general supervision of Nuveen Advisory's duties.
INVESTMENT ADVISER AND PORTFOLIO MANAGERS
Nuveen Advisory was organized in 1976 and is a wholly-owned subsidiary of
John Nuveen & Co. Incorporated ("Nuveen"). The offices of Nuveen Advisory and
Nuveen are located at 333 West Wacker Drive, Chicago, Illinois 60606. Nuveen
Advisory is responsible for the selection and ongoing monitoring of the bonds in
each Fund's investment portfolio. Nuveen Advisory also administers each Fund's
business affairs and provides office facilities, equipment and certain
administrative services. Nuveen Advisory may buy municipal bonds or other
portfolio investments for a Fund from an underwriting syndicate of which Nuveen
or its affiliates is a member under conditions set out in Rule 10f-3 under the
1940 Act. A Fund also may buy or sell municipal bonds or other portfolio
investments from or to another Fund or account managed by Nuveen Advisory or an
affiliate, under conditions set out in Rule 17a-7 under the 1940 Act.
Founded in 1898, Nuveen currently sponsors 100 investment company
portfolios with approximately $39 billion of assets under management. Nuveen is
a subsidiary of The John Nuveen Company, which is a majority-owned subsidiary of
The St. Paul Companies.
PORTFOLIO MANAGERS
Michael Davern, a Vice President and Portfolio Manager of Nuveen Advisory
(since 1997), and prior thereto Vice President and Portfolio Manager of Flagship
Financial Inc., manages Nuveen Michigan Quality Income Municipal Fund, Inc.
(since 1993), and Nuveen Texas Quality Income Municipal Fund (since 1998). Mr.
Davern manages 8 Nuveen-sponsored open-end and 7 other Nuveen-sponsored
closed-end investment companies.
William Fitzgerald, a Vice President (since 1995) and Portfolio Manager
(since 1998) of Nuveen Advisory, manages Nuveen Municipal Market Opportunity
Fund, Inc. (since 1990), Nuveen Quality Income Municipal Fund, Inc. (since
1991), Nuveen California Performance Plus Municipal Fund, Inc. (since 1991),
Nuveen California Municipal Market Opportunity Fund, Inc. (since 1991), Nuveen
California Investment Quality Municipal Fund, Inc. (since 1990), Nuveen
California Select Quality Municipal Fund, Inc. (since 1998), and Nuveen
California Quality Income Municipal Fund, Inc. (since 1991). Mr. Fitzgerald
manages 3 Nuveen-sponsored open-end and 3 other Nuveen-sponsored closed-end
investment companies.
J. Thomas Futrell, a Vice President (since 1991) and Portfolio Manager of
Nuveen Advisory (since 1986), manages Nuveen Premium Income Municipal Fund, Inc.
(since 1988), Nuveen Investment Quality Municipal Fund, Inc. (since 1990), and
Nuveen New Jersey Investment Quality Municipal Fund, Inc. (since 1998). Mr.
Futrell manages 5 Nuveen-sponsored open-end and 4 other Nuveen-sponsored
closed-end investment companies.
Richard Huber, a Vice President and Portfolio Manager of Nuveen Advisory
(since 1997), and prior thereto Vice President and Portfolio Manager of Flagship
Financial Inc., manages Nuveen Municipal Advantage Fund, Inc. (since 1998) and
Nuveen Select Quality Municipal Fund, Inc. (since 1998). Mr. Huber manages 3
Nuveen-sponsored open-end investment companies.
Steven Krupa, a Vice President and Portfolio Manager of Nuveen Advisory
(since 1990), manages Nuveen Insured Municipal Opportunity Fund, Inc. (since
1991), Nuveen Insured Quality Municipal Fund, Inc. (since 1991), Nuveen Premier
Insured Municipal Income Fund, Inc. (since 1998), and Nuveen Insured Premium
Income Municipal Fund 2 (since 1998). Mr. Krupa manages one Nuveen-sponsored
open-end investment company.
B-7
<PAGE> 20
Edward Neild, a Vice President (since 1996), and prior thereto Assistant
Vice President (since 1993) of Nuveen Advisory, manages Nuveen Premium Income
Municipal Fund 4, Inc. (since 1993). Mr. Neild manages one other
Nuveen-sponsored closed-end investment company. He is Managing Director of
Nuveen Investment Advisory Services, and has overall supervisory responsibility
for Nuveen's investment and management activity.
Thomas O'Shaughnessy, an Assistant Vice President (since 1998) and
Portfolio Manager of Nuveen Advisory since 1991, manages Nuveen Pennsylvania
Investment Quality Municipal Fund (since 1991), Nuveen Florida Investment
Quality Municipal Fund (since 1991), and Nuveen Florida Quality Income Municipal
Fund (since 1991). Mr. O'Shaughnessy manages 7 Nuveen-sponsored open-end and 3
other Nuveen-sponsored closed-end investment companies.
Stephen Peterson, a Vice President (since 1997) and Portfolio Manager of
Nuveen Advisory (since 1991), manages Nuveen Premier Municipal Income Fund, Inc.
(since 1992), Nuveen Premium Income Municipal Fund 2, Inc. (since 1994), Nuveen
Performance Plus Municipal Fund, Inc. (since 1998), Nuveen New York Select
Quality Municipal Fund, Inc. (since 1999), Nuveen New York Quality Income
Municipal Fund, Inc. (since 1999), Nuveen New York Performance Plus Municipal
Fund, Inc. (since 1999), and Nuveen New York Investment Quality Municipal Fund,
Inc. (since 1999). Mr. Peterson manages one Nuveen-sponsored open-end and two
other Nuveen-sponsored closed-end investment companies.
For its services, Nuveen Advisory is paid an annual management fee for each
Fund, as a percentage of average daily net asset value of each Fund, according
to the following schedule:
MANAGEMENT FEES
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
----------------------------- --------------
<S> <C>
For the first $125 million .6500%
For the next $125 million .6375%
For the next $250 million .6250%
For the next $500 million .6125%
For the next $1 billion .6000%
For assets over $2 billion .5875%
</TABLE>
In addition to the management fee, each Fund pays all other costs and
expenses of its operations, including fees to third-party service providers such
as the custodian and transfer agent, the compensation of its directors (other
than those affiliated with Nuveen Advisory), legal and accounting fees, and
printing expenses.
LEGAL PROCEEDINGS
On June 21, 1996, a lawsuit was filed against Nuveen, Nuveen Advisory, six
Nuveen-sponsored closed-end funds (Nuveen Massachusetts Premium Income Municipal
Fund (ticker symbol NMT), Nuveen Insured Municipal Opportunity Fund, Inc. (NIO),
Nuveen Insured Premium Income Municipal Fund, Inc. (NPE), Nuveen Premium Income
Municipal Fund 2, Inc. (NPM), Nuveen Insured Premium Income Municipal Fund 2
(NPX), and Nuveen Premium Income Municipal Fund 4, Inc. (NPT)), and two of the
funds' former directors (the "Defendants"). The suit, which is pending in
federal district court in the Northern District of Illinois, seeks unspecified
damages, an injunction, and other relief. The plaintiffs allege that the funds'
directors and Nuveen Advisory breached their fiduciary duty in connection with
alleged undisclosed conflicts of interest relating to the maintenance of
leverage in the funds and the alleged financial interest of the Defendants. The
plaintiffs also allege various misrepresentations and omissions in prospectuses
and shareholder reports about the use of leverage through the issuance and
auctioning of MuniPreferred and the Defendants' alleged financial interest in
maintaining leverage, and relating to expense ratios. The plaintiffs filed a
motion to certify a plaintiff class (which would include current and former
shareholders of all Nuveen leveraged closed-end funds) and a motion to certify a
defendant class (which would include the same leveraged closed-end funds). On
March 30, 1999, the court entered a memorandum opinion and order granting the
Defendants' motion to dismiss four of the plaintiffs' counts; denying the
Defendants' motion to
B-8
<PAGE> 21
dismiss the remaining count (breach of fiduciary duty under Section 36(b) of the
1940 Act) as to Nuveen Advisory, and granting the same motion as to the
remaining Defendants; and denying the plaintiffs' motion to certify a plaintiff
class and a defendant class.
CERTAIN TRADING STRATEGIES OF THE FUNDS
When-Issued or Delayed Delivery Securities. Each Fund may buy municipal
bonds on a when-issued or delayed-delivery basis, paying for and taking delivery
of the bonds at a later date, normally within 15 to 45 days of the trade date.
These transactions may be more risky than transactions in which a Fund pays for
and takes delivery of bonds within several days of the trade date, because the
value of the bond to be purchased may decline before the delivery date. When a
Fund buys on a when-issued or delayed-delivery basis, it establishes a separate
account with its custodian that consists at all times of cash, cash equivalents,
or liquid securities having a market value at least equal to the amount of the
bonds the Fund has committed to buy. A "when-issued" municipal bond will be
covered under a portfolio insurance policy upon the security's settlement date.
See "Insured Funds: Municipal Bond Insurance."
Portfolio Trading and Turnover Rate. Each Fund may buy and sell municipal
bonds to accomplish its investment objective(s) in relation to actual and
anticipated changes in interest rates. A Fund also may sell one municipal bond
and buy another of comparable quality at about the same time to take advantage
of what Nuveen Advisory believes to be a temporary price disparity between the
two bonds that may result from imbalanced supply and demand. A Fund also may
engage in a limited amount of short-term trading, consistent with its investment
objectives. A Fund may sell securities in anticipation of a market decline (a
rise in interest rates) or buy securities in anticipation of a market rise (a
decline in interest rates) and later sell them, but the Fund will not engage in
trading solely to recognize a gain. A Fund will attempt to achieve its
investment objectives by prudently selecting municipal bonds with a view to
holding them for investment. Each Fund expects, though it cannot guarantee, that
its annual portfolio turnover rate generally will not exceed 100%. Turnover rate
will not be a limiting factor when a Fund deems it desirable to buy or sell
securities, so depending on market conditions, the turnover rate may exceed 100%
in some years.
DESCRIPTION OF MUNIPREFERRED
GENERAL
The following is a brief description of the terms of the New MuniPreferred
shares. This is not a complete description and is subject to and entirely
qualified by reference to a Fund's Articles of Incorporation or Declaration of
Trust and the Statement of Preferences. These documents are filed with the
Securities and Exchange Commission as exhibits to the Fund's registration
statement of which this Prospectus is a part and the Statement of Preferences
(the "Statement") also is Appendix B to the Fund's Statement of Additional
Information. Copies may be obtained as described under "Available Information."
Many of the terms in this section have a special meaning. Any terms in this
section not defined have the meaning assigned to them in the Statement of
Preferences.
MuniPreferred shares are shares of preferred stock that pay dividends based
on a rate set at auction. The auction usually is held weekly, but may be held
less frequently. MuniPreferred shares may be bought and sold at these auctions
for $25,000 per share. Shares also may trade in the secondary market.
MuniPreferred shareholders, voting separately, elect at least two of a Fund's
directors and will elect a majority of the Fund's directors in the unlikely
event that the Fund fails to pay dividends to MuniPreferred shareholders for two
years. MuniPreferred shares have a liquidation preference of $25,000 per share
plus accumulated but unpaid dividends, whether or not earned or declared.
MuniPreferred shares are fully paid and non-assessable when issued and have
no preemptive, conversion, or exchange rights or rights to cumulative voting.
New MuniPreferred shares will rank equally with shares of all other
MuniPreferred series of a Fund, and with any other series of preferred stock of
the Fund, as to payment of dividends and the distribution of the Fund's assets
upon liquidation.
B-9
<PAGE> 22
As long as either Moody's or Standard & Poor's is rating MuniPreferred
shares, a Fund may, without the vote of MuniPreferred shareholders, issue
additional series of MuniPreferred only if (1) any additional series ranks
equally with the outstanding MuniPreferred shares as to payment of dividends and
distribution of assets on liquidation; and (2) the Fund obtains written
confirmation from Moody's and/or Standard & Poor's that issuing additional
series of MuniPreferred would not impair the rating for outstanding
MuniPreferred shares.
DIVIDENDS AND RATE PERIODS
General. The following is a general description of dividends and rate
periods. The calculation of dividends and rate periods is complex and subject to
special rules. See Appendix B to the Statement of Additional Information for a
description of the terms used in this section and a more detailed discussion of
this topic.
The dividend rate for the initial rate period for New MuniPreferred shares
will be the rate set out on the cover of Part A of the Prospectus for a
particular Fund. For subsequent rate periods, New MuniPreferred shares will pay
dividends based on a rate set at these auctions, normally held weekly, but the
rate set at the auction will not exceed the Maximum Rate. See "Description of
MuniPreferred -- Dividends and Rate Periods -- Maximum Rate." Rate periods
generally will be seven days, and a rate period will begin on the first business
day after the auction. In most instances, dividends are also paid weekly, on the
day following the end of the rate period. Each Fund, subject to certain
conditions, may change the length of rate periods, designating them as "Special
Rate Periods." See "Description of MuniPreferred -- Dividends and Rate
Periods -- Designation of Special Rate Periods."
Dividend Payments. The dividend payment date will be the day after the
rate period ends. If your shares normally pay dividends on Monday or Tuesday,
and that day is not a business day, then your dividends will be paid on the
first business day that falls after that Monday or Tuesday. If your shares
normally pay dividends on Wednesday, Thursday, or Friday, and that day is not a
business day, then your dividends will be paid on the first business day that
falls before that Wednesday, Thursday, or Friday. See "Description of
MuniPreferred -- Dividends and Rate Periods -- Designation of Special Rate
Periods" for a discussion of payment dates for a special rate period.
Dividends on New MuniPreferred shares will be paid on the dividend payment
date to holders of record as their names appear on a Fund's stock books, on the
business day next preceding the dividend payment date. If dividends are in
arrears, they may be declared and paid at any time, to holders of record as
their names appear on the Fund's stock books, on that date, not more than 15
days before the payment date, as the Fund's Board of Directors may fix.
The Depository Trust Company, in accordance with its current procedures, is
expected to credit on each dividend payment date dividends received from a Fund
to the accounts of its agent members, in next-day funds. "Agent members" are
Broker-Dealers or broker-dealers that are members of or participants in the
Depository Trust Company who act on behalf of MuniPreferred shareholders. Agent
members, in turn, are expected to distribute these dividend payments to the
person for whom they are acting as agents. Each of the firms listed on the front
cover of Part A of the Prospectus, however, has indicated to the Funds that it
or the agent member it designates will make these dividend payments available in
same-day funds, rather than next-day funds, on each dividend payment date to
customers that use that Broker-Dealer or its designee as its agent member. A
MuniPreferred shareholder that does not use one of the firms listed on the front
cover of Part A of the Prospectus, or one of its affiliates, should contact his
or her Broker-Dealer or broker-dealer to determine whether it will make
dividends payments available to the shareholder in same-day or next-day funds.
If a Broker-Dealer or a broker-dealer that is an agent member of the Depository
Trust Company does not make dividends available to MuniPreferred shareholders in
same-day funds, these shareholders will not have funds available until the next
business day.
Dividend Rate Set at Auction. MuniPreferred shares pay dividends based on
a rate set at auction. The auction usually is held weekly, but may be held less
frequently. The auction sets the dividend rate, and MuniPreferred shares may be
bought and sold at the auction. Bankers Trust Company, the auction agent,
reviews orders from Broker-Dealers on behalf of existing shareholders that wish
to sell, hold at the auction
B-10
<PAGE> 23
rate, or hold only at a specified rate, and on behalf of potential shareholders
that wish to buy MuniPreferred shares, and determines the lowest dividend rate
that will result in all of the outstanding MuniPreferred shares of that series
continuing to be held. The shares in this offering will trade at auction
starting in the week following this offering. See "The Auction."
Determination of Dividend Rate. Each Fund computes the dividends per share
by multiplying the dividend rate determined at the auction by the following
fraction: the numerator normally is seven and the denominator is 365. If a Fund
has designated a special rate period, then the numerator is the number of days
in the rate period, and the denominator is 360. In either case, this rate is
then multiplied against $25,000 to arrive at the dividend per share. The
numerator may be different if the rate period includes a holiday. If an auction
for any subsequent rate period of New MuniPreferred shares is not held for any
reason other than as described below, the dividend rate on those shares will be
the Maximum Rate on the auction date for that subsequent rate period.
Each Fund may only pay dividends when and if the Fund's Board of Directors
declares dividends out of monies legally available for this purpose, at the
applicable rate per year for this purpose and no more (except as described under
"Gross-Up Payments"), payable on the dates determined as described below. If the
Fund does not pay a dividend when the Board declares it, then that dividend will
be added to dividends payable on those MuniPreferred shares in the future.
Effect of Failure to Pay Dividends in Timely Manner. If a Fund fails to
pay, in a timely manner, the auction agent the full amount of any dividend on
any New MuniPreferred shares during any rate period (other than any special rate
period of more than 364 rate period days or any rate period succeeding any
special rate period of more than 364 rate period days during which a failure
occurred that has not been cured), but the Fund cures the failure and pays any
late charge before 12:00 Noon on the third business day following the date the
failure occurred, no auction will be held for New MuniPreferred shares for the
first subsequent rate period thereafter, and the dividend rate for New
MuniPreferred shares for that subsequent rate period will be the Maximum Rate on
the auction date for that subsequent rate period.
If a Fund fails to pay, in a timely manner, the auction agent the full
amount of any dividend on any New MuniPreferred shares during any rate period
(other than any special rate period of more than 364 rate period days or any
rate period succeeding any special rate period of more than 364 rate period days
during which a failure occurred that has not been cured), and the Fund does not
cure the failure and pay any late charge before 12:00 Noon on the third business
day next succeeding the date on which the failure occurred, no auction will be
held for New MuniPreferred shares for the first subsequent rate period
thereafter (or for any rate period thereafter, to and including the rate period
during which the failure is cured and the late charge is paid) (the late charge
is to be paid only in the event Moody's is rating the shares at the time the
Fund cures the failure), and the dividend rate for shares of that series for
each such subsequent rate period will be an annual rate equal to the Maximum
Rate on the auction date for that subsequent rate period (but with the
prevailing rating for New MuniPreferred, for purposes of determining the Maximum
Rate, being "Below ba3/BB-").
If a Fund fails to pay, in a timely manner, the auction agent the full
amount of any dividend on any shares of New MuniPreferred during a special rate
period of more than 364 rate period days, or during any rate period succeeding
any special rate period of more than 364 rate period days during which a failure
occurred that has not been cured, and the Fund does not cure the failure and pay
a late charge before 12:00 Noon on the fourth business day preceding the auction
date for the rate period subsequent to such rate period, no auction will be held
for New MuniPreferred shares for the subsequent rate period (or for any rate
period thereafter, to and including the rate period during which the failure is
cured and the late charge paid) (the late charge is to be paid only in the event
Moody's is rating New MuniPreferred shares at the time the Fund cures the
failure), and the dividend rate for New MuniPreferred shares for each such
subsequent rate period will be an annual rate equal to the Maximum Rate on the
auction date for each such subsequent rate period (but with the prevailing
rating for New MuniPreferred, for purposes of determining the Maximum Rate,
being "Below ba3/BB-").
B-11
<PAGE> 24
A Fund cures a failure to pay dividends on shares of New MuniPreferred for
any rate period if, within the respective time periods described in the
Statement, the Fund pays the auction agent all accumulated and unpaid dividends
on the New MuniPreferred shares.
Designation of Special Rate Periods. Each Fund may instruct the auction
agent to hold auctions and pay dividends less frequently than weekly. A Fund may
do this if, for example, Fund management expects that short-term rates might
increase or market conditions otherwise change, in an effort to optimize the
effect of the Fund's leverage on common shareholders. If a Fund decides to use a
special rate period, the special rate period will consist of a number of days
evenly divisible by seven and not more than 1,820 days (approximately five
years), subject to certain adjustments. The Funds do not currently expect to
hold auctions and pay dividends less frequently than weekly in the near future,
although this has happened in the past. If a Fund designates a special rate
period, changes in interest rates could affect the price you would receive if
you sold your shares in the secondary market.
Before a Fund designates a special rate period: (1) at least 20 and not
more than 30 days before the first day of the proposed special rate period, the
Fund must publish a notice of its intention to designate a special rate period
in a newspaper circulated to the financial community in New York, and must mail
a notice to MuniPreferred shareholders of that series of its intent to designate
a special rate period; (2) the Fund must inform the auction agent by 11:00 a.m.
Eastern time on the second business day before the first day of the proposed
special rate period; (3) an auction must have been held in the rate period
before the special rate period, and in that auction potential shareholders
seeking a dividend rate equal to or lower than the dividend rate resulting from
the auction entered bid orders for as many or more MuniPreferred shares than
current shareholders entering sell orders submitted and current shareholders
entering bid orders and seeking a dividend rate higher than the dividend rate
resulting from the auction; and (4) the Fund must deposit the redemption price
with the auction agent for any shares of that series it has decided to redeem.
If a Fund has designated a special rate period of 14, 21, or 28 days, then
dividends will be paid on the same day of the week on which dividends are paid
in a seven day rate period, but will be the second, third, or fourth such day,
respectively, after the first day of the special rate period. For example, if
your dividend payment date normally is Monday, the dividend payment date for a
special rate period of 14, 21, or 28 days will be the second, third, or fourth
Monday, respectively, after the first day of the special rate period. The
dividend payment date for a special rate period of more than 28 days will be set
out in the notice designating a special rate period. The dividend payment date
will be a business day, and the last dividend payment date for any special rate
period will be the business day immediately following the last day of the
special rate period. After any special rate period, the rate periods normally
will be seven days, and dividends on New MuniPreferred shares will be payable,
except as described below, on each succeeding regular dividend payment date, but
the Fund may further designate any subsequent rate period as a special rate
period.
Maximum Rate. The dividend rate that results from an auction for New
MuniPreferred shares will not be greater than the Maximum Rate, which is:
(a) for any auction date which is not the auction date immediately
prior to the first day of any proposed special rate period, the product of
(i) the Reference Rate on that auction date for the next rate period of New
MuniPreferred shares and (ii) the Rate Multiple on that auction date,
unless New MuniPreferred shares have or had a special rate period (other
than a special rate period of 28 days or fewer) and an auction at which
"sufficient clearing bids" existed has not yet occurred after that special
rate period for a minimum rate period (seven days) of New MuniPreferred
shares, in which case the higher of:
(A) the dividend rate on New MuniPreferred shares for the
then-ending rate period, and
(B) the product of (x) the higher of (I) the Reference Rate on that
auction date for a rate period equal in length to the then-ending rate
period of New MuniPreferred shares, if the then-ending rate period was
364 days or fewer, or the Treasury Note Rate on that auction date for a
rate period equal in length to the then ending rate period of New
MuniPreferred shares, if the then-ending rate period was more than 364
days, and (II) the Reference Rate on that auction date for a
B-12
<PAGE> 25
rate period equal in length to that special rate period of New
MuniPreferred shares, if that special rate period was 364 days or fewer,
or the Treasury Note Rate on that auction date for a rate period equal
in length to that special rate period, if that special rate period was
more than 364 days and (y) the Rate Multiple on that auction date; or
(b) for any auction date that is the auction date immediately prior to
the first day of any proposed special rate period, the product of (i) the
highest of (x) the Reference Rate on that auction date for a rate period
equal in length to the then-ending rate period of New MuniPreferred shares,
if the then-ending rate period was 364 days or fewer, or the Treasury Note
Rate on that auction date for a rate period equal in length to the
then-ending rate period of New MuniPreferred shares, if the then-ending
rate period was more than 364 days, (y) the Reference Rate on that auction
date for the special rate period for which the auction is being held if
that special rate period is 364 days or fewer or the Treasury Note Rate on
that auction date for the special rate period for which the auction is
being held if that special rate period is more than 364 days, and (z) the
Reference Rate on that auction date for minimum rate periods and (ii) the
Rate Multiple on that auction date.
The "Reference Rate" is, for a seven-day rate period or a special rate
period of 28 days or less, the higher of the taxable equivalent of the
short-term municipal bond rate and the "AA" Composite Commercial Paper Rate; for
a special rate period of more than 28 but less than 183 days, the "AA" Composite
Commercial Paper Rate; and for a special rate period of more than 182 but less
than 365 days, the Treasury Bill Rate.
The "AA" Composite Commercial Paper Rate, Treasury Note Rate, and Treasury
Bill Rate will be the rates announced on the auction date for the business day
immediately before the auction date. See Appendix B to the Statement of
Additional Information for a definition of these rates and the taxable
equivalent of the short-term municipal bond rate. The "Rate Multiple" will be a
percentage, determined as set out below, based on the prevailing rating of
MuniPreferred shares of that series in effect at the close of business on the
business day immediately before the auction date. See Page B-A-5 of Appendix B
to the Statement of Additional Information for a description of "prevailing
rating."
<TABLE>
<CAPTION>
PREVAILING MUNIPREFERRED RATING PERCENTAGE
------------------------------- ----------
<S> <C>
aa3/AA- or higher........................................... 110%
a3/A-....................................................... 125%
baa3/BBB-................................................... 150%
ba3/BB-..................................................... 200%
Below ba3/BB-............................................... 250%
</TABLE>
If a Fund has notified the auction agent that it intends to allocate
Federal taxable income to MuniPreferred shares before the auction establishing
the dividend rate for those shares, the applicable percentage in the table above
will be divided by the quantity 1 minus the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal (and, if the Fund is a state Fund, the maximum marginal state
and, in some cases, local rate) corporate income tax rate, whichever is greater.
If only one rating agency is rating MuniPreferred shares, that agency's rating
will be the prevailing rating.
Restrictions on Dividends and Other Distributions. When a Fund has any
MuniPreferred shares outstanding, the Fund may not pay any dividend or
distribution (other than a stock dividend) to shareholders of its common stock
unless (1) it has paid all cumulative dividends on MuniPreferred shares; (2) it
has redeemed any MuniPreferred shares that it has called for mandatory
redemption, and (3) after paying the dividend, the Fund meets Moody's and
Standard & Poor's asset coverage requirements for "Aaa" and "AAA" ratings,
respectively (or Aa1 and AA+, in the case of the Nuveen Michigan Quality Income
Municipal Fund, Inc.) and 1940 Act asset coverage requirements.
Gross-Up Payments. If a Fund allocates net capital gain or other taxable
income on a dividend on MuniPreferred shares for a rate period of 28 days or
less, the Fund usually will inform the auction agent of this fact before the
next auction. The auction agent will notify Broker-Dealers, who in turn are
expected to notify MuniPreferred shareholders and potential MuniPreferred
shareholders. If the Fund does not inform the
B-13
<PAGE> 26
auction agent that the dividend will include net capital gain or other taxable
income before the next auction, and the allocation is made retroactively solely
as a result of the redemption of some or all of the MuniPreferred shares or the
liquidation of the Fund, the Fund will, before the end of the calendar year in
which the dividend was paid, send a "gross-up" payment to MuniPreferred
shareholders.
If a Fund allocates net capital gains or other taxable income on a dividend
on MuniPreferred shares for a rate period of more than 28 days, the Fund will
send a "gross-up" payment to MuniPreferred shareholders before the end of the
calendar year in which the dividend was paid. A "gross-up" payment is the amount
of money that, giving effect to the taxable portion of a dividend, would cause a
shareholder's Federal after-tax return (taking into account both the taxable
portion of the dividend and the gross-up payment) to be equal to the after-tax
return the shareholder would have received if no such taxable allocation had
occurred. For state funds, the gross-up payment will take into account what the
shareholder's Federal and state after-tax return would have been. When the Fund
calculates the gross-up payment, it does not take into account the time value of
money, and it assumes that you are in the highest applicable federal tax bracket
and that you are not subject to the federal alternative minimum tax. See "Tax
Matters" in the Statement of Additional Information for additional details.
The Funds have received an opinion of counsel to the effect that the manner
in which the Funds intends to allocate items of tax-exempt income, net capital
gain and other taxable income, if any, between common shares and MuniPreferred
shares will be respected for Federal income tax purposes. This opinion of
counsel represents only counsel's best legal judgment, and is not binding on the
Internal Revenue Service or the courts. The Funds are not required to make
gross-up payments for any net capital gain or other taxable income the Internal
Revenue Service ("IRS") determines is allocable in a manner different from the
manner in which the Funds allocated those gains or income. See "Tax Matters" in
the Statement of Additional Information.
REDEMPTION
You do not have the right to redeem your MuniPreferred shares. A Fund will
be required to redeem your shares in certain circumstances, and has the right to
redeem your MuniPreferred shares under certain conditions.
Mandatory Redemption. Each Fund is required under the 1940 Act to maintain
a ratio of total assets to MuniPreferred shares of at least two to one (200%
asset coverage). Essentially, for every two dollars of Fund assets, a Fund can
issue one dollar of MuniPreferred shares (measured by liquidation preference).
Each Fund's Articles of Incorporation or Declaration of Trust require it to
redeem MuniPreferred shares if it does not maintain this two to one ratio. After
the offering, each Fund expects that its asset coverage will be approximately
285%. Each Fund also must redeem MuniPreferred shares if it fails to maintain
the rating agencies' MuniPreferred Basic Maintenance Amount. See "Description of
MuniPreferred -- Asset Maintenance and Rating Agency Guidelines -- Rating
Agencies." The redemption price will be $25,000 per share plus the amount of
accumulated but unpaid dividends, up to the redemption date. A Fund will redeem
only the amount of MuniPreferred shares necessary to comply with the 1940 Act
restrictions, the rating agencies' requirements, or both.
Optional Redemption. Each Fund may, but is not required to, redeem
MuniPreferred shares under certain conditions. The redemption price will be
$25,000 per share plus the amount of accumulated but unpaid dividends, up to the
redemption date. A Fund may redeem MuniPreferred shares in whole or in part, on
the second business day before any dividend payment date for shares of that
series, out of funds legally available, at the redemption price, but (1) the
Fund may not redeem shares in part if after the partial redemption there are
fewer than 500 shares of that series outstanding; and (2) the notice
establishing a special rate period of shares of that series may provide that
shares of that series may not be redeemable during all or a part of the special
rate period, or shall be redeemable only upon payment of specified redemption
premiums. The Fund also may redeem shares as a whole but not in part, out of
funds legally available, on the first day after any dividend period included in
a special rate period of more than 364 days if, on the date the dividend rate
was determined for shares of that series for the special rate period, the
dividend rate equaled or exceeded the yield
B-14
<PAGE> 27
on the most recently auctioned U.S. Treasury note with a remaining maturity
closest to the same special rate period.
Notice of Redemption. Notice of redemption will be made by mailing a
notice to each shareholder of any series to be redeemed, at least 20 but not
more than 45 days before the redemption date, at the address as it appears in a
Fund's stock books. The notice will state (1) the redemption date; (2) the
number of shares of each MuniPreferred series to be redeemed; (3) the CUSIP
number for that series; (4) the redemption price; (5) that the dividends on
shares to be redeemed will cease to accumulate on the redemption date; and (6)
the provisions of the Statement of Preferences under which the redemption is
made. If the Fund intends to redeem fewer than all of the shares of a series,
the notice will state the number of shares to be redeemed from the shareholder.
Other Redemption Procedures. If a Fund mails a notice of redemption, but
does not redeem shares because there are no legally available monies for this
purpose, the Fund will redeem shares as soon as practicable when monies are
legally available. The Fund will be deemed to have failed to redeem shares at
any time after a redemption date when the Fund has failed, for any reason, to
deposit the redemption price for those shares with the auction agent. Even if
the Fund has failed to redeem shares for which a notice has been mailed,
dividends on MuniPreferred shares may be declared and paid on all shares of
MuniPreferred, including those shares for which a notice of redemption has been
mailed.
When the Fund has mailed a notice of redemption and deposited monies
sufficient to redeem those shares with the auction agent, dividends on those
shares will cease to accumulate and the shares will no longer be deemed to be
outstanding for any purpose. All rights of the holders of these shares will
cease except for the right to receive the redemption price, but without any
interest or other payments, except as provided under "Description of
MuniPreferred -- Dividends and Rate Periods -- Gross-Up Payments." The Fund is
entitled to receive from the auction agent, promptly after the redemption date,
any monies deposited in excess of the redemption price of the shares called for
redemption, and all other amounts to which MuniPreferred shares called for
redemption may be entitled. Any deposited funds that are unclaimed after 90 days
from the redemption date will, if permitted by law, be repaid to the Fund. After
this time MuniPreferred shareholders whose shares were called for redemption may
look only to the Fund for payment of the redemption price and all other amounts
to which they may be entitled. The Fund may receive, after the redemption date,
any interest on the funds deposited with the auction agent.
If any dividends on MuniPreferred shares of a series are in arrears, a Fund
may not redeem any MuniPreferred shares of that series unless it redeems all
outstanding shares of that series simultaneously, and the Fund may not buy or
acquire any MuniPreferred shares of that series. This will not prevent the Fund
from buying or acquiring all of the outstanding shares of that MuniPreferred
series through the successful completion of an otherwise lawful purchase or
exchange offer made on the same terms to, and accepted by, all holders of
outstanding shares of that series of MuniPreferred.
LIQUIDATION
If a Fund is liquidated, MuniPreferred shareholders will receive $25,000
per share, plus all dividends that have been declared but not paid, and any
gross-up payments (see "Description of MuniPreferred -- Dividends and Rate
Periods -- Gross-Up Payments"), subject to the rights of holders of shares
ranking equally with MuniPreferred shares as to distribution of assets on
liquidation. MuniPreferred shareholders will receive these payments before any
common shareholders receive any payments or distributions. After MuniPreferred
shareholders have been paid, they will not have the right to receive any
remaining assets of the Fund. The Fund will not be considered "liquidated" if it
sells all or substantially all of its property, or merges or consolidates with
or into any other corporation.
ASSET MAINTENANCE AND RATING AGENCY GUIDELINES
1940 Act. The 1940 Act requires each Fund to maintain, immediately after
the issuance of New MuniPreferred, asset coverage of at least 200% for senior
securities that are stock, including MuniPreferred
B-15
<PAGE> 28
shares. Each Fund must maintain, as of the last business day of each month in
which any MuniPreferred shares are outstanding, asset coverage of at least 200%
for MuniPreferred shares (or other asset coverage that the 1940 Act may require
in the future). If a Fund fails to maintain this asset coverage, and the Fund
does not cure this failure as of the last business day of the following month,
the Articles of Incorporation or Declaration of Trust require the Fund under
certain circumstances to redeem MuniPreferred shares. See "Description of
MuniPreferred -- Redemption." Based on the composition of each Fund's portfolio
and market conditions as of the date of the offering, assuming the issuance of
all shares of New MuniPreferred for each Fund, and taking into account the
deduction of offering costs and sales loads, the asset coverage for each Fund's
MuniPreferred shares would have been approximately 285%.
Rating Agencies. So long as a Fund has MuniPreferred shares outstanding,
the Fund is required to maintain ratings for MuniPreferred shares of "Aaa" from
Moody's or "AAA" from Standard & Poor's (Aa1 or AA+, in the case of the Nuveen
Michigan Quality Income Municipal Fund, Inc.). These ratings reflect the rating
agencies' opinion of the creditworthiness of MuniPreferred shares. The Fund will
pay fees to Moody's and/or Standard & Poor's for these ratings. A preferred
stock rating is a rating agency's assessment of the issuer's capacity and
willingness to pay preferred share obligations. MuniPreferred ratings are not
recommendations to buy, hold, or sell MuniPreferred shares, because they do not
comment on market price or suitability for a particular investor. Ratings agency
guidelines do not address the likelihood that a shareholder will be able to sell
its shares at an auction or otherwise. The ratings are based on current
information the Fund and Nuveen Advisory furnish to the rating agencies, and on
information obtained from other sources. The rating agencies may change,
suspend, or withdraw their ratings because of changes in, or the unavailability
of, this information. No rating agency has rated the Fund's common stock.
Moody's and Standard & Poor's have developed guidelines the Funds must
follow to maintain these ratings. The guidelines are designed to ensure that
portfolio securities underlying MuniPreferred shares will be sufficiently
varied, and of sufficient quality and amount, to justify the assigned ratings.
While the guidelines do not have the force of law, each Fund has adopted them to
obtain the rating agencies' ratings on MuniPreferred shares. The guidelines
supplement and in some cases are more restrictive than the 1940 Act's
requirements for closed-end funds that issue preferred stock. A Fund may, but is
not required to, adopt any modifications to these guidelines that Moody's or
Standard & Poor's may later establish. If a Fund fails to adopt these
modifications, however, the rating agencies may change or withdraw their
ratings. In any event, the rating agencies may at any time change or withdraw
their ratings. Because each Fund must maintain "Aaa" (from Moody's) or "AAA"
(from Standard & Poor's) ratings on MuniPreferred shares (Aa1 or AA+, in the
case of the Nuveen Michigan Quality Income Municipal Fund, Inc.), each Fund
would be required to take action if the rating agencies lowered or withdrew
their ratings. See "Description of MuniPreferred -- Redemption." A Fund's Board
of Directors may, without shareholder approval, change certain definitions or
restrictions that the Fund has adopted in connection with the rating agency
guidelines, but only if Moody's or Standard & Poor's has confirmed to the Fund
or the Board in writing that any change would not impair their ratings of
MuniPreferred shares.
The rating agencies also limit some of each Fund's activities. So long as a
rating agency is rating a Fund's MuniPreferred shares, the Fund will only enter
into futures or options transactions in accordance with that agency's guidelines
and after the rating agency confirms in writing that these transactions will not
impair the rating on MuniPreferred shares. In addition, a Fund may not, among
other things, (1) borrow money (except to clear securities transactions or pay
dividends and only if the Fund maintains the MuniPreferred Basic Maintenance
Amount, described below); (2) sell securities short, or (3) lend any securities,
unless the rating agency confirms in writing that the loan would not impair the
rating on MuniPreferred shares. Each Fund does not intend to borrow money; each
has an operating policy that prevents it from borrowing an amount greater than
5% of its total assets so long as MuniPreferred shares are outstanding; and the
rating agencies restrict each Fund's ability to borrow money. Nevertheless,
under certain circumstances each Fund is allowed to borrow money for temporary
or emergency purposes or to repurchase shares when borrowing is deemed to be in
the best interests of the common shareholders. See "Repurchase of Shares or
Conversion to an Open-End Fund." If a Fund borrows, it would be required to pay
interest on that debt before it pays any dividends to MuniPreferred
shareholders, and it likely would have to repay the principal due before it
could pay the
B-16
<PAGE> 29
liquidation preference on MuniPreferred shares. Interest expense will reduce the
Fund's net investment income, and thus borrowing may impair the Fund's ability
to pay dividends to MuniPreferred shareholders. This risk will be higher if the
Fund borrows money at a variable interest rate that increases when prevailing
market rates increase.
MuniPreferred Basic Maintenance Amount. Moody's and Standard & Poor's
require each Fund to maintain assets having, in the aggregate, a "discounted
value" at least equal to the MuniPreferred Basic Maintenance Amount. Each rating
agency has its own guidelines for determining the "discounted value" of the
value of the Fund's portfolio holdings. The discount factors applied by each
rating agency to portfolio securities include the sensitivity of a security's
value to changes in interest rates, the liquidity and depth of the market for
the security, the security's credit quality, and how often the security is
marked to market. If a security in the Fund's portfolio does not meet a rating
agency's guidelines, all or part of it will not be included in the calculation
of "discounted value." See Appendix A to the Statement of Additional Information
for a detailed description of the Moody's and Standard & Poor's rating
guidelines. These requirements are discussed below.
The Moody's and Standard & Poor's guidelines do not limit the percentage of
a Fund's assets that may be invested in holdings not eligible to be included in
calculating discounted value. The amount of these ineligible assets included in
the portfolio at any time may vary depending upon the rating, diversification
and other characteristics of the eligible assets included in the portfolio,
although each Fund does not expect that in the normal course of business the
value of these ineligible assets would exceed 20% of the Fund's total assets.
The MuniPreferred Basic Maintenance Amount is, on any day, the sum of the
liquidation preference value of MuniPreferred shares outstanding, accumulated
but unpaid dividends, estimated dividends for the next nine weeks, a Fund's
anticipated expenses for the next three months, any gross-up payments the Fund
intends to pay to MuniPreferred shareholders, and any other current liabilities;
minus the value of any assets the Fund has set aside to pay its current
liabilities.
If a Fund does not cure its failure to maintain the MuniPreferred Basic
Maintenance Amount, the Fund promptly will alter its portfolio to reattain the
MuniPreferred Basic Maintenance Amount, which will cause the Fund to incur
transaction costs and possible gains or losses on the sale of portfolio
securities. Further, if the Fund does not cure a failure in a timely manner and
Moody's and/or Standard & Poor's is rating MuniPreferred shares, the Fund will
be required to redeem MuniPreferred shares. See "Description of
MuniPreferred -- Redemption." Nuveen Advisory will not alter the Fund's
portfolio if, in its reasonable belief, the effect of the alteration would cause
the Fund to have "eligible" assets (assets that can be included in the
calculation of discounted value) on any business day with an aggregate
discounted value of less than the MuniPreferred Basic Maintenance Amount as of
the previous business day. If, however, on a business day the Fund has
"eligible" assets with an aggregate discounted value that exceeds the
MuniPreferred Basic Maintenance Amount by 5 percent or less as of the previous
business day, Nuveen Advisory will not alter the Fund's portfolio in a manner
reasonably expected to reduce the discounted value of the Fund's eligible
assets, unless the Fund confirms that after the alteration, the aggregate
discounted value of the Fund's eligible assets would exceed the MuniPreferred
Basic Maintenance Amount.
VOTING RIGHTS
MuniPreferred shareholders generally have equal voting rights with common
shareholders (that is, each common or MuniPreferred share has one vote), and
will vote with them as a single class. MuniPreferred shareholders vote
separately in several circumstances. First, MuniPreferred shareholders vote as a
separate class to elect two of a Fund's directors, and to elect a majority of
the Fund's directors if the Fund fails to pay dividends to MuniPreferred
shareholders for two years. The common shareholders and the MuniPreferred
shareholders, voting together, will elect the remaining directors, in each case.
Second, a majority of MuniPreferred shareholders, voting as a separate class,
must approve a Fund's conversion from a closed-end to an open-end fund, or a
plan of reorganization adversely affecting the MuniPreferred shares. Third, a
majority of MuniPreferred shareholders, voting as a separate class, must approve
changes to a Fund's fundamental investment policies.
B-17
<PAGE> 30
For those Funds organized as Minnesota corporations, when MuniPreferred
shareholders vote as a class, Minnesota law requires a vote of holders of a
majority of the MuniPreferred shares to approve the action, unless the Fund's
Articles of Incorporation or the 1940 Act require a different percentage. For
those Funds organized as Massachusetts business trusts, when MuniPreferred
shareholders vote as a class, the Declaration of Trust generally requires a vote
of holders of a majority of the MuniPreferred shares to approve the action,
unless the 1940 Act requires a different percentage.
Each Fund may not, without the approval of holders of a majority of the
MuniPreferred shares: (1) create or issue any class of security that ranks
superior to shares of MuniPreferred, as to paying dividends or distributing
assets if the Fund liquidates, or (2) materially modify the Fund's Articles of
Incorporation, Declaration of Trust, or the Statement of Preferences to affect
the rights or powers of the MuniPreferred shareholders. Subject to certain
rating agency approvals, the Board, without the vote or consent of the
MuniPreferred shareholders, may from time to time authorize and create (and a
Fund may from time to time issue) additional shares of any series of
MuniPreferred or classes or series of preferred stock that rank equal to shares
of MuniPreferred as to the payment of dividends and the distribution of assets
upon liquidation.
If you do not vote your MuniPreferred shares, and you hold your shares
through a member of the New York Stock Exchange, the Exchange's rules allow your
Broker-Dealer or broker-dealer to vote them for you and for all of its customers
who own MuniPreferred shares but have not voted, if: (1) the Broker-Dealer or
broker-dealer has sent you the proxy; (2) you have not instructed your
Broker-Dealer or broker-dealer how to vote your shares; (3) the owners of at
least 30% of the MuniPreferred shares of a particular Fund (or shares of each
series of a Fund's MuniPreferred shares, when a series-by-series vote is
required) have voted; (4) less than 10% of the MuniPreferred shares of a
particular Fund (or shares of each series of the Fund's MuniPreferred shares,
when a series-by-series vote is required) have voted against the proposal; (5)
in situations when the common and MuniPreferred shareholders vote together on
the proposal, the common shareholders have approved the proposal; and (6) a
majority of the Fund's independent directors approved the proposal. Your
Broker-Dealer or broker-dealer will vote your shares in the same proportion as
all of its other customers who own MuniPreferred shares and who actually voted.
For example, if 60% of a Broker-Dealer's customers who own MuniPreferred shares
vote their shares, and 92% vote "for" a proposal and 8% vote "against," then the
Broker-Dealer will vote the remaining 40% of its customers= MuniPreferred shares
92% "for" and 8% "against." If you do not hold your shares through a member of
the New York Stock Exchange, your Broker-Dealer, broker-dealer, or other nominee
may not be able to vote your shares for you and for all of its customers who own
MuniPreferred shares but have not voted, depending on the rules applicable to
that Broker-Dealer, broker-dealer, or nominee.
THE AUCTION
SUMMARY OF AUCTION PROCEDURES
The following is a brief summary of the auction procedures. They are
described in more detail after this summary. The auction procedures are
complicated, and there are exceptions to these procedures. Many of the terms in
this section have a special meaning. Any terms in this section not defined have
the meaning assigned to them in the Statement of Preferences. See Appendix B to
the Statement of Additional Information for a full description of the auction
procedures. The auction determines the Applicable Rate (the dividend rate) for
MuniPreferred shares, but the Applicable Rate will not be higher than the
Maximum Rate. See "Description of MuniPreferred -- Dividends and Rate
Periods -- Maximum Rate." You also may buy or sell shares in the auction.
If you own MuniPreferred shares, you may instruct, orally or in writing, a
Broker-Dealer or a broker-dealer that has entered into an agreement with a
Broker-Dealer, to enter an order in the auction. If your broker-dealer is not an
agent member of the Depository Trust Company, or an affiliate of an agent
member, it may submit orders for MuniPreferred shares to John Nuveen & Co.
Incorporated. Existing MuniPreferred shareholders can enter three kinds of
orders regarding their MuniPreferred shares: sell, bid, and hold.
- If you enter a sell order, you indicate that you want to sell shares of
MuniPreferred at $25,000 per share, no matter what the next rate period's
Applicable Rate will be.
B-18
<PAGE> 31
- If you enter a bid (or "hold at a rate") order, you indicate that you
want to sell shares of MuniPreferred only if the next rate period's
Applicable Rate is less than the rate you specify.
- If you enter a hold order, you indicate that you want to continue to own
shares of MuniPreferred, no matter what the next rate period's Applicable
Rate will be.
You may enter different types of orders for your MuniPreferred shares, as
well as orders for additional MuniPreferred shares. All orders must be for whole
shares. All orders you submit are irrevocable. There are a fixed number of
MuniPreferred shares, and the Applicable Rate likely will vary from auction to
auction depending on the number of bidders, the number of shares the bidders
seek to buy, and general economic conditions including current interest rates.
If you own MuniPreferred shares and submit a bid higher than the Maximum Rate,
your bid will be treated as a sell order. If you do not enter an order, the
Broker-Dealer will assume that you want to continue to hold MuniPreferred
shares, but if you fail to submit an order and the rate period is longer than 28
days, the Broker-Dealer will treat your failure to submit a bid as a sell order.
If you do not currently own shares of MuniPreferred, or want to buy more
shares, you may instruct a Broker-Dealer, or a broker-dealer that has entered
into an agreement with a Broker-Dealer, to enter an bid order to buy shares in
an auction at $25,000 per share, at a specified dividend rate. If your bid
specifies a rate higher than the Maximum Rate, your order will not be accepted.
Broker-Dealers will submit orders from existing and potential shareholders
to the auction agent. Neither the Fund nor the auction agent will be responsible
for a Broker-Dealer's failure to submit orders from existing shareholders and
potential shareholders. A Broker-Dealer's failure to submit orders for
MuniPreferred shares held by it or its customers will be treated in the same
manner as a shareholder's failure to submit an order to the Broker-Dealer. A
Broker-Dealer (other than an affiliate of a Fund) may submit orders to the
auction agent for its own account.
If the number of MuniPreferred shares of a series subject to bid orders
with a dividend rate equal to or lower than the Maximum Rate for shares of that
series is at least equal to the number of MuniPreferred shares of that series
subject to sell orders, then the Applicable Rate for the next rate period will
be the lowest rate submitted which, taking into account that rate and all lower
rates submitted in order from existing and potential shareholders, would result
in existing and potential shareholders owning all the MuniPreferred shares
available for purchase in the auction.
If the number of MuniPreferred shares of a series subject to bid orders
with a dividend rate equal to or lower than the Maximum Rate for shares of that
series is less than the number of MuniPreferred shares of that series subject to
sell orders, then the auction is considered to be a failed auction, and the
dividend rate will be the Maximum Rate. In that event, existing shareholders
that have submitted sell orders (or are treated as having submitted sell orders)
may not be able to sell any or all the shares for which they submitted sell
orders.
The auction agent will not accept a bid above the Maximum Rate from a
potential shareholder, and will treat such a bid from an existing shareholder as
a sell order. The purpose of the Maximum Rate is to place an upper limit on
MuniPreferred dividends and in so doing to help protect the earnings available
to pay common share dividends, and to serve as the Applicable Rate in the event
of a failed auction (that is, an auction where there are more MuniPreferred
shares offered for sale than there are buyers for those shares).
If Broker-Dealers submit or are deemed to submit hold orders for all
outstanding shares of a series of MuniPreferred, this is considered an "all
hold" auction and the Applicable Rate for the next rate period will be the All
Hold Order Rate. See "The Auction -- Determination of Sufficient Clearing Bids,
Winning Bid Rate, and Applicable Rate" and Appendix B to the Statement of
Additional Information for a description of this rate.
The auction procedures include a pro rata allocation of shares for purchase
and sale. This may result in an existing shareholder continuing to hold or
selling, or a potential shareholder buying, fewer shares than the number of
shares in its order. If this happens, Broker-Dealers will be required to make
appropriate pro rata allocations among their customers.
B-19
<PAGE> 32
Settlement of purchases and sales will be made on the next business day
(which also is a dividend payment date) after the auction date, through the
Depository Trust Company. Purchasers will pay for their shares through
Broker-Dealers in same-day funds to the Depository Trust Company against
delivery to the Broker-Dealers. The Depository Trust Company will make payment
to the sellers' Broker-Dealers in accordance with its normal procedures, which
require Broker-Dealers to make payment against delivery in same-day funds.
If a Fund plans to include any net capital gains or other Federal taxable
income in a MuniPreferred dividend, it generally will notify the auction agent
of the amount to be included, at least a week before the dividend payment date
for the rate period in which taxable income will be included in a dividend. The
auction agent will notify Broker-Dealers, who in turn will notify their
customers.
The following is a simplified example of how a typical auction works.
Assume that a Fund has 1000 outstanding shares of New MuniPreferred, and three
current shareholders. The three current shareholders and three potential
shareholders submit orders through Broker-Dealers at the auction:
<TABLE>
<S> <C> <C>
Current Shareholder A........ Owns 500 shares, wants to sell all Bid order of 3.5% rate for all 500
500 shares if auction rate is less shares
than 3.5%
Current Shareholder B........ Owns 300 shares, wants to hold Hold order -- will take the auction
rate
Current Shareholder C........ Owns 200 shares, wants to sell all Bid order of 3.3% rate for all 200
200 shares if auction rate is less shares
than 3.3%
</TABLE>
<TABLE>
<S> <C> <C>
Potential Shareholder D...... Wants to buy 200 shares Places order to buy at or above 3.4%
Potential Shareholder E...... Wants to buy 300 shares Places order to buy at or above 3.3%
Potential Shareholder F...... Wants to buy 200 shares Places order to buy at or above 3.5%
</TABLE>
The lowest dividend rate that will result in all 1000 shares of New
MuniPreferred continuing to be held is 3.4% (the offer by D). Therefore, the
Applicable Rate will be 3.4%. Current shareholders B and C will continue to own
their shares, and current shareholder A will sell its shares, because A's
dividend rate bid was higher than the Applicable Rate. Potential shareholder D
will buy 200 shares, and Potential shareholder E will buy 300 shares, because
their bid rates were at or below the Applicable Rate. Potential shareholder F
will not buy any shares because its bid rate was above the Applicable Rate.
The foregoing discussion is a summary of the auction procedures. What
follows is a more detailed explanation of the auction procedures.
AUCTION DATES; ADVANCE NOTICE OF ALLOCATION OF TAXABLE INCOME
An auction to determine the Applicable Rate for New MuniPreferred shares
for each rate period after the initial rate period will be held on the first
business day preceding the first day of the rate period. The date is the
"auction date." The auction date and the first day of the related rate period
(which is also the dividend payment date for the preceding rate period) must be
business days but need not be consecutive days. See "Description of
MuniPreferred -- Dividends and Rate Periods -- Designation of Special Rate
Periods" for information about the circumstances under which the first day of a
rate period or the auction date, or both, may be moved to another date.
Whenever a Fund intends to include any net capital gains or other federal
taxable income in any MuniPreferred dividend, it will, for any rate period of 28
days or less, and may, for any rate period of more than 28 days, notify the
auction agent of the amount to be included, on or before the dividend payment
date next preceding the auction date on which the Applicable Rate is to be set.
When the auction agent receives
B-20
<PAGE> 33
this notice from the Fund, it will in turn notify each Broker-Dealer who, on or
before the auction date and in accordance with its broker-dealer agreement, will
notify its existing shareholders and persons it believes are interested in
submitting an order in that auction.
ORDERS BY EXISTING SHAREHOLDERS AND POTENTIAL SHAREHOLDERS
You may submit orders for an auction only through a Broker-Dealer (one that
has signed a dealer agreement with a Fund and the auction agent), or through a
broker-dealer that has entered into a correspondent arrangement with a
Broker-Dealer. Your order must be submitted before the submission deadline,
which is 1:30 p.m. Eastern time on the auction date. Your orders must indicate
whether you want to buy, sell, or hold some or all of your shares, and the
lowest dividend rate you will accept for the next rate period (normally one
week, although this can be extended). The auction agent selects the lowest
dividend rate bid that will result in all of the MuniPreferred continuing to be
held.
You may enter different types of orders for your MuniPreferred shares, as
well as orders for additional MuniPreferred shares. All orders you submit are
irrevocable. An existing shareholder's sell order will be an irrevocable offer
to sell MuniPreferred shares subject to the order. An existing shareholder's bid
order will be an irrevocable offer to sell MuniPreferred shares subject to the
order if the Applicable Rate is less than the rate specified in the bid order. A
potential shareholder's bid order will be an irrevocable offer to buy
MuniPreferred shares subject to the order if the Applicable Rate is equal to or
greater than the rate specified in the bid order. The number of shares you buy
or sell may be subject to proration.
Your order must be in whole shares. If you are an existing shareholder and
want to buy additional MuniPreferred shares, you will be treated as a potential
shareholder for those additional shares, for the purpose of determining the
priority of orders. See "The Auction -- Submission of Orders by Broker-Dealers
to Auction Agent." Broker-Dealers may contact prospective purchasers of
MuniPreferred shares to determine whether they wish to submit orders.
Any bid order that specifies a rate higher than the Maximum Rate will be
(1) treated as a sell order if an existing shareholder submits the order, and
(2) not be accepted if a potential shareholder submits the order. The auction
procedures establish the Maximum Rate that can result from an auction. See "The
Auction -- Determination of Sufficient Clearing Bids, Winning Bid Rate, and
Applicable Rate" and "The Auction -- Acceptance or Rejection of Orders and
Allocation of Shares."
SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT
Before the submission deadline, which is 1:30 p.m. Eastern time on each
auction date (or another time the auction agent specifies), each Broker-Dealer
will submit to the auction agent in writing all orders it obtained for the
auction. Any order submitted before the auction deadline will be irrevocable.
The auction agent is entitled to rely on the terms of any order a Broker-Dealer
submits. If any rate specified in a bid order contains more than three figures
to the right of the decimal point, the auction agent will round up that rate to
the next highest one-thousandth (.001) of 1%. If a potential shareholder submits
more than one bid order through a Broker-Dealer, each bid order will be treated
as a separate bid order with the rate and number of shares specified in the
order. If an existing shareholder submits through a Broker-Dealer one or more
orders covering in the aggregate more MuniPreferred shares of a series than the
existing shareholder owns, the orders will be considered valid in the following
order of priority:
1. All hold orders will be considered valid, up to and including in
the aggregate the number of MuniPreferred shares of that series the
shareholder owns.
2. (a) Any bid order will be considered valid, up to and including the
excess of the number of outstanding MuniPreferred shares of that series the
shareholder owns over the number of MuniPreferred shares of that series
subject to hold orders referred to in clause 1 above;
(b) subject to 2(a), if more than one bid order with the same
specified rate is submitted on behalf of an existing shareholder and the
number of MuniPreferred shares of that series subject to those bid
orders is greater than the excess, the bid orders will be considered
valid up to and including
B-21
<PAGE> 34
the amount of that excess, and the number of MuniPreferred shares of
that series subject to each bid order with the same rate will be reduced
pro rata to cover the number of MuniPreferred shares of that series
equal to the excess;
(c) subject to 2(a) and 2(b), if more than one bid order with
different rates is submitted on behalf of an existing shareholder, the
bid orders will be considered valid in the ascending order of their
respective rates up to and including the amount of that excess; and
(d) in any event, the number of shares subject to bids not valid
under this clause 2 will be treated as the subject of a bid order by a
potential shareholder at the rate specified in the order.
3. All sell orders will be considered valid, up to and including the
excess of the number of outstanding MuniPreferred shares of that series the
existing shareholder owns, over the sum of MuniPreferred shares of that
series subject to valid hold orders referred to in clause 1 above and valid
bid orders referred to in clause 2 above.
DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE, AND APPLICABLE RATE
The auction agent will assemble, not earlier than the submission deadline,
all valid orders submitted or deemed submitted by Broker-Dealers for a series of
MuniPreferred. The auction agent will determine the excess of the number of
outstanding shares of that series of MuniPreferred over the number of
outstanding shares subject to submitted hold orders, and will then determine
whether "sufficient clearing bids" have been made in the auction. "Sufficient
clearing bids" means that the number of outstanding MuniPreferred shares of that
series that are the subject of bid orders submitted by potential shareholders
specifying a rate not higher than the Maximum Rate, equals or exceeds the number
of outstanding shares of that series that are the subject of sell orders
submitted by existing shareholders (including the shares of that series that are
the subject of bid orders by existing shareholders specifying rates higher than
the Maximum Rate).
If sufficient clearing bids have been made, the auction agent will
determine the winning bid rate; that is, the lowest rate specified in the bid
orders which, taking into account the rates in the bid orders submitted by
existing shareholders, would result in existing shareholders continuing to hold
an aggregate number of outstanding MuniPreferred shares of that series which,
when added to the number of outstanding MuniPreferred shares of that series to
be bought by potential shareholders, would equal not less than the available
amount of outstanding MuniPreferred shares. The winning bid rate will be the
Applicable Rate for the next rate period for all outstanding shares of that
series.
If sufficient clearing bids have not been made (other than because all of
the outstanding MuniPreferred shares of that series are subject to hold orders),
the Applicable Rate for the next rate period for all outstanding shares of that
series will be the Maximum Rate. If sufficient clearing bids have not been made,
existing shareholders that submitted sell orders may not be able to sell any or
all of their shares in the auction, and will continue to hold those unsold
shares in the next rate period. Dividends in that next rate period may include
taxable income and gain. See "The Auction -- Auction Dates; Advance Notice of
Allocation of Taxable Income" and " -- Acceptance or Rejection of Orders and
Allocation of Shares."
If all of the outstanding shares of MuniPreferred for that series are
subject to hold orders, the Applicable Rate for the next period for all shares
of that series will be the All Hold Order Rate, which is the product of:
(1) (a) the "AA" Composite Commercial Paper Rate on the auction date
for that rate period if the rate period is less than one year or (b) the
Treasury Rate on that auction date for that rate period if the rate period
is one year or more; and
(2) 1 minus the maximum marginal regular Federal individual income tax
rate applicable to ordinary income or the maximum marginal regular Federal
corporate income tax rate, whichever is greater.
If a Fund has notified the auction agent that it intends to allocate any
net capital gains or other Federally taxable income to MuniPreferred shares for
that rate period, the Applicable Rate in an "all hold" auction for the portion
of the dividends that represents the allocation of net capital gains or other
Federally taxable
B-22
<PAGE> 35
income will be the rate in clause (1)(a) or (1)(b), as applicable, without being
multiplied by the factor in clause (2). See "Description of
MuniPreferred -- Dividends and Rate Periods -- Maximum Rate" for the definitions
of "AA Composite Commercial Paper Rate" and "Treasury Rate."
ACCEPTANCE OR REJECTION OF ORDERS AND ALLOCATION OF SHARES.
Based on the determinations made under "Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate," and subject to the auction
agent's discretion to round and allocate shares as described below, the auction
agent will accept or reject submitted bid and sell orders in the order of
priority set out in the Auction Procedures. The result will be that existing and
potential shareholders will sell, continue to hold, and/or purchase outstanding
MuniPreferred shares of that series as described below. Existing shareholders
that submitted or were deemed to have submitted hold orders will continue to own
MuniPreferred shares subject to those hold orders.
Sufficient Clearing Bids. If sufficient clearing bids have been made in an
auction for a series of MuniPreferred, orders will be accepted or rejected in
the following order:
1. Each existing shareholder that submitted a sell or bid order
specifying a rate higher than the winning bid rate will sell outstanding
MuniPreferred shares subject to that sell or bid order.
2. Each existing shareholder that submitted a bid order specifying a
rate lower than the winning bid rate will continue to hold outstanding
MuniPreferred shares subject to that bid order.
3. Each potential shareholder that submitted a bid order specifying a
rate lower than the winning bid rate will have its bid order accepted
(although it may not be able to buy all the shares specified in its order).
4. Each existing shareholder that submitted a bid order specifying a
rate equal to the winning bid rate will continue to hold the outstanding
MuniPreferred shares subject to that bid order. But if the number of
outstanding MuniPreferred shares subject to all bid orders is greater than
the number of outstanding MuniPreferred shares in excess of the available
outstanding MuniPreferred shares of that series over the number of
outstanding MuniPreferred shares accounted for in clauses 2 and 3 above,
then each existing shareholder that submitted a bid order specifying a rate
equal to the winning bid rate will continue to hold a number of the
outstanding MuniPreferred shares subject to that bid order, determined on a
pro rata basis based on the number of outstanding MuniPreferred shares
subject to all bid orders by existing shareholders.
5. Each potential shareholder that submitted a bid order specifying a
rate equal to the winning bid rate will buy any shares of available
outstanding MuniPreferred shares not accounted for in clauses 2 through 4,
above, on a pro rata basis based on the number of outstanding MuniPreferred
shares subject to all bid orders.
Insufficient Clearing Bids. If sufficient clearing bids have not been made
in an auction for a series of MuniPreferred (unless this is because all
outstanding MuniPreferred shares of that series are subject to hold orders):
1. Each existing shareholder that submitted a bid order specifying a
rate equal to or lower than the Maximum Rate will continue to hold
outstanding MuniPreferred shares subject to that bid order.
2. Each potential shareholder that submitted a bid order specifying a
rate equal to or lower than the Maximum Rate will buy the number of
outstanding MuniPreferred shares subject to that bid order.
3. Each existing shareholder that submitted bid order specifying a
rate higher than the Maximum Rate, or a sell order, will sell a number of
outstanding MuniPreferred shares determined on a pro rata basis based on
the number of outstanding MuniPreferred shares subject to all bid and sell
orders.
If, because of the pro rata allocation described in clauses 4 and 5 in
"Sufficient Clearing Bids," or in clause 3 of "Insufficient Clearing Bids," any
existing shareholder would be entitled or required to sell, or any potential
shareholder would be entitled or required to buy, a fractional share of
MuniPreferred, the auction
B-23
<PAGE> 36
agent will, in its sole discretion, round up or down to the nearest whole share
the number of MuniPreferred shares sold or bought on the auction date so that
the number of shares an existing or potential shareholder sells or buys will be
whole shares.
If, because of the pro rata allocation described in clause 5 in "Sufficient
Clearing Bids," any potential shareholder would be entitled or required to buy
less than a whole MuniPreferred share, the auction agent will in its sole
discretion, allocate MuniPreferred shares for purchase among potential
shareholders so that any potential shareholders will only buy whole shares, even
if this means that one or more potential shareholders will not buy any
MuniPreferred shares.
NOTIFICATION OF RESULTS; SETTLEMENT
The auction agent will notify, by telephone by approximately 3:00 p.m.
Eastern time on the auction date, each Broker-Dealer that submitted an order, of
the Applicable Rate for the next rate period and, if the order was a bid or sell
order, whether the order was accepted or rejected in whole or in part. Each
Broker-Dealer that submitted an order on behalf of an existing or potential
shareholder will notify that person of the Applicable Rate for the next rate
period and, if the order was a bid or sell order, whether the order was accepted
or rejected in whole or in part; and will confirm purchases and sales with each
existing or potential shareholder purchasing or selling shares as a result of
the auction. The auction agent will record each transfer of MuniPreferred shares
on the registry of existing shareholders it maintains.
In accordance with the Depository Trust Company's normal procedures, on the
business day after the auction date, purchases and sales of MuniPreferred shares
will be executed through the Depository Trust Company and the accounts of the
agent members will be debited and credited and shares delivered as necessary to
effect the purchases and sales of MuniPreferred shares as determined in the
auction. Purchasers will make payment though their agent members in same-day
funds to the Depository Trust Company against delivery through their agent
members; the Depository Trust Company will make payment in accordance with its
normal procedures, which now provide for payment against delivery by its agent
members in same-day funds.
If any existing shareholder selling MuniPreferred shares in an auction
fails to deliver its shares, the Broker-Dealer of any buyer of shares in an
auction may deliver to that person a number of whole MuniPreferred shares that
is less than the number of shares that the person otherwise was to buy. In that
event, the Broker-Dealer will determine the number of MuniPreferred shares to be
delivered, and delivery of the lesser number of shares will constitute good
delivery.
AUCTION AGENT
The auction agent acts as an agent of each of the Funds. Unless the auction
agent acts in bad faith or negligently, it will not be liable for any action
taken, suffered, or omitted or for any error of judgment it makes in the
performance of its duties under the Auction Agency Agreement, and it will not be
liable for any error of judgment it makes in good faith unless it is negligent
in ascertaining the pertinent facts. The auction agent may terminate the Auction
Agency Agreement as to one or more Funds upon 45 days' notice to the Fund(s). If
the auction agent should resign, the Fund will use its best efforts to enter
into an agreement with a successor auction agent that contains substantially the
same terms and conditions as the Auction Agent Agreement. A Fund may remove the
auction agent, but before this removal, the Fund must have entered into an
agreement with a successor auction agent.
BROKER-DEALERS; PARTICIPATION FEE
After each auction, the auction agent will pay to each Broker-Dealer, from
monies a Fund provides, a participation fee at the annual rate of 1/4 of 1% of
the Fund's net assets for any auction immediately preceding a rate period of
less than one year. For a rate period of one year or longer, the amount will be
a percentage of the purchase price of MuniPreferred shares the broker-dealer
places at that auction, as the Fund and Broker-Dealers may agree. "Places at
auction" means that the shares were (1) the subject of hold orders deemed to be
sell orders made by existing shareholders who acquired their shares from that
Broker-Dealer; or (2) the
B-24
<PAGE> 37
subject of an order the Broker-Dealer submitted that is (a) a bid order from an
existing shareholder that results in the shareholder continuing to hold those
shares as a result of the auction; (b) a bid order from a potential shareholder
that results in the shareholder buying those shares as a result of the auction;
or (c) a valid hold order.
The broker-dealer agreements allow a Broker-Dealer (other than an affiliate
of a Fund), to submit orders in auctions for its own account, unless a Fund
notifies all Broker-Dealers that they may no longer do so. In that case,
Broker-Dealers may continue to submit hold and sell orders, but not bid orders,
for their own accounts. Any Broker-Dealer that is an affiliate of a Fund may
submit orders in auctions, but only if these orders are not for its own account.
If a Broker-Dealer submits an order for its own account in an auction, it might
have an advantage over other bidders because it would know about orders it
placed through the auction. This Broker-Dealer, however, would not know about
orders other Broker-Dealers submitted in the auction. A Fund may request that
the auction agent terminate one or more broker-dealer agreements at any time,
provided that at least one broker-dealer agreement is in effect after the
termination(s).
SECONDARY MARKET
Broker-Dealers and other broker-dealers may maintain a secondary trading
market for MuniPreferred shares, although they are not required to do so. The
secondary trading market in MuniPreferred shares may not provide you with
liquidity. MuniPreferred shares are not registered on a stock exchange or on the
Nasdaq Stock Market.
You may sell or transfer shares of MuniPreferred only in whole shares and
only: (1) pursuant to a bid or sell order placed with the auction agent in
accordance with the auction procedures; (2) to a Broker-Dealer or other
broker-dealer; or (3) to other persons as a Fund may permit; provided, however,
that (a) a sale or transfer of your shares (if you hold your shares in the name
of a Broker-Dealer) to that Broker-Dealer, or to another customer of that
Broker-Dealer, will not be considered a sale or transfer for purposes of the
foregoing if that Broker-Dealer remains the existing holder of the shares
immediately after the transaction; and (b) in the case of all transfers, other
than through an auction, the Broker-Dealer (or other person, if the Fund
permits) receiving the transfer will advise the auction agent of the transfer.
TAX MATTERS
FEDERAL INCOME TAX MATTERS
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and
intends to distribute substantially all of its net income and gains to its
shareholders. Therefore, it is not expected that the Fund will be subject to any
Federal income tax. Substantially all of the Fund's dividends to the common
shareholders and MuniPreferred shareholders will qualify as "exempt-interest
dividends." A shareholder treats an exempt- interest dividend as interest on
state and local bonds exempt from regular Federal income tax. Some or all of an
exempt-interest dividend, however, may be subject to Federal alternative minimum
tax imposed on the shareholder. Different Federal alternative tax rules apply to
individuals and to corporations. In addition to exempt-interest dividends, the
Fund also may distribute amounts that are treated as long-term capital gain or
ordinary income to its shareholders. Each Fund will allocate distributions to
shareholders that are treated as tax-exempt interest and as long-term capital
gain and ordinary income, if any, proportionately among the common and
MuniPreferred shares. Each Fund intends to notify MuniPreferred shareholders in
advance if it will allocate income that is not exempt from regular Federal
income tax. In certain circumstances a Fund will make payments to MuniPreferred
shareholders to offset the tax effects of the taxable distribution. See
"Description of MuniPreferred -- Dividends and Rate Periods -- Gross-Up
Payments" in Part B of this Prospectus. The Statement of Additional Information
contains a more detailed summary of the Federal tax rules that apply to the Fund
and its shareholders. Legislative, judicial or administrative action may change
the tax rules that apply to each Fund or its shareholders. Any change may be
retroactive for Fund transactions. You should consult with your tax adviser
about Federal income tax matters.
B-25
<PAGE> 38
NATIONAL FUNDS: STATE AND LOCAL TAX MATTERS
While exempt-interest dividends are exempt from regular Federal income tax,
they may not be exempt from state or local income or other taxes. Some states
exempt from state income tax that portion of any exempt-interest dividend that
is derived from interest a regulated investment company receives on its holdings
of securities of that state and its political subdivisions and
instrumentalities. Therefore, the Fund will report annually to its shareholders
the percentage of interest income the Fund earned during the preceding year on
tax-exempt obligations and the Fund will indicate, on a state-by-state basis,
the source of this income. You should consult with your tax adviser about state
and local tax matters.
COMMON STOCK
Common shares have equal voting rights and equal rights as to dividends,
assets, and liquidation with respect to one another. Common shares are fully
paid and non-assessable when issued and have no preemptive, conversion, or
exchange rights. No Fund may declare dividends or make any distributions on
common shares, or repurchase common shares, if it has declared but not paid all
accumulated dividends on MuniPreferred shares.
CONTROL OF THE FUND
Each Fund's Articles of Incorporation or Declaration of Trust may limit the
ability of other companies or persons to acquire control of the Fund. The
holders of at least two-thirds of the common and MuniPreferred shares, voting
together, must approve the Fund's conversion from a closed-end to an open-end
fund; its merger or consolidation; a sale, lease, or transfer of all or
substantially all of the Fund's assets (other than in the course of the Fund's
regular investment activities); or the Fund's liquidation or dissolution. If
two-thirds of the Fund's directors vote to approve one of these transactions,
then the holders of at least a majority of the shares of common and
MuniPreferred, voting together, must approve the transaction.
These voting requirements are higher than legally required. They could have
the effect of making it more difficult for a third party to assume control of a
Fund or merge it with another fund. However, these voting requirements could
cause third parties seeking control of the Fund to negotiate the price to be
paid with Nuveen Advisory, and could assure the continuity of the Fund's
investment objectives and policies. Each Fund's Board believes that the higher
voting requirements are in the best interest of the Fund and its shareholders.
REPURCHASE OF SHARES OR CONVERSION TO AN OPEN-END FUND
Each of the Funds is a closed-end fund, and you do not have the right to
cause a Fund to redeem your MuniPreferred shares. MuniPreferred shares trade
primarily through the auction, while each Fund's common shares trade on the New
York Stock Exchange. Common shares may trade at a premium or a discount to net
asset value. Each Fund's Board of Directors will consider, at least annually,
whether it should take any action to reduce or eliminate a material discount
from net asset value of the common shares. The Board could authorize a Fund to
repurchase some of its common shares, make a tender offer for some of its common
shares, or convert the Fund to an open-end fund. All of these actions are
subject to certain legal restrictions. If the Fund repurchases common shares or
makes a tender offer, this may not reduce the discount. The Fund may borrow
money to repurchase common shares or pay for tendered shares. If the Fund
borrows, the costs of borrowing would reduce the Fund's net income. If the Fund
converted to an open-end fund, it could not have preferred stock outstanding.
The Fund would be required to redeem all outstanding MuniPreferred shares
(requiring in turn that the Fund liquidate a portion of its portfolio), and the
Fund's common shares would no longer be listed on the New York Stock Exchange.
The Board's present policy, which is subject to change, is that the Board
will not authorize any of these actions if: this would result in the delisting
of the common stock from the New York Stock Exchange or cause a Fund to fail to
qualify as a regulated investment company under the Code; the Fund could not
sell portfolio
B-26
<PAGE> 39
securities in an orderly manner, or without imposing significant tax
consequences on remaining common shareholders, sufficient to repurchase shares;
there are material legal challenges to the repurchase; the New York Stock
Exchange suspends trading; or there are other large-scale events that affect the
Fund's ability to repurchase its shares, such as a federal banking moratorium.
NET ASSET VALUE
The Funds' custodian calculates each Fund's net asset value. The custodian
uses prices for portfolio securities from a pricing service the Fund's Board of
Directors has approved. The pricing service values portfolio securities at the
mean between the quoted bid and asked price or the yield equivalent when
quotations are readily available. Securities for which quotations are not
readily available (which will constitute the majority of the Fund's portfolio
securities) are valued at fair value. The pricing service uses methods that
consider yields or prices of municipal bonds of comparable quality, type of
issue, coupon, maturity, and ratings; dealers= indications of value; and general
market conditions. The pricing service may use electronic data processing
techniques or a matrix system, or both. The Fund's officers review the pricing
service's procedures and valuations, under the general supervision of the Board
of Directors.
OTHER SERVICE PROVIDERS
The Chase Manhattan Bank, located at One Chase Plaza, New York, NY 10081,
is the Fund's custodian, and the transfer agent and dividend disbursing agent
for the Fund's common shares. Bankers Trust Company, located at 4 Albany Street,
New York, NY 10006, is the auction agent, transfer agent, registrar, dividend
disbursing agent and redemption agent for the MuniPreferred shares. Purchases
and sales of MuniPreferred shares are cleared and settled at the Depository
Trust Company, 55 Water Street, New York, NY 10041.
AVAILABLE INFORMATION
The Funds are subject to the informational requirements of the Securities
Exchange Act of 1934, the 1940 Act, and are required to file reports, proxy
statements and other information with the SEC. These documents can be inspected
and copied for a fee at the SEC's public reference room, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's New York Regional Office, Seven World
Trade Center, New York, New York 10048 and Chicago Regional Office, Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois,
60661-2511. Reports, proxy statements, and other information about the Funds can
be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
This Part B of the Prospectus does not contain all of the information in
each Fund's registration statement, including amendments, exhibits, and
schedules. Statements in this Part B of the Prospectus about the contents of any
contract or other document are not necessarily complete and in each instance
reference is made to the copy of the contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by this reference.
Additional information about each Fund and MuniPreferred shares can be
found in each Fund's Registration Statement (including amendments, exhibits, and
schedules) on Form N-2 filed with the SEC. The SEC maintains a web site
(http://www.sec.gov) that contains each Fund's Registration Statement, other
documents incorporated by reference, and other information the Fund has filed
electronically with the Commission, including proxy statements and reports filed
under the Securities Exchange Act of 1934. Additional information may be found
on the Internet at http://www.nuveen.com.
B-27
<PAGE> 40
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies........................... S-1
Certain Trading Strategies of the Fund...................... S-7
Management of the Fund...................................... S-10
Portfolio Transactions...................................... S-18
Net Asset Value............................................. S-20
Additional Information Concerning the Auctions for
MuniPreferred............................................. S-20
Tax Matters................................................. S-22
Certain Owners of Record.................................... S-28
Experts..................................................... S-28
Financial Statements........................................ S-29
Report of Independent Auditors.............................. S-41
Appendix A -- Ratings of Investments........................ A-1
Appendix B -- Statement of Preferences...................... B-1
</TABLE>
B-28
<PAGE> 41
APPENDIX A
TAXABLE EQUIVALENT YIELD TABLE
The taxable equivalent yield is the current yield you would need to earn on
a taxable investment in order to equal a stated Federal tax-free yield on a
municipal investment. To assist you to more easily compare municipal investments
like MuniPreferred shares with taxable alternative investments, the table below
presents the taxable equivalent yields for a range of hypothetical Federal
tax-free yields and tax rates:
TAXABLE EQUIVALENT OF TAX-FREE YIELDS
TAX FREE YIELD
<TABLE>
<CAPTION>
TAX RATE 4.00% 4.50% 5.00% 5.50% 6.00%
- -------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
28.0%................................................ 5.56% 6.25% 6.94% 7.64% 8.33%
31.0%................................................ 5.80% 6.52% 7.25% 7.97% 8.70%
36.0%................................................ 6.25% 7.03% 7.81% 8.59% 9.38%
39.6%................................................ 6.62% 7.45% 8.28% 9.11% 9.93%
</TABLE>
B-A-1
<PAGE> 42
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND OR ANY UNDERWRITER. THIS PROSPECTUS 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.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................... A-1
Financial Highlights................. A-3
The Fund............................. A-4
Use of Proceeds...................... A-4
Capitalization....................... A-5
Investment Objective and Policies.... A-6
Underwriting......................... A-7
Legal Opinions....................... A-7
Experts.............................. A-8
Municipal Bonds...................... B-1
Portfolio Investments................ B-2
Insured Funds: Municipal Bond
Insurance.......................... B-2
Investment Restrictions.............. B-4
Risk Factors......................... B-5
Management of the Fund............... B-7
Certain Trading Strategies of the
Funds.............................. B-9
Description of MuniPreferred......... B-9
The Auction.......................... B-18
Tax Matters.......................... B-25
Common Stock......................... B-26
Control of the Fund.................. B-26
Repurchase of Shares or Conversion to
an Open-End Fund................... B-26
Net Asset Value...................... B-27
Other Service Providers.............. B-27
Available Information................ B-27
Table of Contents of the Statement of
Additional Information............. B-28
Taxable Equivalent Yield Table....... B-A-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$80,000,000
NUVEEN
MUNICIPAL MARKET OPPORTUNITY
FUND, INC.
MUNICIPAL AUCTION
RATE CUMULATIVE
PREFERRED STOCK
MUNIPREFERRED(R)
3,200 SHARES SERIES W
------------
PROSPECTUS
, 1999
------------
SALOMON SMITH BARNEY
A.G. EDWARDS & SONS, INC.
BT ALEX. BROWN
GOLDMAN, SACHS & CO.
JOHN NUVEEN & CO. INCORPORATED
LEGG MASON WOOD WALKER
INCORPORATED
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES
RAYMOND JAMES & ASSOCIATES, INC.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 43
The information in this Statement of Additional Information is not complete and
may be changed. We may not sell these securities until the Registration
Statement filed with the Securities and Exchange Commission is effective. This
Statement of Additional Information 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.
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 4, 1999
NUVEEN MUNICIPAL MARKET
OPPORTUNITY FUND, INC.
This Statement of Additional Information relating to this offering does
not constitute a prospectus, but should be read in conjunction with the
Prospectus relating thereto dated April ____ , 1999 (the "Prospectus"). This
Statement of Additional Information does not include all information that a
prospective investor should consider before purchasing shares of MuniPreferred
in this offering, and investors should obtain and read the Prospectus prior to
purchasing such shares. A copy of the Prospectus may be obtained without charge
by calling (800) 257-8787. Capitalized terms used but not defined in this
Statement of Additional Information have the meanings assigned to them in the
Prospectus.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
Investment Objectives and Policies ............... S-1
Certain Trading Strategies of the Fund ........... S-7
Management of the Fund ........................... S-10
Portfolio Transactions ........................... S-18
Net Asset Value .................................. S-20
Additional Information Concerning the Auctions for
MuniPreferred .................................... S-20
Tax Matters ...................................... S-22
Certain Owners of Record ......................... S-28
Experts .......................................... S-28
Financial Statements ............................. S-29
Report of Independent Auditors ................... S-41
Ratings of Investments ........................... A-1
Statement of Preferences ......................... B-1
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The Fund's primary investment objective is current income exempt from
regular Federal income tax. The Fund's secondary investment objective is to
enhance portfolio value relative to the municipal bond market through
investments in tax-exempt municipal bonds which, in Nuveen Advisory's opinion,
are underrated or undervalued or that represent municipal market sectors that
are undervalued.
S-1
<PAGE> 44
The Fund seeks to achieve its investment objectives by investing
substantially all of its assets (more than 80%) in a diversified portfolio of
tax-exempt municipal bonds rated at the time of purchase within the four
highest grades (Baa or BBB or better) by Moody's or Standard and Poor's, except
that the Fund may invest up to 20% of its assets in unrated municipal bonds
which, in Nuveen Advisory's opinion, have credit characteristics equivalent to,
and are of comparable quality to, municipal bonds rated Baa or BBB or better.
The Fund will not invest in any rated municipal bonds that are rated lower than
Baa by Moody's or BBB by Standard & Poor's at the time of purchase. Municipal
bonds rated Baa or BBB or better are considered "investment grade" securities.
Bonds rated Baa are considered medium grade obligations that lack outstanding
investment characteristics and in fact have speculative characteristics as
well, while municipal bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. See Appendix A to the Statement of
Additional Information for a description of securities ratings.
PORTFOLIO INVESTMENTS
Except to the extent that the Fund buys temporary investments as described
below, the Fund will, as a fundamental policy, invest substantially all of its
assets (more than 80%) in tax-exempt municipal bonds that are rated at the time
of purchase within the four highest grades (Baa or BBB or better) by Moody's or
Standard and Poor's, except that the Fund may invest up to 20% of its assets in
unrated municipal bonds which, in Nuveen Advisory's opinion, have credit
characteristics equivalent to, and are of comparable quality to, municipal
bonds so rated. These policies and the Fund's investment objectives are
fundamental policies, which cannot be changed without the approval of the
holders of a majority of the outstanding shares of common shares and
MuniPreferred shares, voting together, and of the holders of a majority of the
outstanding MuniPreferred shares, voting separately. For this purpose, a
"majority of the outstanding shares" means the vote of (1) 67% or more of the
shares present at a meeting, if the holders of more than 50% of the shares are
present or represented by proxy; or (2) more than 50% of the shares, whichever
is less.
S-2
<PAGE> 45
The Fund buys municipal bonds with different maturities and intends to
maintain an average portfolio maturity of 15 to 30 years, although this may be
shortened depending on market conditions. As a result, the Fund's portfolio may
include long-term and intermediate-term municipal bonds. If the long-term
municipal bond market is unstable, the Fund may temporarily invest up to 100% of
its assets in temporary investments. Temporary investments are high quality,
generally uninsured, short-term municipal bonds that may either be tax-exempt or
taxable. The Fund will buy taxable temporary investments only if suitable
tax-exempt temporary investments are not available at reasonable prices and
yields. The Fund will invest only in taxable temporary securities that are U.S.
Government securities or corporate debt securities rated within the highest
grade by Moody's or Standard & Poor's, and that mature within one year from the
date of issuance. The Fund's policies on securities ratings only apply when the
Fund buys a security, and the Fund is not required to sell securities that have
been downgraded. See Appendix A for a description of securities ratings. The
Fund also may invest in taxable temporary investments that are certificates of
deposit from U.S. banks with assets of at least $1 billion, or repurchase
agreements. The Fund is required to allocate taxable income on temporary
investments, if any, proportionately between common shares and MuniPreferred
shares, based on the percentage of total dividends distributed to each class for
that year.
The Fund has not established any limit on the percentage of its portfolio
that may be invested in municipal bonds subject to the alternative minimum
tax provisions of Federal tax law, and a substantial portion of the income
produced by the Fund may be includable in alternative minimum taxable income.
MuniPreferred shares therefore would not ordinarily be a suitable investment for
investors who are subject to the Federal alternative minimum tax. The
suitability of an investment in MuniPreferred shares will depend upon a
comparison of the after-tax yield likely to be provided from the Fund with that
from comparable tax-exempt investments not subject to the alternative minimum
tax, and from comparable fully taxable investments, in light of each such
investor's tax position. Special considerations apply to corporate investors. In
addition, the dividends paid on MuniPreferred shares during specified Rate
Periods will include an allocated portion of any net capital gains or other
income taxable for Federal income tax purposes the Fund realizes. See "Tax
Matters."
MUNICIPAL BONDS
Included within the general category of municipal bonds described in
the Prospectus are participations in lease obligations or installment purchase
contract obligations (hereinafter collectively called "Municipal Lease
Obligations") of municipal authorities or entities. Although Municipal Lease
Obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a Municipal Lease Obligation is
ordinarily backed by the municipality's covenant to budget for, appropriate and
make the payments due under the Municipal Lease Obligation. However, certain
Municipal Lease Obligations contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease or installment purchase
payments in future years unless money is
S-3
<PAGE> 46
appropriated for such purpose on a yearly basis. In the case of a
"non-appropriation" lease, the Fund's ability to recover under the lease in the
event of non-appropriation or default will be limited solely to the repossession
of the leased property, without recourse to the general credit of the lessee,
and disposition or releasing of the property might prove difficult. The Fund
seeks to minimize these risks by only investing in those "non-appropriation"
Municipal Lease Obligations where (a) the nature of the leased equipment or
property is such that its ownership or use is essential to a governmental
function of the municipality, (b) the lease payments will commence amortization
of principal at an early date that results in an average life of seven years or
less for the Municipal Lease Obligation, (c) appropriate covenants will be
obtained from the municipal obligor prohibiting the substitution or purchase of
similar equipment if lease payments are not appropriated, (d) the lease obligor
has maintained good market acceptability in the past, (e) the investment is of a
size that will be attractive to institutional investors and (f) the underlying
leased equipment has elements of portability or use, or both, that enhance its
marketability in the event foreclosure on the underlying equipment were ever
required.
Certain municipal bonds may carry variable or floating rates of
interest whereby the rate of interest is not fixed but varies with changes in
specified market rates or indexes, such as a bank prime rate or a tax-exempt
money market index. As used in the Prospectus and in this Statement of
Additional Information, the term municipal bonds also includes
obligations, such as tax-exempt notes, municipal commercial paper and Municipal
Lease Obligations, having relatively short-term maturities, although the Fund
emphasizes investments in municipal bonds with long-term maturities.
Obligations of issuers of municipal bonds are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Bankruptcy Reform Act of 1978, as amended. In addition,
Congress, state legislatures or referenda may in the future enact laws affecting
the obligations of these issuers by extending the time for payment of principal
or interest, or both, or imposing other constraints upon enforcement of such
obligations or upon municipalities to levy taxes. There is also the possibility
that, as a result of legislation or other conditions, the power or ability of
any issuer to pay, when due, the principal of and interest on its Municipal
Obligations may be materially affected.
INVESTMENT RESTRICTIONS
Except as described below, the Fund, as a fundamental policy, may not,
without the approval of the holders of a majority of the outstanding shares of
common stock and preferred stock of the Fund, including MuniPreferred, voting
together as a single class, and of the holders of a majority of the outstanding
shares of preferred stock of the Fund, including MuniPreferred, voting as a
separate class:
S-4
<PAGE> 47
(1) Issue senior securities, as defined in the 1940 Act, other than preferred
stock, except to the extent such issuance might be involved with respect to
borrowings described under subparagraph (3) below or with respect to
transactions involving futures contracts or the writing of options within the
limits described under "Certain Trading Strategies of the Fund -- Financial
Futures and Options Transactions" below;
(2) Make short sales of securities or purchase any securities on margin (except
for such short-term credits as are necessary for the clearance of transactions),
or write or purchase put or call options, except to the extent that the purchase
of a standby commitment may be considered the purchase of a put, and except for
transactions involving options within the limits described under "Certain
Trading Strategies of the Fund -- Financial Futures and Options Transactions"
below;
(3) Borrow money, except from banks for temporary or emergency purposes or for
repurchase of its shares, and then only in an amount not exceeding one-third of
the value of its total assets including the amount borrowed; while any such
borrowings exceed 5% of its total assets, no additional purchases of investment
securities will be made;
(4) Underwrite any issue of securities, except to the extent that the purchase
of Municipal Obligations in accordance with its investment objective, policies
and limitations may be deemed to be an underwriting;
(5) Invest more than 25% of its total assets in securities of issuers in any one
industry; provided, however, that such limitation shall not apply to Municipal
Obligations other than those Municipal Obligations backed only by the assets and
revenues of non-governmental users, nor shall it apply to Municipal Obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities;
(6) Purchase or sell real estate, but this shall not prevent the Fund from
investing in Municipal Obligations secured by real estate or interests therein;
(7) Purchase or sell commodities or commodities contracts, except for
transactions involving futures contracts within the limits described under
"Certain Trading Strategies of the Fund -- Financial Futures and Options
Transactions" below;
(8) Make loans, other than by entering into repurchase agreements and through
the purchase of Municipal Obligations or temporary investments in accordance
with its investment objective, policies and limitations;
(9) Invest in securities other than Municipal Obligations and temporary
investments as described under "Investment Objectives and Policies -- Portfolio
Investments" above; and purchase financial futures and options except within the
limits described in "Certain Trading Strategies of the Fund -- Financial Futures
and Options Transactions."
S-5
<PAGE> 48
(10) Invest more than 5% of its total assets in securities of any one issuer,
except that this limitation shall not apply to securities of the U.S.
Government, its agencies and instrumentalities or to the investment of 25% of
its total assets;
(11) Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (3) above, it may pledge securities having
a market value at the time of pledge not exceeding 20% of the value of its total
assets;
(12) Invest more than 10% of its total assets in repurchase agreements maturing
in more than seven days; and
(13) Purchase or retain the securities of any issuer other than its own
securities if, to its knowledge, those of its directors, or those officers and
directors of the Nuveen Advisory Corp. who individually own beneficially more
than 1/2 of 1% of the outstanding securities of such issuer, together own
beneficially more than 5% of such outstanding securities.
For the purpose of applying the limitation set forth in subparagraph (10) above,
an issuer shall be deemed the sole issuer of a security when its assets and
revenues are separate from other governmental entities and its securities are
backed only by its assets and revenues. Similarly, in the case of a
non-governmental user, such as an industrial corporation or a privately owned or
operated hospital, if the security is backed only by the assets and revenues of
the non-governmental user, then such non-governmental user would be deemed to be
the sole issuer. Where a security is also backed by the enforceable obligation
of a superior or unrelated governmental or other entity, (other than a bond
insurer) it shall also be included in the computation of securities owned that
are issued by such governmental or other entity. Where a security is guaranteed
by a governmental entity or some other facility, such as a bank guarantee or
letter of credit, the guarantee or letter of credit would be considered a
separate security and would be treated as an issue of that government or other
entity. When a municipal bond is insured by bond insurance, it shall not be
considered a security that is issued or guaranteed by the issuer; instead, the
issuer of the municipal bond will be determined in accordance with the
principles set out above. The foregoing restrictions do not limit the percentage
of the Fund's assets that may be invested in municipal bonds insured by any
given insurer.
In addition to the limitations set forth above, the Fund will not, as a
matter of operating policy, (1) invest for the purpose of exercising control or
management, (2) borrow in excess of 5% of its total assets if and so long as its
preferred shares are outstanding. These policies are not fundamental and the
Board may change them without shareholder approval.
The restrictions and other limitations set forth above will apply only at
the time of purchase of securities and will not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of an
acquisition of securities.
S-6
<PAGE> 49
The Fund has no intention to file a voluntary application for relief under
Federal bankruptcy law or any similar application under state law for so long as
the Fund is solvent and does not foresee becoming insolvent.
CERTAIN TRADING STRATEGIES OF THE FUND
PORTFOLIO TRADING AND TURNOVER RATE
Portfolio trading may be undertaken to accomplish the investment objective
of the Fund in relation to actual and anticipated movements in interest rates.
In addition, a security may be sold and another of comparable quality purchased
at approximately the same time to take advantage of what Nuveen Advisory
believes to be a temporary price disparity between the two securities. Temporary
price disparities between two comparable securities may result from supply and
demand imbalances where, for example, a temporary oversupply of certain bonds
may cause a temporarily low price for such bonds, as compared with other bonds
of like quality and characteristics. The Fund may also engage to a limited
extent in short-term trading consistent with its investment objective.
Securities may be sold in anticipation of a market decline (a rise in interest
rates) or purchased in anticipation of a market rise (a decline in interest
rates) and later sold, but the Fund will not engage in trading solely to
recognize a gain.
Subject to the foregoing, the Fund will attempt to achieve its investment
objective by prudent selection of Municipal Obligations with a view to holding
them for investment. The Fund anticipates that its annual portfolio turnover
rate generally will not exceed 100%, although there can be no assurance of this.
However, the rate of turnover will not be a limiting factor when the Fund deems
it desirable to sell or purchase securities. Therefore, depending upon market
conditions, the Fund's annual portfolio turnover rate may exceed 100% in
particular years.
WHEN-ISSUED AND DELAYED DELIVERY
The Fund may purchase and sell Municipal Obligations on a when-issued or
delayed delivery basis. When-issued and delayed delivery transactions arise when
securities are purchased or sold with payment and delivery beyond the regular
settlement date. (When-issued transactions normally settle within 30-45 days).
On such transactions the payment obligation and the interest rate are fixed at
the time the buyer enters into the commitment. Beginning on the date the Fund
enters into a commitment to purchase securities on a when-issued or delayed
delivery basis, it is required under rules promulgated by the Securities and
Exchange Commission ("SEC") to maintain in a segregated account cash or liquid
assets, equal in value to the purchase price due on the settlement date. Income
these assets generate in a segregated account, which provides taxable income for
Federal income tax purposes, is includable in the taxable income of the Fund.
The Fund currently intends to allocate net capital gains and other income
taxable for Federal income tax purposes, if any, proportionately between its
common stock and its MuniPreferred shares, and dividends paid on its
MuniPreferred shares during specified periods will include an allocated portion
of any
S-7
<PAGE> 50
such net capital gains and other taxable income. See "Tax Matters." The
commitment to purchase securities on a when-issued or delayed delivery basis may
involve an element of risk because the value of the securities is subject to
market fluctuation. No interest accrues to the purchaser prior to settlement of
the transaction, and at the time of delivery the market value may be less than
cost.
FINANCIAL FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its investment portfolio
against market risk by engaging in transactions in financial futures contracts,
options on financial futures or options that either are based on an index of
long-term Municipal Obligations (i.e., those with remaining maturities averaging
20-30 years) or relate to debt securities whose prices Nuveen Advisory
anticipates to correlate with the prices of the Municipal Obligations the Fund
owns. The Fund has no present intention to engage in such hedging transactions
and in no event does it expect that any material portion of its assets would be
so committed. To accomplish such hedging, the Fund may take an investment
position in a futures contract or in an option which is expected to move in the
opposite direction from the position being hedged. Hedging may be utilized to
reduce the risk that the value of securities the Fund owns may decline on
account of an increase in interest rates and to hedge against increases in the
cost of the securities the Fund intends to purchase as a result of a decline in
interest rates. The use of futures and options for hedging purposes can be
expected to result in taxable income or gain. The Fund currently intends to
allocate any taxable income or gain proportionately between its common stock and
its MuniPreferred shares. See "Tax Matters."
The sale of financial futures or the purchase of put options on financial
futures or on debt securities or indexes is a means of hedging against the risk
of rising interest rates, whereas the purchase of financial futures or of call
options on financial futures or on debt securities or indexes is a means of
hedging the Fund's portfolio against an increase in the price of securities such
Fund intends to purchase. Writing a call option on a futures contract or on debt
securities or indexes may serve as a hedge against a modest decline in prices of
Municipal Obligations held in the Fund's portfolio, and writing a put option on
a futures contract or on debt securities or indexes may serve as a partial hedge
against an increase in the value of Municipal Obligations the Fund intends to
acquire. The writing of these options provides a hedge to the extent of the
premium received in the writing transaction.
Although certain risks are involved in futures and options transactions
(as discussed under "Risks of Futures and Options Transactions" below), because
the Fund will engage in these transactions only for hedging purposes, these
futures and options portfolio strategies should not subject the Fund to those
risks frequently associated with speculation in futures or options transactions.
Regulations of the Commodity Futures Trading Commission (the "CFTC") require
that the Fund engage in transactions in futures and options on futures only for
bona fide hedging purposes or if the aggregate initial margin deposits and
premiums the Fund pays do not exceed 5% of the market value of its assets. The
Fund will not purchase futures unless it has segregated
S-8
<PAGE> 51
cash, government securities or high grade liquid debt equal to the contract
price of the futures less any margin on deposit, or unless the purchase of a put
option covers the long futures position. The Fund will not sell futures unless
the Fund owns the instruments underlying the futures or owns options on such
instruments or owns a portfolio whose market price may be expected to move in
tandem with the market price of the instruments or index underlying the futures.
If the Fund engages in transactions involving the purchase or writing of put and
call options on debt securities or indexes, the Fund will not purchase these
options if more than 5% of its assets would be invested in the premiums for
these options, and it will only write "covered" or "secured" options, where the
Fund holds the securities or cash required to be delivered upon exercise, with
such cash being maintained in a segregated account. These requirements and
limitations may limit the Fund's ability to engage in hedging transactions. So
long as Moody's or S&P, or both, are rating the Fund's MuniPreferred shares, the
Fund will only engage in futures or options transactions in accordance with the
then-current guidelines of such rating agencies, and only after it has received
written confirmation from Moody's and S&P, as appropriate, that these
transactions would not impair the ratings then assigned by Moody's and S&P to
such shares.
DESCRIPTION OF FINANCIAL FUTURES AND OPTIONS. A futures contract is a
contract between a seller and a buyer for the sale and purchase of specified
property at a specified future date for a specified price. An option is a
contract that gives the holder of the option the right, but not the obligation,
to buy (in the case of a call option) specified property from, or to sell (in
the case of a put option) specified property to, the writer of the option for a
specified price during a specified period prior to the option's expiration.
Financial futures contracts and options cover specified debt securities (such as
U.S. Treasury securities) or indexes designed to correlate with price movements
in certain categories of debt securities. At least one exchange trades futures
contracts on an index designed to correlate with the long-term municipal bond
market. Financial futures contracts and options on financial futures contracts
are traded on exchanges regulated by the CFTC. Options on certain financial
instruments and financial indexes are traded on securities markets regulated by
the SEC. Although futures contracts and options on specified financial
instruments call for settlement by delivery of the financial instruments covered
by the contracts, in most cases positions in these contracts are closed out in
cash by entering into offsetting liquidating or closing transactions. Index
futures and options are designed for cash settlement only.
RISKS OF FUTURES AND OPTIONS TRANSACTIONS. There are certain risks
associated with the use of financial futures and options to hedge investment
portfolios. There may be an imperfect correlation between price movements of the
futures and options and price movements of the portfolio securities being
hedged. Losses may be incurred in hedging transactions, which could reduce the
portfolio gains that might have been realized if the hedging transactions had
not been entered into. The ability to close out positions in futures and options
depends upon the existence of a liquid secondary market, which may not exist for
all futures and options at all times. If the Fund engages in futures
transactions or in the writing of options on futures, it will be required to
maintain initial margin and maintenance margin and may be required to make daily
variation margin payments in accordance with applicable rules of the
S-9
<PAGE> 52
exchanges and the CFTC. If the Fund purchases a financial futures contract or a
call option or writes a put option in order to hedge the anticipated purchase of
Municipal Obligations, and if the Fund fails to complete the anticipated
purchase transaction, the Fund may have a loss or a gain on the futures or
options transaction that will not be offset by price movements in the Municipal
Obligations that were the subject of the anticipatory hedge. The cost of put
options on debt securities or indexes effectively increases the cost of the
securities subject to them, thereby reducing the yield otherwise available from
these securities. If the Fund decides to use futures contracts or options on
futures contracts for hedging purposes, the Fund will be required to establish
an account for such purposes with one or more CFTC-registered futures commission
merchants. A futures commission merchant could establish initial and maintenance
margin requirements for the Fund that are greater than those which would
otherwise apply to the Fund under applicable rules of the exchanges and the
CFTC.
REPURCHASE AGREEMENTS. The Fund may buy repurchase agreements as temporary
investments. A repurchase agreement is a contract in which the seller of
securities (U.S. government securities or municipal bonds) agrees to repurchase
the same securities from the buyer at a specified price on a future date. The
repurchase price determines the yield during the Fund's holding period.
Repurchase agreements are considered to be loans whose collateral is the
underlying security that is the subject of the repurchase agreement. Income from
repurchase agreements is taxable and required to be allocated between common
shares and MuniPreferred shares. See "Tax Matters" and "The Auction - Auction
Dates; Advance Notice of Allocation of Taxable Income" in the Prospectus. The
Fund will enter into repurchase agreements only with registered securities
dealers or domestic banks that, in Nuveen Advisory's opinion, present minimal
credit risks. The risk to the Fund is limited to the ability of the other party
to pay the agreed-upon repurchase price on the delivery date; however, although
the value of the underlying collateral at the time of the transaction always
equals or exceeds the repurchase price, if the value of the collateral declines
there is a risk of loss of principal and interest. If the other party defaults,
the collateral may be sold, but the Fund may lose money if the value of the
collateral declines and may have to pay the costs of the sale or experience
delays in selling the collateral. If the seller files for bankruptcy, the Fund
may not be able to sell the collateral quickly or at all. Nuveen Advisory will
monitor the value of the collateral at the time the Fund enters into a
repurchase agreement and during the term of the repurchase agreement to
determine that at all times that value of the collateral equals or exceeds the
repurchase price. If the value of the collateral is less than the repurchase
price, Nuveen Advisory will demand additional collateral from the other party to
increase the value of the collateral to at least the redemption price plus
interest.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Board of Directors is responsible for the management of the Fund,
including general supervision of the duties Nuveen Advisory performs under the
Investment Management Agreement. There are seven directors of the Fund, one of
whom is an "interested person" (as
S-10
<PAGE> 53
defined in the 1940 Act) and six of whom are "disinterested persons." The names
and business addresses of the directors and officers of the Fund and their
principal occupations and other affiliations during the past five years are set
forth below, with those directors who are "interested persons" of the Fund
indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, AGE POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS
AND ADDRESS WITH FUND DURING PAST FIVE YEARS
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
Timothy R. Schwertfeger,* 50 Chairman of the Board and Director Chairman (since July 1996) and
333 West Wacker Drive Director of The John Nuveen
Chicago, IL 60606 Company, John Nuveen & Co.
Incorporated, Nuveen Advisory Corp.
and Nuveen Institutional Advisory
Corp.; prior thereto, Executive
Vice President; Chairman and
Director (since January 1997) of
Nuveen Asset Management, Inc.;
Director (since 1996) of
Institutional Capital Corporation;
Chairman and Director of Rittenhouse
Financial Services Inc. (since 1999).
- ---------------------------------------- ------------------------------------- -------------------------------------
Robert P. Bremner, 58 Director Private investor and management
3725 Huntington Street, NW consultant.
Washington, D.C. 20015
- ---------------------------------------- ------------------------------------- -------------------------------------
Lawrence H. Brown, 64 Director Retired in August 1989 as Senior
201 Michigan Avenue Vice President of The Northern
Highwood, IL 60040 Trust Company
- ---------------------------------------- ------------------------------------- -------------------------------------
Anne E. Impellizzeri, 65 Director President and Chief Executive
3 West 29th Street Officer of Blanton-Peale Institute,
New York, NY 10001 a training and counseling
organization.
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
S-11
<PAGE> 54
<TABLE>
- ---------------------------------------- ------------------------------------- ----------------------------------------
<S> <C> <C>
Peter R. Sawers, 66 Director Adjunct Professor of
22 The Landmark Business and Economics,
Northfield, IL 60093 University of Dubuque,
Iowa; Adjunct Professor,
Lake Forest Graduate
School of Management, Lake
Forest, Illinois; prior
thereto, Executive
Director, Towers Perrin
Australia (management
consultant); Chartered
Financial Analyst;
Certified Management
Consultant.
- ---------------------------------------- ------------------------------------- ----------------------------------------
William J. Schneider, 54 Director Senior Partner and Chief Operating
4000 Miller-Valentine Ct. Officer, Miller-Valentine Partners;
P.O. Box 744 Vice President, Miller-Valentine Group,
Dayton, OH 45401 a development and contract company;
Member Community Advisory Board,
National City Bank, Dayton, Ohio.
- ---------------------------------------- ------------------------------------- ----------------------------------------
Judith M. Stockdale, 50 Director Executive Director (since
35 East Wacker Drive 1994) of the Gaylord and
Chicago, IL 60601 Dorothy Donnelley
Foundation, a private
family foundation; prior
thereto, Executive
Director (from 1990 to
1994) of the Great Lakes
Protection Fund.
- ---------------------------------------- ------------------------------------- ----------------------------------------
Alan G. Berkshire, 38 Vice President and Assistant Vice President and General Counsel
333 W. Wacker Drive Secretary (since September 1997) and
Chicago, IL 60606 Secretary (since May 1998) of the
John Nuveen Company, John Nuveen &
Co. Incorporated, Nuveen Advisory
Corp. and Nuveen Corp., prior
thereto, Partner in the law firm of
Kirkland & Ellis.
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
S-12
<PAGE> 55
<TABLE>
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
Peter H. D'Arrigo, 31 Vice President and Treasurer Vice President of John Nuveen & Co.
333 West Wacker Drive Incorporated (since January 1999),
Chicago, IL 60606 prior thereto, Assistant Vice
President (since January 1997);
formerly, Associate of John Nuveen
& Co. Incorporated; Chartered
Financial Analyst
- ---------------------------------------- ------------------------------------- -------------------------------------
Michael S. Davern, 41 Vice President Vice President of Nuveen Advisory
333 W. Wacker Drive Corp.; prior thereto, Vice
Chicago, IL 60606 President and Portfolio Manager of
Flagship Financial.
- ---------------------------------------- ------------------------------------- -------------------------------------
Lorna C. Ferguson, 53 Vice President Vice President of John Nuveen & Co.
333 W. Wacker Drive (since January 1998) of Nuveen
Chicago, IL 60606 Advisory Corp. and Nuveen
Institutional Advisory Corp.
- ---------------------------------------- ------------------------------------- -------------------------------------
William M. Fitzgerald, 35 Vice President Vice President of Nuveen Advisory
333 W. Wacker Drive Corp (since December 1995); prior
Chicago, IL 60606 thereto, Assistant Vice President
of Nuveen Advisory Corp. (from
September 1992 to December 1995);
Chartered Financial Analyst.
- ---------------------------------------- ------------------------------------- -------------------------------------
Stephen D. Foy, 44 Vice President and Controller Vice President of John Nuveen & Co.
333 W. Wacker Drive Incorporated.
Chicago, IL 60606
- ---------------------------------------- ------------------------------------- -------------------------------------
J. Thomas Futrell, 43 Vice President Vice President of Nuveen Advisory
333 W. Wacker Drive Corp.; Chartered Financial Analyst.
Chicago, IL 60606
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
S-13
<PAGE> 56
<TABLE>
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
Richard A. Huber, 36 Vice President Vice President of Nuveen
333 W. Wacker Drive Institutional Advisory Corp. (since
Chicago, IL 60606 March 1998) and Nuveen Advisory
Corp. (since January 1997); prior
thereto, Vice and Portfolio Manager
of Flagship Financial.
- ---------------------------------------- ------------------------------------- -------------------------------------
Steven J. Krupa, 41 Vice President Vice President of Nuveen Advisory
333 West Wacker Drive Corp.
Chicago, IL 60606
- ---------------------------------------- ------------------------------------- -------------------------------------
Larry W. Martin, 47 Vice President and Assistant Vice President, Assistant Secretary
333 West Wacker Drive Secretary and Assistant General Counsel of
Chicago, IL 60606 John Nuveen & Co. Incorporated;
Vice President and Assistant
Secretary of Nuveen Advisory Corp.
and Nuveen Institutional Advisory
Corp.; Assistant Secretary of The
John Nuveen Company.
- ---------------------------------------- ------------------------------------- -------------------------------------
Edward F. Neild, IV, 33 Vice President Vice President of Nuveen Advisory
333 West Wacker Drive Corp. and Nuveen Institutional
Chicago, IL 60606 Advisory Corp. (since September
1996); prior thereto, Assistant
Vice President of Nuveen Advisory
Corp. (from December 1993 to
September 1996) and Nuveen
Institutional Advisory Corp. (from
May 1995 to September 1996;
Chartered Financial Analyst.
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
S-14
<PAGE> 57
<TABLE>
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
Stephen S. Peterson, 41 Vice President Vice President (since September
333 W. Wacker Drive 1997); previously Assistant Vice
Chicago, IL 60606 President of Nuveen Advisory Corp.
(since September 1996), Portfolio
Manager prior thereto; Chartered
Financial Analyst.
- ---------------------------------------- ------------------------------------- -------------------------------------
Stuart W. Rogers, 42 Vice President Vice President of John Nuveen & Co.
333 W. Wacker Drive Incorporated.
Chicago, IL 60606
- ---------------------------------------- ------------------------------------- -------------------------------------
Thomas C. Spalding, Jr., 47 Vice President Vice President of Nuveen Advisory
333 W. Wacker Drive Corp. and Nuveen Institutional
Chicago, IL 60606 Advisory Corp., Chartered
Financial Analyst.
- ---------------------------------------- ------------------------------------- -------------------------------------
William S. Swanson, 33 Vice President Vice President of John Nuveen & Co.
333 West Wacker Drive Incorporated (since October 1997),
Chicago, IL 60606 prior thereto, Assistant Vice
President (since September 1996);
formerly, Associate of John Nuveen
& Co. Incorporated; Chartered
Financial Analyst.
- ---------------------------------------- ------------------------------------- -------------------------------------
Gifford R. Zimmerman, 42 Vice President and Secretary Vice President, Assistant Secretary
333 West Wacker Drive and Associate General Counsel of
Chicago, IL 60606 John Nuveen & Co. Incorporated;
Vice President and Assistant
Secretary of Nuveen Advisory Corp.
and Nuveen Institutional Advisory
Corp., Chartered Financial Analyst.
- ---------------------------------------- ------------------------------------- -------------------------------------
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
At the next annual meeting of the Fund's shareholders, the holders of
MuniPreferred, voting as a separate class, will elect two directors, and holders
of outstanding Common Stock
S-15
<PAGE> 58
and MuniPreferred, voting together as a single class, will elect five directors.
See "Description of MuniPreferred -- Voting Rights" in the Prospectus.
The Fund has adopted a Directors' Deferred Compensation Plan pursuant
to which a director of the Fund may elect to have all or a portion of the
director's fee deferred. Directors may defer fees for any calendar quarter by
the execution of a Participation Agreement before the beginning of the calendar
quarter during which the director wishes to begin deferral.
Peter Sawers and Timothy R. Schwertfeger serve as members of the
Executive Committee of the Board of Directors. The Executive Committee, which
meets between regular meetings of the Board of Directors, is authorized to
exercise all of the powers of the Board of Directors. Mr. Schwertfeger is a
director or trustee, as the case of may be, of 100 Nuveen open-end and
closed-end funds advised by Nuveen Advisory and Nuveen Institutional Advisory
Corp. The directors of the Fund are directors or trustees, as the case may be,
of 42 open-end funds and 52 Nuveen closed-end funds advised by Nuveen Advisory.
The table below shows, for each director who is not affiliated with
Nuveen or Nuveen Advisory, the aggregate compensation the Fund paid for its
fiscal year ended October 31, 1998 and the total compensation that Nuveen funds
paid to each director during the calendar year 1998. The Fund has no retirement
or pension plans. The officers and directors affiliated with Nuveen serve
without compensation from the Fund.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE FROM NUVEEN FUNDS
COMPENSATION PAID TO
NAME OF DIRECTOR FROM THE FUND DIRECTORS(1)
- ---------------- ------------- -------------
<S> <C> <C>
Robert P. Bremner ............ $ 1,271 $ 71,500
Lawrence H. Brown ............ 1,391 79,000
Anne E. Impellizzeri ......... 1,271 71,500
Peter R. Sawers .............. 1,271 72,000
William J. Schneider ......... 1,271 71,500
Judith M. Stockdale .......... 1,271 72,000
</TABLE>
- ----------
(1) Includes compensation for service on the boards of 37 Nuveen open-end funds
and 52 Nuveen closed-end funds managed by Nuveen Advisory ("NAC Funds").
At March 31, 1999, the Fund's officers and directors as a group owned
less than 1% of the outstanding shares of Common Stock and no shares of
MuniPreferred.
INVESTMENT ADVISER
S-16
<PAGE> 59
Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, Illinois 60606, acts as
the investment adviser for, and manages the investment and reinvestment of the
assets of, the Fund. Nuveen Advisory also administers the Fund's business
affairs, provides office facilities and equipment and certain clerical,
bookkeeping and administrative services, and permits any of its officers or
employees to serve without compensation as directors or officers of the Fund if
elected to such positions.
Under the Management Agreement the Fund has agreed to pay an annual
management fee as follows:
MANAGEMENT FEE SCHEDULE
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS RATE
------------------------ -----
<S> <C>
Up to $125 million.......................................... .6500%
$125 to $250 million........................................ .6375
$250 to $500 million........................................ .6250
$500 million to $1 billion.................................. .6125
$1 billion to $2 billion.................................... .6000
$2 billion and over......................................... .5875
</TABLE>
The Fund paid aggregate management fees of $8,045,628, $7,947,123 and
$7,859,410 for the fiscal years ended October 31, 1998, 1997 and 1996, for an
effective management fee rate of .62%, .62% and .62%, respectively.
Nuveen Advisory was organized in 1976 and is a wholly-owned subsidiary
of John Nuveen & Co. Incorporated ("Nuveen"), 333 West Wacker Drive, Chicago,
Illinois 60606. Nuveen is the co-managing underwriter of the Fund's shares.
Founded in 1898, Nuveen currently sponsors 100 investment company portfolios
(including the Fund). Nuveen and its affiliates have over $60 billion of net
assets under management or surveillance. Nuveen is a subsidiary of The John
Nuveen Company which, in turn, is a majority-owned subsidiary of The St. Paul
Companies, Inc., a management company of St. Paul, Minnesota, principally
engaged in providing property-liability insurance through subsidiaries.
The names, addresses and principal occupations of the principal
executive officers and the directors of Nuveen Advisory are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATIONS
---------------- ---------------------
<S> <C>
Timothy R. Schwertfeger...................Chairman of the Board and Director (Principal Executive
333 West Wacker Drive Officer), John Nuveen & Co. Incorporated
</TABLE>
S-17
<PAGE> 60
<TABLE>
<S> <C>
Chicago, Illinois 60606
John P. Amboian...........................Executive Vice President, John Nuveen & Co.
333 West Wacker Drive Incorporated
Chicago, Illinois 60606
</TABLE>
PORTFOLIO TRANSACTIONS
Nuveen Advisory, in effecting purchases and sales of portfolio
securities for the account of the Fund, places orders in such manner as, in the
opinion of its management, offers the best price and market for the execution of
each transaction. Portfolio securities are normally purchased directly from an
underwriter or in the over-the-counter market from the principal dealers in such
securities, unless it appears that a better price or execution may be obtained
elsewhere. Portfolio securities are not purchased from Nuveen or its affiliates
except in compliance with the 1940 Act.
Generally, all portfolio transactions are effected on a principal (as
opposed to an agency) basis and, accordingly, the Fund has not paid and does not
expect to pay any brokerage commissions. Purchases from underwriters include a
commission or concession the issuer pays to the underwriter, and purchases from
dealers include the spread between the bid and asked price. Given the best price
and execution obtainable, it is the practice of the Fund to select dealers
which, in addition, furnish research information (primarily credit analyses of
issuers) and statistical and other services to Nuveen Advisory. It is not
possible to place a dollar value on information, statistical and other services
received from dealers. Since it is only supplementary to Nuveen Advisory's own
research efforts, the receipt of research information is not believed to reduce
significantly Nuveen Advisory's expenses. Any research benefits obtained are
available to all of Nuveen Advisory's other clients. While Nuveen Advisory is
primarily responsible for the placement of the business of the Fund, the
policies and practices of Nuveen Advisory in this regard must be consistent with
the foregoing and are at all times subject to Board review.
Nuveen Advisory reserves the right to, and does, manage other
investment accounts and investment companies for other clients which may have
investment objectives similar or identical to those of the Fund. Subject to
applicable laws and regulations, Nuveen Advisory will attempt to allocate
equitably portfolio transactions among the Fund and the portfolios of its other
clients purchasing or selling securities whenever Nuveen Advisory decides to
purchase or sell securities for the Fund and one or more other clients
simultaneously. In making these allocations, the main factors to be considered
will be the respective investment objectives of the Fund and such other clients,
the relative size of the portfolio holdings of the same or comparable
securities, the availability of cash for investment by the Fund and such other
clients, the size of investment commitments the Fund and other clients generally
hold, and opinions of the persons responsible for recommending investments to
the Fund and such other clients. While this procedure could have a detrimental
effect on the price or amount of the securities available to the Fund from time
to time, it is the opinion of the Board that the benefits available from Nuveen
Advisory's
S-18
<PAGE> 61
organization will outweigh any disadvantage that may arise from exposure to
simultaneous transactions. Notwithstanding the similarity of the investment
objective of the Fund with that of other funds Nuveen Advisory manages, the Fund
will be separately managed and the composition of its investment portfolio is
likely to differ. Accordingly, the investment performance of the Fund will
likely not be the same as other funds.
Under the 1940 Act, the Fund may not purchase portfolio securities from
any underwriting syndicate of which Nuveen is a member except under certain
limited conditions set forth in Rule 10f-3. The Rule sets forth requirements
relating to, among other things, the terms of an issue of Municipal Obligations
the Fund may purchase and the amount of Municipal Obligations the Fund may
purchase in any one issue. In addition, the Board must approve at least
quarterly purchases of securities made pursuant to the terms of the Rule,
including a majority of the directors who are not interested persons of the
Fund.
For the fiscal years ended October 31, 1998, October 31, 1997 and
October 31, 1996, the Fund did not pay any brokerage commissions.
S-19
<PAGE> 62
NET ASSET VALUE
In determining the net asset value of the Fund, the Fund's custodian
uses the valuations of portfolio securities a pricing service approved by the
Board furnishes. The pricing service values portfolio securities at the mean
between the quoted bid and asked price or the yield equivalent when quotations
are readily available. Securities for which quotations are not readily available
(which will constitute a majority of the securities the Fund holds) are valued
at fair value as the pricing service determines using methods which include
consideration of: yields or prices of municipal bonds of comparable quality,
type of issue, coupon, maturity and rating; indications as to value from
dealers; and general market conditions. The pricing service may employ
electronic data processing techniques or a matrix system, or both, to determine
valuations. The officers of the Fund, under the general supervision of the
Board, review procedures of the pricing service and its valuations.
ADDITIONAL INFORMATION CONCERNING THE AUCTIONS FOR MUNIPREFERRED
GENERAL
Note: Capitalized terms used in the following section have the meaning
assigned to them in the Statement of Preferences, which is included as Appendix
B to this Statement of Additional Information.
AUCTION AGENCY AGREEMENT. The Fund has entered into an Auction Agency
Agreement (the "Auction Agency Agreement") with the Auction Agent (currently,
Bankers Trust Company) which provides, among other things, that the Auction
Agent will follow the Auction Procedures for purposes of determining the
Applicable Rate for shares of each series of MuniPreferred so long as the
Applicable Rate for shares of such series is to be based on the results of an
Auction.
BROKER-DEALER AGREEMENTS. Each Auction requires the participation of
one or more Broker-Dealers. The Auction Agent has entered into agreements
(collectively, the "Broker-Dealer Agreements") with several Broker-Dealers the
Fund selected, which provide for the participation of those Broker-Dealers in
Auctions for MuniPreferred shares. See "Broker-Dealers" below.
SECURITIES DEPOSITORY. The Depository Trust Company ("DTC") will act as
the Securities Depository for the Agent Members for shares of each series of
MuniPreferred. One certificate for all of the shares of each series of
MuniPreferred will be registered in the name of Cede, as nominee of the
Securities Depository. The certificate will bear a legend to the effect that the
certificate is issued subject to the provisions restricting transfers of
MuniPreferred shares contained in the Statement. The Fund will also issue
stop-transfer instructions to the transfer agent for shares of each series of
MuniPreferred. Prior to the commencement of the right of holders of preferred
shares to elect a majority of the Fund's directors, as described under
"Description of MuniPreferred -- Voting Rights" in the Prospectus, Cede will be
the holder of record of all shares of each series of MuniPreferred and owners of
these shares will not be entitled to receive certificates representing their
ownership interest in these shares.
S-20
<PAGE> 63
DTC, a New York-chartered limited purpose trust company, performs
services for its participants (including the Agent Members), some of whom
(and/or their representatives) own DTC. DTC maintains lists of its participants
and will maintain the positions (ownership interests) each participant holds
(the "Agent Member") in MuniPreferred shares, whether for its own account or as
a nominee for another person.
THE AUCTION AGENT
The Auction Agent is acting as agent for the Fund in connection with
Auctions. In the absence of bad faith or negligence on its part, the Auction
Agent will not be liable for any action taken, suffered, or omitted or for any
error of judgment it makes in the performance of its duties under the Auction
Agency Agreement and will not be liable for any error of judgment made in good
faith unless the Auction Agent will have been negligent in ascertaining the
pertinent facts.
The Auction Agent may rely upon, as evidence of the identities of the
Existing Holders of MuniPreferred shares, the Auction Agent's registry of
Existing Holders, the results of Auctions and notices from any Broker-Dealer (or
other person, if the Fund permits) with respect to transfers described under
"Description of MuniPreferred -- The Auction -- Secondary Market Trading" in the
Prospectus and notices from the Fund. TheAuction Agent is not required to accept
any such notice for an Auction unless it receives the notice by 3:00 p.m., New
York City time, on the Business Day preceding such Auction.
The Auction Agent may terminate the Auction Agency Agreement upon
notice to the Fund on a date no earlier than 45 days after such notice. If the
Auction Agent should resign, the Fund will use its best efforts to enter into an
agreement with a successor Auction Agent containing substantially the same terms
and conditions as the Auction Agency Agreement. The Fund may remove the Auction
Agent provided that before the removal the Fund shall have entered into such an
agreement with a successor Auction Agent.
S-21
<PAGE> 64
TAX MATTERS
The following is based upon the advice of Morgan, Lewis & Bockius LLP,
counsel to the Fund.
The Fund intends to qualify under Subchapter M of the Code as a
regulated investment company and satisfy conditions which enable dividends on
Common Stock or MuniPreferred shares which are attributable to interest on
Municipal Obligations to be exempt from Federal income tax in the hands of
owners of such stock, subject to the possible application of the alternative
minimum tax.
To qualify under Subchapter M for tax treatment as a regulated
investment company, the Fund must, among other things: (a) distribute to its
shareholders at least 90% of the sum of (i) net investment income (i.e.,
its investment company taxable income as that term is defined in the Code
determined without regard to the deduction for dividends paid) and (ii) its net
tax-exempt income; and (b) diversify its holdings so that, at the end of each
fiscal quarter of the Fund (i) at least 50% of the market value of the Fund's
assets is represented by cash, cash items, U.S. government securities and
securities of other regulated investment companies, and other securities, with
these other securities limited, with respect to any one issuer, to an amount not
greater in value than 5% of the Fund's total assets, and to not more than 10% of
the outstanding voting securities of such issuer; and (ii) not more than 25% of
the market value of the Fund's assets is invested in the securities of any one
issuer (other than U.S. government securities or securities of other regulated
investment companies, or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses). In meeting these
requirements of Subchapter M of the Code, the Fund may be restricted in the
utilization of certain of the investment techniques described under "Investment
Objective and Policies -- Investment Restrictions" above. If in any year the
Fund should fail to qualify under Subchapter M for tax treatment as a regulated
investment company, the Fund
S-22
<PAGE> 65
would incur a regular Federal corporate income tax upon its taxable income for
that year, and distributions to its shareholders would be taxable to such
holders as ordinary income to the extent of the earnings and profits of the
Fund. A regulated investment company that fails to distribute, by the close of
each calendar year, an amount equal to the sum of 98% of its ordinary taxable
income for such year and 98% of its capital gain net income for the one year
period ending October 31 in such year, plus any shortfalls from the prior year's
required distribution, is liable for a 4% excise tax on the portion of the
undistributed amount of such income that is less than the required amount for
such distributions. To avoid the imposition of this excise tax, the Fund
generally makes the required distributions of its ordinary taxable income, if
any, and its capital gain net income, to the extent possible, by the close of
each calendar year.
The Fund intends to qualify to pay "exempt-interest" dividends on its
shares of Common Stock and MuniPreferred shares as defined under the Code. Under
the Code, at the close of each quarter of its taxable year, if at least 50% of
the value of its total assets consists of Municipal Obligations, the Fund shall
be qualified to pay exempt-interest dividends to its shareholders.
Exempt-interest dividends are dividends or any part thereof (other than a
capital gain dividend) the Fund pays that are attributable to interest on
Municipal Obligations and that the Fund so designates. Exempt-interest dividends
will be exempt from Federal income tax, subject to the possible application of
the Federal alternative minimum tax. Insurance proceeds the Fund received under
any insurance policies for scheduled interest payments on defaulted Municipal
Obligations, as described herein, will be excludable from Federal gross income
under Section 103(a) of the Code. Gains of the Fund that are attributable to
market discount on certain Municipal Obligations acquired after April 30, 1993
are treated as ordinary income. Distributions to shareholders of net income
received, if any, from taxable temporary investments and net short-term capital
gains, if any, the Fund realizes will be taxable to its shareholders as ordinary
income. Distributions of net capital gain (i.e., the excess of the Fund's net
long-term capital gain over net short-term capital loss), if any, are taxable as
long-term capital gain, regardless of the length of time the shareholder has
owned shares of Common Stock or MuniPreferred shares of the Fund. The amount of
taxable income allocable to the Fund's MuniPreferred shares will depend upon the
amount of this income the Fund realizes, but is not generally expected to be
significant. Except for dividends paid on MuniPreferred shares which include an
allocated portion of any net capital gain or other taxable income, the Fund
anticipates that all other dividends paid on its MuniPreferred shares will
constitute exempt-interest dividends for Federal income tax purposes. Because
the taxable portion of the Fund's investment income consists primarily of
interest, as long as the Fund qualifies as a regulated investment company under
the Code, no part of its distributions to shareholders will qualify for the
dividends-received deduction for corporations.
The IRS currently requires that a regulated investment company that has
two or more classes of shares must designate to each such class proportionate
amounts of each type of its income for each tax year based upon the percentage
of total dividends distributed to each class for such year.
S-23
<PAGE> 66
The Fund intends each year to allocate, to the fullest extent practicable, net
tax-exempt interest, net capital gain and other taxable income, if any, between
its shares of Common Stock and MuniPreferred shares in proportion to the total
dividends paid to each class for that year. To the extent permitted under
applicable law, and consistent with the Fund's objectives, the Fund reserves
the right to make special allocations of income within a class, as follows. The
Fund shall, in the case of a Minimum Rate Period or a Special Rate Period of 28
Rate Period Days or fewer, and may, in the case of any other Special Rate
Period, notify the Auction Agent of the amount of any net capital gain or other
income taxable for Federal income tax purposes to be included in any dividend
on shares of its MuniPreferred prior to the Auction establishing the Applicable
Rate for such dividend. If, (a) in the case of any Minimum Rate Period or any
Special Rate Period of 28 Rate Period Days or fewer, the Fund allocates any net
capital gain or other income taxable for Federal income tax purposes to a
dividend paid on shares of MuniPreferred without having given advance notice
thereof to the Auction Agent as the Statement requires solely by reason of the
fact that such allocation is made retroactively as a result of the redemption
of all or a portion of the outstanding shares of its MuniPreferred or the
liquidation of the Fund or (b) in the case of any Special Rate Period of more
than 28 Rate Period Days, the Fund allocates any net capital gain or other
taxable income for Federal income tax purposes to its MuniPreferred shares
without having given advance notice thereof as described above, the Fund will
arrange to make certain payments to owners of its MuniPreferred shares to which
such allocation was made to offset the Federal income tax effect thereof as
described under "Description of MuniPreferred -- Dividends and Rate Periods --
Gross-up Payments" in the Prospectus.
The Fund received an opinion of counsel, at the time the Fund first
issued MuniPreferred shares, to the effect that the manner in which the Fund
intends to allocate items of tax-exempt income, net capital gain and other
taxable income, if any, between its shares of Common Stock and MuniPreferred
shares will be respected for Federal income tax purposes. This opinion of
counsel represents only counsel's best legal judgment, and is not binding on the
IRS or the courts. Currently there is no guidance from the IRS or other sources
specifically addressing whether the Fund's method for making such allocations
will be respected for Federal income tax purposes, and it is possible that the
IRS could disagree with counsel's opinion. If the IRS were to disagree with the
Fund's allocation, it either could assert the need to reallocate the Fund's net
capital gain or other taxable income or it could disallow a portion of the
Fund's dividends paid deduction. In the event of a reallocation, some of the
dividends the Fund identified as tax-exempt to owners of its MuniPreferred
shares may be recharacterized as additional capital gain or other taxable
income. Under these circumstances, the Fund would not be required to make
gross-up payments to such owners to offset the tax effect of such reallocation.
In addition, a reallocation or a disallowance of part of the Fund's dividends
paid deduction would likely cause the Fund to be liable for income tax on any
reallocated taxable income and possibly an excise tax. Counsel
S-24
<PAGE> 67
has advised the Fund that, in its opinion, if the IRS were to challenge in court
the Fund's allocations of income and gain, the IRS should not prevail.
In order for any distributions to owners of the Fund's MuniPreferred
shares to be eligible to be treated as exempt-interest dividends, such
MuniPreferred shares must be treated as stock for Federal income tax purposes.
The Fund received an opinion of counsel, at the time the Fund first issued
MuniPreferred shares, to the effect that its MuniPreferred shares will
constitute stock of the Fund for Federal income tax purposes and, therefore,
distributions declared and paid at the Applicable Rate as dividends with respect
to the Fund's MuniPreferred shares, to the extent paid out of current or
accumulated earnings and profits of the Fund, will constitute dividends for
Federal income tax purposes. The opinion of counsel is based, among other
things, on (a) a revenue ruling the IRS published in 1990, which holds that
preferred stock that has its dividend rate periodically set pursuant to an
auction process substantially similar to the auction process to be established
for the Fund's MuniPreferred shares is treated as stock for Federal income tax
purposes and (b) the Fund's representation to counsel that there is no express
or implied agreement between or among a Broker-Dealer or any other party and the
Fund, Nuveen or any owner of the Fund's shares of MuniPreferred that the
Broker-Dealer or other party will guarantee or otherwise arrange to ensure that
an owner of such shares will be able to sell such shares. This opinion
represents only counsel's best legal judgment and is not binding on the IRS or
the courts.
If at any time when the Fund's MuniPreferred shares are outstanding the
Fund fails to meet the MuniPreferred Basic Maintenance Amount or the 1940 Act
MuniPreferred Asset Coverage, the Fund will be required to suspend distributions
to holders of its shares of Common Stock until such maintenance amount or asset
coverage, as the case may be, is restored. See "Description of MuniPreferred --
Dividends and Rate Periods -- Restrictions on Dividends and Other Distributions"
in the Prospectus. This may prevent the Fund from distributing at least 90% of
its net investment income and net tax-exempt income, and may therefore
jeopardize the Fund's qualification for taxation as a regulated investment
company or cause the Fund to incur an income tax liability or a non-deductible
4% excise tax on the undistributed taxable income (including gain), or both.
Upon failure to meet the MuniPreferred Basic Maintenance Amount or the 1940 Act
MuniPreferred Asset Coverage, the Fund will be required to redeem its
MuniPreferred shares in order to maintain or restore such maintenance amount or
asset coverage and avoid the adverse consequences to the Fund and its
shareholders of failing to qualify as a regulated investment company. There can
be no assurance, however, that any such redemption would achieve such
objectives.
The Code provides that interest on indebtedness incurred or continued
to purchase or carry the Fund's shares to which exempt-interest dividends are
allocated is not deductible. Under rules the IRS uses for determining when
borrowed funds are considered used for the purpose of purchasing or carrying
particular assets, the purchase or ownership of shares may be considered to have
been made with borrowed funds even though such funds are not directly used for
the purchase or ownership of such shares.
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<PAGE> 68
The interest on private activity bonds in most instances is not
Federally tax-exempt to a person who is a "substantial user" of a facility these
bonds financed or a "related person" of a "substantial user." As a result, the
Fund may not be an appropriate investment for shareholders who are considered
either a "substantial user" or a "related person" within the meaning of the
Code. In general, a "substantial user" of a facility includes a "non-exempt
person who regularly uses a part of such facility in his trade or business."
"Related persons" are in general defined to include persons among whom there
exists a relationship, either by family or business, which would result in a
disallowance of losses in transactions among them under various provisions of
the Code (or if they are members of the same controlled group of corporations
under the Code), including a partnership and each of its partners (and their
spouses and minor children), an S corporation and each of its shareholders (and
their spouses and minor children) and various combinations of these
relationships. The foregoing is not a complete statement of all of the
provisions of the Code covering the definitions of "substantial user" and
"related person."
The Fund may, at its option, redeem its MuniPreferred shares in whole
or in part, and is required to redeem its MuniPreferred shares to the extent
required to maintain the MuniPreferred Basic Maintenance Amount and the 1940 Act
MuniPreferred Asset Coverage. Gain or loss, if any, resulting from a redemption
of the MuniPreferred shares will be taxed as gain or loss from the sale or
exchange of the MuniPreferred shares under Section 302 of the Code rather than
as a dividend, but only if the redemption distribution (a) is deemed not to be
essentially equivalent to a dividend, (b) is in complete redemption of an
owner's interest in the Fund, (c) is substantially disproportionate with respect
to the owner, or (d) for non-corporate owners, is in partial liquidation of the
Fund. For purposes of (a), (b) and (c) above, an owner's common share ownership
of the Fund will be taken into account.
Nonresident alien individuals and certain foreign corporations and
other entities ("foreign investors") generally are subject to U.S. withholding
tax at the rate of 30% (or possibly a lower rate an applicable tax treaty
provides) on distributions of taxable net investment income (which term includes
net short-term capital gain). To the extent received by foreign investors,
exempt-interest dividends, distributions of net capital gain and any gain from
the sale or other disposition of the MuniPreferred shares generally are exempt
from U.S. taxation. Different tax consequences may result if the owner is
engaged in a trade or business in the United States or, in the case of an
individual, is present in the United States for more than 182 days during a
taxable year.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January will be treated as having been distributed by the Fund (and received by
the shareholders) on December 31 of the year declared.
The sale or other disposition of MuniPreferred shares of the Fund will
normally result in capital gain or loss to shareholders. Present law taxes both
long-term and short-term capital gain of corporations at the rates applicable
to ordinary income. For non-corporate taxpayers, however,
S-26
<PAGE> 69
under current law, short-term capital gain and ordinary income will be taxed at
a maximum rate of 39.6% while long-term capital gain of non-corporate taxpayers
may be taxed at more favorable rates. However, because of the limitations on
itemized deductions and the deduction for personal exemptions applicable to
higher income taxpayers, the effective rate of tax may be higher in certain
circumstances. Losses a shareholder realizes on the sale or exchange of shares
of the Fund held for six months or less are disallowed to the extent of any
distribution of exempt-interest dividends received with respect to such shares,
and, if not disallowed, such losses are treated as long-term capital losses to
the extent of any distribution of net capital gain received with respect to
such shares.
Non-corporate investors who dispose of capital assets held for more
than twelve (12) months generally will pay tax upon disposition of those assets
at a 10% rate if they are in the lowest tax bracket (for 1999, singles with
taxable income of $42,350 or less and married couples filing jointly with
taxable income of $43,050 or less), and at a 20% rate if they are in higher tax
brackets. In addition, beginning in the year 2001, for certain capital assets
held for more than five years, the 10% maximum capital gains rate will be
lowered to 8%, and in 2006 the 20% maximum capital gains rate will be lowered to
18%.
Federal tax law imposes an alternative minimum tax on both corporations
and individuals. Interest on certain Municipal Obligations, such as bonds issued
to make loans for housing purposes or to private entities (but not to certain
tax-exempt organizations such as universities and non-profit hospitals) is
included as an item of tax preference in determining the amount of a taxpayer's
alternative minimum taxable income. To the extent that the Fund receives income
from Municipal Obligations subject to the Federal alternative minimum tax, a
portion of the dividends it paid, although otherwise exempt from Federal income
tax, will be taxable to its shareholders to the extent that their tax liability
is determined under the alternative minimum tax. The Fund will annually supply a
report indicating the percentage of the Fund's income attributable to Municipal
Obligations subject to the Federal alternative minimum tax.
In addition, for certain corporations, alternative minimum taxable
income is increased by 75% of the difference between an alternative measure of
income ("adjusted current earnings") and the amount otherwise determined to be
the alternative minimum taxable income. Interest on all Municipal Obligations,
and therefore all distributions the Fund makes that would otherwise be
tax-exempt, is included in calculating a corporation's adjusted current
earnings.
Certain small corporations are not subject to the alternative minimum
tax. A corporation qualifies for such exemption provided that (i) for the
corporation's first taxable year beginning after December 31, 1996, its average
annual gross receipts for the three prior taxable year period does not exceed
$5,000,000 and (ii) the corporation's average annual gross receipts for each
three prior taxable year period thereafter does not exceed $7,500,000.
S-27
<PAGE> 70
Tax-exempt income, including exempt-interest dividends the Fund pays,
is taken into account in calculating the amount of social security and railroad
retirement benefits that may be subject to Federal income tax.
The Fund is required in certain circumstances to withhold 31% of
taxable dividends and certain other payments paid to non-corporate holders of
the Fund's shares who do not furnish to the Fund their correct taxpayer
identification number (in the case of individuals, their social security number)
and certain certifications, or who are otherwise subject to backup withholding.
The Code provides that every shareholder required to file a tax return
must include for information purposes on the return the amount of tax-exempt
interest received during the taxable year, including any exempt-interest
dividends received from the Fund.
This is a general, abbreviated summary of the provisions of the Code
and regulations thereunder presently in effect as they directly govern the
taxation of the Fund and its shareholders. These provisions are subject to
change by legislative or administrative action, and any change may be
retroactive with respect to the Fund's transactions. Moreover, the foregoing
does not address many of the factors that may be determinative of whether an
investor will be liable for the alternative minimum tax. Shareholders are
advised to consult their own tax advisers for more detailed information
concerning Federal income tax matters.
CERTAIN OWNERS OF RECORD
As of March 31, 1999, no person is known to the Fund to own of record or
beneficially five percent or more of the outstanding shares of Common Stock or
MuniPreferred.
EXPERTS
The Statement of Net Assets of the Fund as of October 31, 1998
appearing in this Prospectus has been audited by Ernst & Young LLP, Sears Tower,
233 South Wacker Drive, Chicago, Illinois 60606, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and is included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing. Ernst & Young audits and reports on the Fund's annual
financial statements, reviews certain regulatory reports and the Fund's Federal
income tax returns, and performs other professional accounting, auditing, tax
and advisory services when engaged to do so by the Fund.
S-28
<PAGE> 71
Report of Independent Auditors
The Board of Directors and Shareholders
Nuveen Performance Plus Municipal Fund, Inc.
Nuveen Municipal Advantage Fund, Inc.
Nuveen Municipal Market Opportunity Fund, Inc.
We have audited the accompanying statements of net assets, including the
portfolios of investments, of Nuveen Performance Plus Municipal Fund, Inc.,
Nuveen Municipal Advantage Fund, Inc. and Nuveen Municipal Market Opportunity
Fund, Inc. as of October 31, 1998, and the related statements of operations and
changes in net assets and the financial highlights for the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of
Nuveen Performance Plus Municipal Fund, Inc., Nuveen Municipal Advantage Fund,
Inc. and Nuveen Municipal Market Opportunity Fund, Inc. at October 31, 1998, and
the results of their operations, changes in their net assets and financial
highlights for the periods indicated therein in conformity with generally
accepted accounting principles.
Chicago, Illinois
December 11, 1998
S-39
<PAGE> 72
Portfolio of Investments
Nuveen Performance Plus Municipal Fund, Inc. (NPP)
October 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
Alabama - 0.9%
<S> <C> <C> <C> <C>
$ 2,665,000 Alabama Housing Finance Authority, Single Family Mortgage Revenue Bonds
(GNMA Collateralized Home Mortgage Revenue Bond Program),
1988 Series A, 8.000%, 10/01/20 10/00 at 100 AAA $2,724,030
3,615,000 Alabama Water Pollution Control Authority, Revolving Fund Loan Bonds,
Series 1994, 6.750%, 8/15/17 8/05 at 100 AAA 4,112,171
5,075,000 Jefferson County, Alabama, Sewer Revenue Refunding Warrants,
Series 1997-A, 5.625%, 2/01/22 2/07 at 101 AAA 5,414,670
- ------------------------------------------------------------------------------------------------------------------------------------
Alaska - 0.2%
2,365,000 Alaska Housing Finance Corporation, Collateralized Bonds,
1989 First Series (Veterans Mortgage Program), 7.450%, 12/01/29 6/00 at 102 AAA 2,446,380
- ------------------------------------------------------------------------------------------------------------------------------------
Arizona - 0.5%
5,430,000 Yuma Regional Medical Center on behalf of Hospital District No. 1 of
Yuma County, Arizona, Hospital Revenue Improvement and Refunding Bonds
(Yuma Regional Medical Center Project), Series 1992,
8.000%, 8/01/17 (Pre-refunded to 8/01/02) 8/02 at 101 1/2 N/R*** 6,312,266
- ------------------------------------------------------------------------------------------------------------------------------------
Arkansas - 2.2%
7,880,000 Arkansas Development Finance Authority, Single Family Mortgage Revenue
Bonds, 1996 Series H, 6.100%, 7/01/30 (Alternative Minimum Tax) 1/07 at 102 AAA 8,357,292
14,350,000 Arkansas Development Finance Authority, Single Family Mortgage Revenue
Bonds, Series 188A, GNMA Collateralized, 8.400%, 8/01/20
(Alternative Minimum Tax) 2/99 at 102 AAA 14,655,799
3,325,000 Arkansas Development Finance Authority, Home Mortgage Revenue Bonds,
1998 Series B, 5.300%, 7/01/27 (Alternative Minimum Tax) 7/08 at 101 1/2 AAA 3,395,025
3,200,000 City of North Little Rock, Arkansas, Health Facilities Board
(Baptist Health), Healthcare Revenue Bonds, Series 1996A,
5.500%, 12/01/21 12/06 at 101 AAA 3,335,712
- ------------------------------------------------------------------------------------------------------------------------------------
California - 8.6%
11,900,000 State Public Works Board of the State of California, Lease Revenue Bonds
(The Trustees of the California State University), 1990 Series A
(California State University Library Projects), 6.250%, 9/01/16
(Pre-refunded to 9/01/00) 9/00 at 102 AAA 12,754,539
4,415,000 Department of Water and Power of the City of Los Angeles, California,
Electric Plant Refunding Revenue Bonds, Second Issue of 1993,
4.750%, 11/15/19 11/03 at 102 Aa3 4,286,214
13,450,000 Ontario Redevelopment Financing Authority (San Bernardino County,
California), 1995 Revenue Refunding Bonds (Ontario Redevelopment
Project No.1), 7.200%, 8/01/17 No Opt. Call AAA 17,420,440
20,420,000 Community Redevelopment Agency of the City of Palmdale, Residential
Mortgage Revenue Refunding Bonds, 1991 Series A, 7.150%, 2/01/10 No Opt. Call AAA 24,471,941
2,325,000 Community Redevelopment Agency of the City of Palmdale, Restructured
Single Family Mortgage Revenue Bonds, Series 1986D, 8.000%, 4/01/16
(Alternative Minimum Tax) No Opt. Call AAA 3,187,994
8,140,000 San Bernardino Joint Powers Financing Authority, Lease Revenue Bonds
(State of California Department of Transportation Lease), 1995 Series A,
5.500%, 12/01/20 12/05 at 102 A 8,461,042
10,000,000 San Bernardino County, California, Certificates of Participation,
Series 1995 (Medical Center Financing Project), 5.500%, 8/01/15 8/05 at 102 AAA 10,623,200
31,355,000 San Joaquin Hills Transportation Corridor Agency, Toll Road Refunding
Revenue Bonds, Series 1997 A, 0.000%, 1/15/26 No Opt. Call AAA 7,934,069
4,650,000 Southern California Public Power Authority (Palo Verde Project), Power
Project Revenue Bonds, 1993 Refunding Series A, 5.000%, 7/01/15 7/03 at 102 A+ 4,690,874
15,745,000 Walnut Valley Unified School District (Los Angeles County, California),
General Obligation Refunding Bonds, Series 1997A, 7.200%, 2/01/16 8/11 at 103 AAA 19,565,682
</TABLE>
S-40
<PAGE> 73
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Colorado - 2.9%
$ 3,000,000 Colorado Health Facilities Authority, Revenue Bonds (National Jewish
Medical and Research Center Project), Series 1998, 5.375%, 1/01/28 1/08 at 101 A $3,014,790
City and County of Denver, Colorado, Airport System Revenue Bonds,
Series 1992B:
1,020,000 7.250%, 11/15/23 (Pre-refunded to 11/15/02) (Alternative Minimum Tax) 11/02 at 102 Aaa 1,172,266
3,980,000 7.250%, 11/15/23 (Alternative Minimum Tax) 11/02 at 102 Baa1 4,438,138
City and County of Denver, Colorado, Airport System Revenue Bonds,
Series 1990A:
1,035,000 8.000%, 11/15/25 (Pre-refunded to 11/15/00) (Alternative Minimum Tax) 11/00 at 102 Aaa 1,145,704
10,910,000 8.000%, 11/15/25 (Alternative Minimum Tax) 11/00 at 102 Baa1 11,867,134
City and County of Denver, Colorado, Airport System Revenue Bonds,
Series 1991A:
1,715,000 8.750%, 11/15/23 (Pre-refunded to 11/15/01) (Alternative Minimum Tax) 11/01 at 102 Aaa 1,994,785
4,755,000 8.750%, 11/15/23 (Alternative Minimum Tax) 11/01 at 102 Baa1 5,421,746
955,000 8.000%, 11/15/25 (Pre-refunded to 11/15/01) (Alternative Minimum Tax) 11/01 at 100 Aaa 1,073,258
2,640,000 8.000%, 11/15/25 (Alternative Minimum Tax) 11/01 at 100 Baa1 2,903,393
City and County of Denver, Colorado, Airport System Revenue Bonds,
Series 1991D:
1,000,000 7.000%, 11/15/25 (Pre-refunded to 11/15/01) (Alternative Minimum Tax) 11/01 at 100 Aaa 1,095,600
3,720,000 7.000%, 11/15/25 (Alternative Minimum Tax) 11/01 at 100 Baa1 3,991,895
- ------------------------------------------------------------------------------------------------------------------------------------
Florida - 3.4%
7,610,000 Florida Housing Finance Agency, GNMA Collateralized Home Ownership
Mortgage Revenue Bonds, 1988 Series G1 Bonds, 8.300%, 6/01/20
(Alternative Minimum Tax) 12/98 at 103 Aaa 7,845,910
4,500,000 State of Florida, Full Faith and Credit, State Board of Education,
Capital Outlay Bonds, 1996 Series A, 4.750%, 1/01/16 1/06 at 101 AAA 4,460,625
4,770,000 School Board of Orange County, Florida, Master Lease Program,
Certificates of Participation, Series 1997A, 5.375%, 8/01/22 8/07 at 101 Aaa 4,937,999
25,935,000 City of St. Petersburg Health Facilities Authority (Florida), Allegany
Health System Revenue Bonds (St. Marys Hospital, Inc.), Series 1985 B,
7.750%, 12/01/15 (Pre-refunded to 12/01/99) 12/99 at 102 Aaa 27,733,074
- ------------------------------------------------------------------------------------------------------------------------------------
Georgia - 2.1%
4,965,000 Cherokee County (Georgia), Water and Sewerage Authority, Water and
Sewerage Revenue Bonds,
Series 1995, 5.200%, 8/01/25 No Opt. Call AAA 5,170,203
9,000,000 George L. Smith II Georgia World Congress Center Authority,
Revenue Bonds (Domed Stadium Project), Series 1990, 7.875%,
7/01/20 (Alternative Minimum Tax) 7/00 at 102 Aaa 9,749,970
2,000,000 George L. Smith II Georgia World Congress Center Authority, Revenue
Bonds (Domed Stadium Project), Series 2000, 5.500%, 7/01/20
(Alternative Minimum Tax) (DD, settling 4/04/00 7/01 at 100 AAA 1,995,080
10,000,000 Development Authority of Monroe County (Georgia), Pollution Control
Revenue Bonds (Georgia Power Company Plant Scherer Project),
Second Series 1994, 6.750%, 10/01/24 10/99 at 102 A+ 10,382,700
850,000 Hospital Authority of Savannah, Revenue Bonds, Saint Josephs/Candler
Health System, Inc. Issue, Series 1998B, 5.000%, 7/01/23 1/09 at 101 Aaa 834,105
- ------------------------------------------------------------------------------------------------------------------------------------
Illinois - 10.1%
3,000,000 City of Chicago, General Obligation Library Bonds, Series 1997,
5.750%, 1/01/17 1/08 at 102 AAA 3,272,460
21,000,000 Chicago School Reform Board of Trustees of the Board of Education of
the City of Chicago, Illinois, Unlimited Tax General Obligation Bonds
(Dedicated Tax Revenues), Series 1997A, 5.250%, 12/01/30 12/07 at 102 AAA 21,307,650
Chicago School Reform Board of Trustees of the Board of
Education of the City of Chicago, Illinois, Unlimited Tax
General Obligation Bonds (Dedicated Tax Revenues), Series 1998A:
10,000,000 0.000%, 12/01/19 No Opt. Call AAA 3,401,500
38,800,000 0.000%, 12/01/22 No Opt. Call AAA 11,257,044
34,000,000 0.000%, 12/01/23 No Opt. Call AAA 9,365,980
5,000,000 City of Chicago, Illinois, Gas Supply Revenue Bonds, 1990 Series A
(The Peoples Gas Light and Coke Company Project), 8.100%,
5/01/20 (Alternative Minimum Tax) 5/00 at 102 AA- 5,394,000
9,605,000 City of Chicago, Chicago-O'Hare International Airport, Special Facility
Revenue Bonds (United Air Lines, Inc. Project), Series 1984C,
8.200%, 5/01/18 5/99 at 103 Baa2 10,070,362
2,690,000 City of Chicago, Chicago-O'Hare International Airport, Special
Facility Revenue Bonds (United Air Lines, Inc. Project), Series
1988A, 8.400%, 5/01/18 (Alternative Minimum Tax) (DD) 5/99 at 103 Baa2 2,820,761
</TABLE>
S-41
<PAGE> 74
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illinois (continued)
$ 10,600,000 Illinois Development Finance Authority, Revenue and Refunding Bonds,
Series 1990A
(Columbus-Cuneo-Cabrini Medical Center), 8.500%, 2/01/15
(Pre-refunded to 2/01/00) 2/00 at 102 Baa2*** $11,444,926
Illinois Development Finance Authority, Multi-family Housing
Revenue Bonds, Series 1992 (Town and Garden Apartments Project):
5,660,000 7.800%, 3/01/06 (Alternative Minimum Tax) 3/02 at 102 BBB+ 6,189,267
5,960,000 7.200%, 9/01/08 (Alternative Minimum Tax) 3/02 at 102 BBB+ 6,409,205
1,000,000 Illinois Educational Facilities Authority, Revenue Bonds, Midwestern
University, Series 1998B, 5.500%, 5/15/18 5/08 at 101 A 1,028,390
10,000,000 Illinois Educational Facilities Authority, Adjustable Demand Revenue
Bonds, The University of Chicago, Series 1985 Remarketed,
5.700%, 12/01/25 (Pre-refunded to 12/01/03) 12/03 at 102 Aa1*** 11,024,700
12,910,000 Illinois Health Facilities Authority, Revenue Bonds, Series 1994A
(Northwestern Memorial Hospital), 6.000%, 8/15/24 8/04 at 102 AA 13,938,282
Illinois Health Facilities Authority, Revenue Bonds, Series 1989B
(Northwestern Memorial Hospital):
5,380,000 7.200%, 8/15/07 (Pre-refunded to 8/15/99) 8/99 at 102 Aaa 5,662,880
4,620,000 7.200%, 8/15/07 8/99 at 102 AA 4,855,204
6,330,000 Illinois Health Facilities Authority, Revenue Refunding Bonds,
Series 1998 (Midwest Physician Group Ltd.), 5.500%, 11/15/19 11/08 at 102 A 6,399,314
- ------------------------------------------------------------------------------------------------------------------------------------
Indiana - 4.2%
4,000,000 Fort Wayne International Airport Air Trade Center Building Corporation
(Allen County, Indiana), First Mortgage Bonds, Series 1998,
5.000%, 1/15/20 (Alternative Minimum Tax) 1/08 at 101 Aaa 3,880,120
5,000,000 Fort Wayne South Side School Building Corporation, First Mortgage Bonds,
Series 1994, Allen County, Indiana, 6.125%, 1/15/12
(Pre-refunded to 1/15/04) 1/04 at 102 AAA 5,599,950
5,250,000 Indiana Bond Bank, State Revolving Fund Program Bonds, Series 1994A,
Guarantee Revenue Bonds, 6.000%, 2/01/16 2/04 at 102 AAA 5,606,948
Indiana Health Facilities Financing Authority (Ancilla Systems
Inc.), Obligated Group Revenue Bonds, Series 1997:
15,380,000 5.250%, 7/01/17 7/07 at 101 AAA 15,674,681
13,735,000 5.250%, 7/01/22 7/07 at 101 AAA 13,817,685
4,980,000 Indiana Municipal Power Agency, Special Obligation Bonds, First
Crossover Series and Power Supply System Refunding Revenue Bonds,
1998 Series B, 5.300%, 1/01/16 1/03 at 101 AAA 5,047,628
5,730,000 Michigan City School Building Corporation, First Mortgage Bonds,
Series 1994 A, LaPorte and Porter Counties, Indiana, 6.125%, 12/15/09 12/04 at 102 AAA 6,412,099
- ------------------------------------------------------------------------------------------------------------------------------------
Iowa - 0.7%
9,440,000 Iowa Finance Authority, Single Family Mortgage Revenue Bonds, 1988
Issue B (GNMA Mortgage-Backed Securities Program),
8.250%, 5/01/20 (Alternative Minimum Tax) 11/00 at 100 Aaa 9,644,942
- ------------------------------------------------------------------------------------------------------------------------------------
Kansas - 0.1%
1,555,000 Sedgwick County, Kansas, Shawnee County, Kansas and Leavenworth County,
Kansas, GNMA Collateralized Mortgage Revenue Bonds, 1989 Series A,
7.875%, 12/01/21 (Alternative Minimum Tax) 6/99 at 103 AAA 1,618,413
- ------------------------------------------------------------------------------------------------------------------------------------
Kentucky - 0.9%
10,000,000 County of Carroll, Kentucky, Collateralized Pollution Control Revenue
Bonds (Kentucky Utilities Company Project), 1992 Series A,
7.450%, 9/15/16 9/02 at 102 Aa2 11,326,400
- ------------------------------------------------------------------------------------------------------------------------------------
Louisiana - 5.7%
4,615,000 East Baton Rouge Mortgage Finance Authority, Single Family Mortgage
Revenue Bonds (GNMA Mortgage-Backed Securities Program), Series 1988F,
7.875%, 12/01/21 (Alternative Minimum Tax) 12/00 at 103 Aaa 4,876,301
1,850,000 East Baton Rouge Mortgage Finance Bonds (GNMA and Fannie Mae
Mortgage-Backed Securities Program), Series 1996C-1, 5.750%, 10/01/26 10/07 at 102 Aaa 1,927,608
5,040,000 East Baton Rouge Mortgage Finance Authority, Single Family Mortgage
Revenue Refunding Bonds (GNMA and Fannie Mae Mortgage-Backed
Securities Program), Series 1997B-1, 5.750%, 10/01/26 10/07 at 102 Aaa 5,251,428
</TABLE>
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<PAGE> 75
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Louisiana (continued)
$ 6,000,000 East Baton Rouge Mortgage Finance Authority (Composite Remarketing,
Refunding and New Issue), Single Family Mortgage Revenue Bonds
(GNMA and Fannie Mae Mortgage-Backed Securities Program),
Series 1998A, 5.450%, 10/01/30 (Alternative Minimum Tax) 4/08 at 101 Aaa $6,001,800
5,490,000 Parish of Jefferson Home Mortgage Authority (Louisiana), GNMA
Collateralized Single Family Mortgage Revenue Bonds, Series 1989A,
7.875%, 12/01/21 (Alternative Minimum Tax) 12/00 at 103 Aaa 5,796,397
35,700,000 Louisiana Stadium and Exposition District, Hotel Occupancy Tax Bonds,
Series 1996, 5.750%, 7/01/26 7/06 at 102 AAA 38,652,747
5,630,000 New Orleans Housing Development Corporation, Multifamily Housing Revenue
Refunding Bonds, Series 1990A (Curran Place Apartments/Fannie Mae
Collateralized), 7.700%, 8/01/23 6/03 at 100 AAA 6,116,207
6,500,000 City of Shreveport, State of Louisiana, Water and Sewer Revenue Bonds,
1986 Series A, 5.950%, 12/01/14 6/03 at 103 AAA 7,164,040
- ------------------------------------------------------------------------------------------------------------------------------------
Maine - 1.1%
11,000,000 Maine State Housing Authority, Mortgage Purchase Bonds, 1994 Series A,
5.700%, 1/15/26 2/04 at 102 AA 11,247,830
2,680,000 University of Maine, System Revenue Bonds, Series 1998A, 5.000%, 3/01/18 9/08 at 101 AAA 2,686,057
- ------------------------------------------------------------------------------------------------------------------------------------
Maryland - 1.2%
7,475,000 Housing Opportunities Commission of Montgomery County (Montgomery County,
Maryland), Multifamily Housing Revenue Bonds, 1994 Series A,
6.250%, 7/01/28 7/04 at 102 Aa 7,951,008
7,090,000 City of Takoma Park, Maryland, Hospital Facilities Refunding and
Improvement Revenue Bonds (Washington Adventist Hospital),
Series 1995, 6.500%, 9/01/12 No Opt. Call AAA 8,550,398
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts - 4.4%
10,065,000 City of Boston, Massachusetts, Revenue Bonds, Boston City Hospital
(FHA Insured Mortgage), Series A,
7.625%, 2/15/21 (Pre-refunded to 8/15/00) 8/00 at 102 Aaa 10,959,779
14,375,000 Massachusetts Bay Transportation Authority, General Transportation
System Bonds, 1990 Series B, 7.875%, 3/01/21 (Pre-refunded to 3/01/01) 3/01 at 102 AAA 16,007,713
450,000 Massachusetts Municipal Wholesale Electric Company, Power Supply System
Revenue Bonds, 1987 Series A, 8.750%, 7/01/18 No Opt. Call BBB+ 531,551
4,000,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds,
Baystate Medical Center Issue, Series C, 7.500%, 7/01/20
(Pre-refunded to 7/01/99) 7/99 at 102 A+*** 4,198,680
10,100,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds,
New England Medical Center Hospitals Issue, Series F, 6.625%, 7/01/25 7/02 at 102 AAA 11,139,391
3,480,000 Massachusetts Housing Finance Agency, Multi-Family Residential Development
Bonds, 1989 Series A (Fannie Mae Collateralized), 7.650%, 2/01/28
(Alternative Minimum Tax) 8/99 at 102 AAA 3,591,638
1,420,000 Massachusetts Health and Educational Facilities Authority, Revenue
Bonds, Southcoast Health System Obligated Group Issue,
Series A, 4.750%, 7/01/27 7/08 at 101 Aaa 1,340,352
2,000,000 Massachusetts Industrial Finance Agency, Revenue Bonds, Western
New England College Issue, Series 1998, 5.000%, 7/01/28 7/08 at 102 AAA 1,967,640
8,000,000 Massachusetts Water Resources Authority, General Revenue Bonds,
1990 Series A, 7.500%, 4/01/16 (Pre-refunded to 4/01/00) 4/00 at 102 AAA 8,598,880
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan - 4.1%
17,000,000 School District of the City of Birmingham, County of Oakland, State of
Michigan, School Building and Site Bonds, Series 1998, 4.750%, 11/01/24 11/07 at 100 AAA 16,301,810
4,000,000 City of Detroit, Michigan, Sewage Disposal System Revenue Bonds,
Series 1997-A, 5.000%, 7/01/27 7/07 at 101 AAA 3,948,720
10,000,000 City of Detroit, Michigan, Water Supply System Revenue (Senior Lien),
Series 1997-A, 5.000%, 7/01/21 7/07 at 101 AAA 9,885,700
4,295,000 Grand Rapids Housing Corporation, Multifamily Revenue Refunding Bonds,
Series 1992 (FHA Insured Mortgage Loan-Section 8 Assisted Elderly
Project), 7.375%, 7/15/41 1/04 at 104 AAA 4,815,210
4,030,000 City of Hancock Hospital Finance Authority, FHA-Insured Mortgage
Hospital Revenue Bonds, (Portage Health System, Inc.),
Series 1998, 5.450%, 8/01/47 8/08 at 100 AAA 4,126,075
15,000,000 Michigan Public Power Agency, Belle River Project Refunding Revenue
Bonds, 1993 Series A, 5.250%, 1/01/18 1/03 at 102 AAA 15,199,800
</TABLE>
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<PAGE> 76
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minnesota - 4.2%
$ 10,995,000 The Dakota County Housing and Redevelopment Authority, Single Family
Mortgage Revenue Bonds (Fannie Mae Mortgage-Backed Securities Program),
Series 1994A, 6.900%, 10/01/27 (Alternative Minimum Tax) 4/04 at 102 AAA $11,806,871
24,030,000 The Housing and Redevelopment Authority of the City of Saint Paul,
Minnesota, Sales Tax Revenue Refunding Bonds (Civic Center Project),
Series 1996, 7.100%, 11/01/23 11/15 at 103 AAA 30,252,328
Housing and Redevelopment Authority of the City of Saint Paul, Minnesota,
Single Family Mortgage Revenue Refunding Bonds (Middle Income Program,
Phase II Fannie Mae Mortgage-Backed Securities
Program), Series 1995:
2,590,000 6.400%, 3/01/21 3/05 at 102 Aaa 2,768,943
9,655,000 6.800%, 3/01/28 3/05 at 102 19/32 Aaa 10,479,634
- ------------------------------------------------------------------------------------------------------------------------------------
Mississippi - 0.3%
3,635,000 Mississippi Hospital Equipment and Facilities Authority, Revenue
Refunding Bonds, Series 1997B (Rush Medical Foundation Project),
6.000%, 1/01/22 1/07 at 102 A 3,881,380
- ------------------------------------------------------------------------------------------------------------------------------------
Missouri - 0.6%
6,025,000 Missouri Housing Development Commission, Single Family Mortgage
Revenue Bonds (GNMA Mortgage-Backed Securities Program),
1988 Series A, 8.300%, 5/01/19 (Alternative Minimum Tax) 5/99 at 101 AAA 6,155,863
1,500,000 Missouri State Health and Educational Facilities Authority, Revenue Bonds
(SSM Health Care), Series 1998A, 5.000%, 6/01/18 6/08 at 101 AAA 1,497,150
- ------------------------------------------------------------------------------------------------------------------------------------
Nevada - 1.5%
2,440,000 City of Las Vegas Downtown Redevelopment Agency, Tax Increment Revenue
Bonds (City of Las Vegas Downtown Redevelopment Project), Series 1986A
(Las Vegas, Nevada) (1989 Remarketing), 7.900%, 6/01/06 12/98 at 102 A- 2,497,511
10,505,000 State of Nevada, General Obligation (Limited Tax), Nevada Municipal Bond
Bank Project No. 52, Series July 1, 1996A, 6.000%, 5/15/21
(Pre-refunded to 5/15/06) 5/06 at 101 AA*** 11,891,240
5,000,000 Washoe County, Nevada, Hospital Revenue Bonds (Washoe Medical Center,
Inc. Project), Series 1989A, 7.600%, 6/01/19 (Pre-refunded to 6/01/99) 6/99 at 102 N/R*** 5,229,650
- ------------------------------------------------------------------------------------------------------------------------------------
New Hampshire - 0.2%
3,070,000 The Industrial Development Authority of the State of New Hampshire,
Pollution Control Revenue Bonds (The United Illuminating
Company Project), 1989 Series A, 8.000%, 12/01/14
(Alternative Minimum Tax) 12/99 at 103 BBB- 3,244,959
- ------------------------------------------------------------------------------------------------------------------------------------
New York - 10.5%
9,295,000 Municipal Assistance Corporation for the City of New York, New York,
Series 67 Bonds, 7.625%, 7/01/08 (Pre-refunded to 7/01/99) 7/99 at 102 Aa2*** 9,768,766
5,000 The City of New York, General Obligation Bonds, Fiscal 1987 Series D,
8.500%, 8/01/08 8/01 at 100 A- 5,139
The City of New York, General Obligation Bonds, Fiscal 1992 Series C:
7,885,000 6.625%, 8/01/14 (Pre-refunded to 8/01/02) 8/02 at 101 1/2 AAA 8,795,481
115,000 6.625%, 8/01/14 8/02 at 101 1/2 AAA 127,603
12,500,000 The City of New York, General Obligation Bonds, Fixed Rate Tax-Exempt
Bonds, Fiscal 1997 Series A, 7.000%, 8/01/05 No Opt. Call A- 14,518,375
16,295,000 The City of New York, General Obligation Bonds, Fiscal 1996 Series F,
5.750%, 2/01/15 2/06 at 101 1/2 A- 17,348,798
20,650,000 New York City Municipal Water Finance Authority, Water and Sewer System
Revenue Bonds, Fiscal 1996 Series B, 5.750%, 6/15/26 6/06 at 101 AAA 22,220,639
6,500,000 New York City Municipal Water Finance Authority, Water and Sewer System
Revenue Bonds, Fiscal 1990 Series A, 7.250%, 6/15/11
(Pre-refunded to 6/15/99) 6/99 at 101 1/2 A*** 6,770,335
4,350,000 Dormitory Authority of the State of New York, State University Educational
Facilities Revenue Bonds, Series 1990A, 7.700%, 5/15/12
(Pre-refunded to 5/15/00) 5/00 at 102 Aaa 4,710,789
4,000,000 Dormitory Authority of the State of New York, State University Educational
Facilities Revenue Bonds, Series 1990B, 6.000%, 5/15/17 5/00 at 100 A- 4,121,280
2,070,000 Dormitory Authority of the State of New York, Insured Revenue Bonds
(853 Schools Program 1998 Issue 1), Gateway-Longview, Inc.,
Series 1998A, 5.500%, 7/01/18 7/08 at 101 AAA 2,188,218
</TABLE>
S-44
<PAGE> 77
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York (continued)
$ 8,350,000 Dormitory Authority of the State of New York, State University
Educational Facilities Revenue Bonds, Series 1998B, 4.750%, 5/15/28 5/08 at 101 A- $7,912,293
4,000,000 New York State Medical Care Facilities Finance Agency, St. Lukes-
Roosevelt Hospital Center FHA-Insured Mortgage Revenue Bonds,
1989 Series A, 7.375%, 2/15/19 2/00 at 102 AA 4,210,360
14,750,000 New York State Medical Care Facilities Finance Agency, Mental Health
Services Facilities Improvement Revenue Bonds,
1993 Series F Refunding, 5.375%, 2/15/14 2/04 at 102 AAA 15,538,978
5,000,000 New York State Medical Care Facilities Finance Agency, Hospital
Insured Mortgage Revenue Bonds, 1994 Series A Refunding, 5.375%, 2/15/25 2/04 at 102 AAA 5,099,200
15,000,000 New York State Urban Development Corporation, Correctional Facilities
Revenue Bonds, Series G, 7.250%, 1/01/14 (Pre-refunded to 1/01/00) 1/00 at 102 Aaa 15,952,050
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina - 0.4%
5,750,000 North Carolina Municipal Power Agency, Number 1, Catawba Electric
Revenue Bonds, Series 1998A, 5.000%, 1/01/20 1/08 at 102 AAA 5,723,550
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio - 0.8%
6,205,000 Ohio Housing Finance Agency, Single Family Mortgage Revenue Bonds
(GNMA Mortgage-Backed Securities Program), 1989 Series A, 7.650%,
3/01/29 (Alternative Minimum Tax) 9/99 at 102 AAA 6,383,642
1,050,000 Toledo-Lucas County Port Authority, Development Revenue Bonds
(Northwest Ohio Bond Fund), Series 1989A, 8.250%, 11/15/04
(Alternative Minimum Tax) 11/99 at 102 N/R 1,087,149
460,000 Toledo-Lucas County Port Authority, Development Revenue Bonds
(Northwest Ohio Bond Fund), Series 1989C, 8.250%, 11/15/99
(Alternative Minimum Tax) No Opt. Call N/R 471,647
730,000 Toledo-Lucas County Port Authority, Development Revenue Bonds
(Northwest Ohio Bond Fund), Series 1989E, 8.375%, 5/15/05
(Pre-refunded to 5/15/00) (Alternative Minimum Tax) 5/00 at 102 N/R*** 782,830
1,180,000 Toledo-Lucas County Port Authority, Development Revenue Bonds
(Northwest Ohio Bond Fund), Series 1989F, 8.375%, 11/15/04
(Alternative Minimum Tax) 11/99 at 102 N/R 1,222,480
- ------------------------------------------------------------------------------------------------------------------------------------
Oklahoma - 1.1%
4,475,000 The Comanche County Hospital Authority (Lawton, Oklahoma), Hospital
Revenue Bonds, Series 1989, 8.050%, 7/01/16 (Pre-refunded to 7/01/99) 7/99 at 102 AAA 4,714,368
9,850,000 Oklahoma Industries Authority, Health Facilities Revenue Bonds
(Sisters of Mercy Health System, St. Louis, Inc.), Series 1989 A,
7.500%, 6/01/18 (Pre-refunded to 6/01/99) 6/99 at 102 Aaa 10,305,070
- ------------------------------------------------------------------------------------------------------------------------------------
Oregon - 0.9%
11,150,000 Port Saint Helens Pollution Control (Portland General Electric),
Series 1985-B, Variable Rate Demand Bonds, 4.800%, 6/01/10 No Opt. Call A3 11,387,384
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania - 2.8%
Bethlehem Authority, Northampton and Lehigh Counties,
Pennsylvania, Guaranteed Water Revenue Bonds, Series of 1998:
3,125,000 0.000%, 5/15/22 No Opt. Call AAA 949,875
3,125,000 0.000%, 5/15/23 No Opt. Call AAA 902,594
3,135,000 0.000%, 5/15/24 No Opt. Call AAA 860,369
3,155,000 0.000%, 5/15/26 No Opt. Call AAA 779,758
4,145,000 0.000%, 11/15/26 No Opt. Call AAA 998,779
2,800,000 0.000%, 5/15/28 No Opt. Call AAA 625,240
3,000,000 0.000%, 11/15/28 No Opt. Call AAA 653,100
14,800,000 Delaware County Authority (Pennsylvania), Health System Revenue Bonds,
Catholic Health East Issue, Series 1998A, 4.875%, 11/15/18 11/08 at 102 AAA 14,521,316
4,500,000 Delaware County Industrial Development Authority (Pennsylvania),
Refunding Revenue Bonds, Series A 1997 (Resource Recovery Facility),
6.100%, 7/01/13 1/08 at 102 A- 4,817,790
5,250,000 Lehigh County Industrial Development Authority, Pollution Control
Revenue Refunding Bonds, 1994 Series A (Pennsylvania Power
and Light Company Project), 5.500%, 2/15/27 2/04 at 102 AAA 5,501,423
</TABLE>
S-45
<PAGE> 78
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania (continued)
$ 5,390,000 Pennsylvania Higher Educational Facilities Authority (Commonwealth of
Pennsylvania), Revenue Bonds (Thomas Jefferson University-Jefferson
Park Hospital), 1990 Series, 7.750%, 11/01/15 (Pre-refunded to 11/01/00) 11/00 at 102 A*** $5,931,264
- ------------------------------------------------------------------------------------------------------------------------------------
South Carolina - 0.2%
2,095,000 South Carolina State Housing Finance and Development Authority,
Homeownership Mortgage Purchase Bonds, 1988 Series A, 8.600%,
7/01/19 (Alternative Minimum Tax) 7/02 at 100 AA 2,138,555
- ------------------------------------------------------------------------------------------------------------------------------------
South Dakota - 0.1%
370,000 South Dakota Health and Educational Facilities Authority, Revenue Bonds,
Series 1989 (Sioux Valley Hospital Issue), 7.625%, 11/01/13
(Pre-refunded to 11/01/98) 11/98 at 102 Aa*** 377,444
- ------------------------------------------------------------------------------------------------------------------------------------
Tennessee - 0.9%
7,150,000 The Health, Educational and Housing Facility Board of the City of
Memphis, Tennessee, Multifamily Mortgage Revenue Refunding Bonds
(Riverdale Plaza Apartments Project), Series 1993, 6.350%, 7/20/28 1/03 at 103 AAA 7,608,172
1,410,000 Tennessee Housing Development Agency, Homeownership Program Bonds,
Issue G, 7.650%, 7/01/06 7/03 at 100 AA 1,501,946
3,000,000 Tennessee State School Bond Authority, Higher Educational Facilities
Second Program Bonds, 1998 Series A, 5.000%, 5/01/23 5/08 at 100 AA+ 2,952,120
- ------------------------------------------------------------------------------------------------------------------------------------
Texas - 9.6%
11,800,000 City of Austin, Texas, Combined Utility Systems Revenue Refunding Bonds,
Series 1992, 5.750%, 11/15/16 11/02 at 100 AAA 12,552,014
25,000,000 Brazos River Authority (Texas), Collateralized Revenue Refunding Bonds
(Houston Lighting and Power Company Project), Series 1989A,
7.625%, 5/01/19 7/99 at 102 A2 26,061,500
20,000,000 Dallas-Fort Worth International Airport Facility Improvement Corporation,
American Airlines, Inc. Revenue Bonds, Series 1990, 7.500%,
11/01/25 (Alternative Minimum Tax) 11/00 at 102 Baa2 21,415,000
4,905,000 Fort Worth Housing Finance Corporation, Home Mortgage Revenue Refunding
Bonds, Series 1991A, 8.500%, 10/01/11 10/01 at 103 Aa 5,275,131
4,250,000 Harris County Health Facilities Development Corporation, Hospital Revenue
Bonds (Texas Children's Hospital Project), Series 1989A, 7.000%,
10/01/19 (Pre-refunded to 10/01/99) 10/99 at 102 AAA 4,485,748
650,000 Hidalgo County Housing Finance Corporation (Texas), Single Family
Mortgage Revenue Bonds (GNMA and Fannie Mae Collateralized),
Series 1994A, 6.750%, 10/01/15 (Alternative Minimum Tax) 4/04 at 102 Aaa 692,237
3,885,000 Houston Independent School District Public Facility Corporation
(Harris County, Texas), Lease Revenue Bonds (Cesar E. Chavez
High School), Series 1998A, 0.000%, 9/15/19 No Opt. Call AAA 1,344,016
1,690,000 City of Laredo, Texas (Webb County), Combination Tax and Sewer System,
Revenue Certificates of Obligation, Series 1998A, 4.500%, 2/15/18 2/08 at 100 AAA 1,597,473
Leander Independent School District (Williamson and Travis
Counties, Texas), Unlimited Tax School Building and Refunding
Bonds, Series 1998:
4,930,000 0.000%, 8/15/20 8/06 at 46 15/32 AAA 1,537,914
3,705,000 0.000%, 8/15/22 8/06 at 41 5/16 AAA 1,026,878
25,200,000 Matagorda County Navigation District Number One (Texas), Collateralized
Revenue Refunding Bonds (Houston Lighting and Power Company Project),
Series 1989C, 7.125%, 7/01/19 7/99 at 102 AAA 26,321,904
13,740,000 McAllen Health Facilities Development Corporation (Texas), Health
Facilities Revenue Bonds (Sisters of Mercy Health System, St. Louis,
Inc), Series 1989A, 7.250%, 6/01/15 (Pre-refunded to 6/01/99) 6/99 at 102 Aaa 14,355,827
9,570,000 State of Texas, Veterans Bonds, Series 1985, General Obligation Bonds,
8.300%, 12/01/16 (Pre-refunded to 12/01/99) 12/99 at 100 AAA 10,100,369
- ------------------------------------------------------------------------------------------------------------------------------------
Utah - 1.0%
13,000,000 Utah County, Utah, Hospital Revenue Bonds, Series 1997 (IHC Health Services, Inc.),
5.250%, 8/15/21 8/07 at 101 AAA 13,073,060
- ------------------------------------------------------------------------------------------------------------------------------------
Vermont - 0.9%
11,000,000 Vermont Housing Finance Agency, Single Family Housing Bonds, Series 5, 7.000%, 11/01/27
(Alternative Minimum Tax) 11/04 at 102 A+ 11,980,980
</TABLE>
S-46
<PAGE> 79
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Virginia - 1.0%
$ 10,865,000 Fairfax County Water Authority (Virginia), Water Revenue Bonds,
Series 1989, 7.250%, 1/01/27 (Pre-refunded to 1/01/00) 1/00 at 102 AAA $11,551,993
2,000,000 Industrial Development Authority of Russell County (Virginia),
Pollution Control Revenue Bonds (Appalachian Power Company Project),
Series H, 5.000%, 11/01/21 11/08 at 101 AAA 1,977,099
- ------------------------------------------------------------------------------------------------------------------------------------
Washington - 5.8%
2,815,000 Grant County Public Utility District 2, Wanapum Hydro Electric Revenue
Bonds, Master Lease Program, Series 1997A, 5.625%, 1/01/26 1/06 at 102 AAA 2,992,935
Washington Public Power Supply System, Nuclear Project No. 1 Refunding
Revenue Bonds, Series 1989A:
22,305,000 7.500%, 7/01/15 (Pre-refunded to 7/01/99) 7/99 at 102 AAA 23,417,349
17,985,000 7.500%, 7/01/15 (Pre-refunded to 7/01/99) 7/99 at 102 Aaa 18,878,314
7,500,000 6.000%, 7/01/17 (Pre-refunded to 7/01/99) 7/99 at 100 Aa1*** 7,652,399
16,000,000 Washington Public Power Supply System, Nuclear Project No. 1 Refunding
Revenue Bonds, Series 1993A, 5.700%, 7/01/17 7/03 at 102 AAA 16,685,439
3,075,000 Washington Public Power Supply System, Nuclear Project No. 2 Revenue
Bonds, Series 1981A, 14.375%, 7/01/01 No Opt. Call Aa1 3,469,675
4,000,000 Washington Public Power Supply System, Nuclear Project No. 3 Refunding
Revenue Bonds, Series 1993B, 5.700%, 7/01/18 7/03 at 102 Aa1 4,208,919
- ------------------------------------------------------------------------------------------------------------------------------------
West Virginia - 0.3%
2,105,000 West Virginia Housing Development Fund, Housing Finance Bonds,
1992 Series C, 7.200%, 11/01/18 (Alternative Minimum Tax) 5/02 at 102 AAA 2,187,789
1,200,000 West Virginia Housing Development Fund, Housing Finance Bonds,
1992 Series B, 7.200%, 11/01/20 (Alternative Minimum Tax) 5/02 at 102 AAA 1,251,947
- ------------------------------------------------------------------------------------------------------------------------------------
Wisconsin - 1.6%
13,400,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds,
Series 1993 (Aurora Health Care Obligated Group), 5.250%, 8/15/23 8/03 at 102 AAA 13,455,879
7,490,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds,
Series 1998A (The Millennium Housing Foundation, Inc. Project),
6.100%, 1/01/28 7/08 at 103 N/R 7,578,531
- ------------------------------------------------------------------------------------------------------------------------------------
$1,325,150,000 Total Investments - (cost $1,211,558,501) - 98.0% 1,296,003,283
====================================================================================================================================
Temporary Investments in Short-Term Municipal Securities - 0.2%
1,000,000 County of Cuyahoga, Ohio, Hospital Revenue Bonds (The Cleveland Clinic
Foundation), Series 1997D, Variable Rate Demand Bonds, 3.700%, 1/01/26+ VMIG-1 1,000,000
1,100,000 Illinois Health Facilities Authority, The University of Chicago Hospital,
Series 1998, Variable Rate Demand Bonds, 3.700%, 8/01/26+ VMIG-1 1,100,000
- ------------------------------------------------------------------------------------------------------------------------------------
$ 2,100,000 Total Temporary Investments - 0.2% 2,100,000
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.8% 24,083,218
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $1,322,186,501
====================================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent auditors):
Dates (month and year) and prices of the earliest optional call or redemption.
There may be other call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent auditors: Using the higher
of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient
U.S. government or U.S. government agency securities which ensures the timely
payment of principal and interest. Securities are normally considered to be
equivalent to AAA rated securities.
+ The security has a maturity of more than one year, but has variable
rate and demand features which qualify it as a short-term security. The rate
disclosed is that currently in effect. This rate changes periodically based on
market conditions or a specified market index.
N/R Investment is not rated.
(DD) Security purchased on a delayed delivery basis (note 1).
See accompanying notes to financial statements.
S-47
<PAGE> 80
Portfolio of Investments
Nuveen Municipal Advantage Fund, Inc. (NMA)
October 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alaska - 0.4%
$ 3,700,000 Alaska Housing Finance Corporation, General Housing Purpose Bonds,
1992 Series A, 6.600%, 12/01/23 (Pre-refunded to 12/01/02) 12/02 at 102 Aa2*** $ 4,154,508
- ------------------------------------------------------------------------------------------------------------------------------------
California - 10.7%
4,500,000 California Health Facilities Financing Authority, Insured Health
Facilities Revenue Bonds (ValleyCare Hospital Corporation),
1989 Series A, 7.000%, 5/01/20 (Pre-refunded to 5/01/00) 5/00 at 102 A+*** 4,829,580
24,260,000 State Public Works Board of the State of California, Lease Revenue
Refunding Bonds (The Regents of the University of California),
1993 Series A (Various University of California Projects),
5.500%, 6/01/21 6/03 at 102 Aa3 25,284,500
7,535,000 County of Contra Costa, California, 1989 Home Mortgage Revenue Bonds
(GNMA Mortgage-Backed Securities Program), 7.750%, 5/01/22
(Alternative Minimum Tax) No Opt. Call AAA 10,110,538
12,455,000 Department of Water and Power of the City of Los Angeles, California,
Electric Plant Refunding Revenue Bonds, Second Issue of 1993,
4.750%, 11/15/19 11/03 at 102 Aa3 12,091,688
10,000,000 Department of Water and Power of the City of Los Angeles, Water Works
Refunding Revenue Bonds, Issue of 1992, 6.400%, 5/15/28 5/01 at 102 AA 10,792,400
14,490,000 Palm Desert Financing Authority, Tax Allocation Revenue Bonds (Project
Area No. 2), 1992 Series A, 6.125%, 8/01/22 8/02 at 102 AAA 15,831,050
5,000,000 Community Redevelopment Agency of the City of Palmdale, California,
Residential Mortgage Revenue Refunding Bonds, Series 1991-B,
7.375%, 2/01/12 No Opt. Call AAA 6,350,550
5,000,000 Community Redevelopment Agency of the City of Palmdale, California,
Single Family Mortgage Revenue Bonds, Series 1986A Restructured,
8.000%, 3/01/16 (Alternative Minimum Tax) No Opt. Call AAA 6,813,950
9,315,000 City of Perris, California, Single Family Mortgage Revenue Bonds
(GNMA Mortgage-Backed Securities), 1989 Series A, 7.600%, 1/01/23
(Alternative Minimum Tax) No Opt. Call AAA 12,786,048
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado - 1.1%
City and County of Denver, Colorado, Airport System Revenue Bonds,
Series 1990A:
815,000 8.500%, 11/15/23 (Pre-refunded to 11/15/00) (Alternative Minimum Tax) 11/00 at 102 Aaa 910,135
8,575,000 8.500%, 11/15/23 (Alternative Minimum Tax) 11/00 at 102 Baa1 9,427,870
- ------------------------------------------------------------------------------------------------------------------------------------
District of Columbia - 2.0%
5,000,000 District of Columbia (Washington, D.C.), General Obligation Bonds,
Series 1998B, 6.000%, 6/01/19 No Opt. Call AAA 5,676,250
6,585,000 District of Columbia Housing Finance Agency, Collateralized Single
Family Mortgage Revenue Bonds, Series 1988F-1, 6.375%, 6/01/26
(Alternative Minimum Tax) 6/04 at 103 AAA 7,031,134
6,585,000 District of Columbia Housing Finance Agency, Single Family Revenue
Bonds, Series 1997-B, 5.900%, 12/01/28 (Alternative Minimum Tax) 6/07 at 102 AAA 6,928,869
- ------------------------------------------------------------------------------------------------------------------------------------
Florida - 2.3%
5,000,000 Dade County (Florida), Educational Facilities Authority, Revenue Bonds,
Series 1990 (St. Thomas University Issue), 7.650%, 1/01/14
(Pre-refunded to 1/01/00) 1/00 at 102 N/R*** 5,339,500
5,245,000 Dade County Health Facilities Authority, Hospital Revenue Bonds
(South Shore Hospital and Medical Center-FHA Insured Mortgage),
Series 1989A, 7.600%, 8/01/24 2/00 at 102 A+ 5,539,926
10,990,000 City of Tampa, Florida, Allegany Health System Revenue Bonds, St. Marys
Hospital, Inc. Issue, Series 1993, 5.125%, 12/01/23 12/03 at 102 AAA 11,155,949
- ------------------------------------------------------------------------------------------------------------------------------------
Hawaii - 0.4%
3,750,000 Housing Finance and Development Corporation (State of Hawaii), Single
Family Mortgage Purchase Revenue Bonds, 1997 Series A, 5.750%, 7/01/30
(Alternative Minimum Tax) 7/07 at 102 Aa1 3,888,975
</TABLE>
S-48
<PAGE> 81
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illinois - 9.1%
$ 15,000,000 Chicago School Reform Board of Trustees of the Board of Education of
the City of Chicago, Illinois, Unlimited Tax General Obligation Bonds
(Dedicated Tax Revenues), Series 1998A, 0.000%, 12/01/24 No Opt. Call AAA $3,923,100
10,750,000 Illinois Development Finance Authority, Revenue and Refunding Bonds,
Series 1990A (Columbus-Cuneo-Cabrini Medical Center), 8.500%, 2/01/15
(Pre-refunded to 2/01/00) 2/00 at 102 Baa2*** 11,606,883
11,625,000 Illinois Educational Facilities Authority, Adjustable Demand Revenue
Bonds, The University of Chicago, Series 1985 Remarketed, 5.700%,
12/01/25 (Pre-refunded to 12/01/03) 12/03 at 102 Aa1*** 12,816,214
10,115,000 Illinois Health Facilities Authority, Revenue Refunding Bonds,
Series 1996A (Rush-Presbyterian-St. Lukes Medical Center Obligated
Group), 6.250%, 11/15/20 11/06 at 102 AAA 11,421,150
5,000,000 Illinois Health Facilities Authority, Revenue Refunding Bonds,
Series 1989A (ServantCor), 7.875%, 8/15/19 (Pre-refunded to 8/15/99) 8/99 at 102 N/R*** 5,282,950
11,000,000 Illinois Health Facilities Authority, Revenue Bonds, Series 1989B
(ServantCor), 7.875%, 8/15/19 (Pre-refunded to 8/15/99) 8/99 at 102 N/R*** 11,622,490
7,905,000 Illinois Health Facilities Authority, Revenue Refunding Bonds,
Series 1989B (Riverside Medical Center), 6.750%, 11/01/15
(Pre-refunded to 11/01/99) 11/99 at 100 A*** 8,186,655
11,800,000 Metropolitan Pier and Exposition Authority (Illinois), McCormick Place
Expansion Project Bonds, Series 1992A, 6.500%, 6/15/27
(Pre-refunded to 6/15/03) 6/03 at 102 Aaa 13,340,018
7,375,000 Metropolitan Pier and Exposition Authority (Illinois), McCormick Place
Expansion Project Refunding Bonds, Series 1998A, 5.500%, 12/15/23 No Opt. Call AAA 7,981,963
2,500,000 Regional Transportation Authority, Cook, DuPage, Kane, Lake, McHenry and
Will Counties, Illinois, General Obligation Bonds, Series 1990A,
7.200%, 11/01/20 No Opt. Call AAA 3,262,925
- ------------------------------------------------------------------------------------------------------------------------------------
Indiana - 2.8%
7,425,000 Fort Wayne International Airport Building Corporation, Airport Improvement
Bonds, Series 1994, Fort Wayne, Indiana, 5.900%, 1/01/14
(Alternative Minimum Tax) 1/04 at 101 Aa 7,870,352
9,000,000 Indiana Health Facility Financing Authority, Hospital Revenue Refunding
and Improvement Bonds, Series 1995 (Community Hospitals Projects),
5.700%, 5/15/22 5/06 at 102 AAA 9,539,820
6,075,000 LaGrange County Jail Building Corporation, First Mortgage Jail Bonds,
Series 1998 (LaGrange County, Indiana), 5.400%, 10/01/21 10/09 at 101 A3 6,217,337
3,215,000 Mooresville Consolidated School Building Corp., First Mortgage Bonds,
Series 1994B (Morgan County, Indiana), 6.400%, 7/15/15
(Pre-refunded to 1/15/04) 1/04 at 102 A*** 3,632,307
- ------------------------------------------------------------------------------------------------------------------------------------
Iowa - 0.9%
4,505,000 Iowa Finance Authority, Single Family Mortgage Bonds, 1995 Series C,
6.450%, 1/01/24 1/05 at 102 AAA 4,810,664
3,500,000 City of Marshalltown, Iowa, Pollution Control Revenue Refunding Bonds
(Iowa Electric Light and Power Company Project), Series 1993,
5.500%, 11/01/23 11/03 at 102 AAA 3,670,765
- ------------------------------------------------------------------------------------------------------------------------------------
Louisiana - 1.5%
10,000,000 Louisiana Public Facilities Authority, Extended Care Facilities
Revenue Bonds (Comm-Care Corporation Project), Series 1994,
11.000%, 2/01/14 No Opt. Call BBB 14,395,700
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts - 6.9%
1,000,000 City of Boston, Massachusetts, General Obligation Bonds, 1990 Series A,
7.375%, 2/01/10 (Pre-refunded to 2/01/00) 2/00 at 102 Aa3*** 1,067,140
Massachusetts Bay Transportation Authority, General Transportation System
Bonds, 1990 Series A:
5,000,000 7.000%, 3/01/10 (Pre-refunded to 3/01/00) 3/00 at 100 Aaa 5,232,150
3,500,000 7.625%, 3/01/15 (Pre-refunded to 3/01/00) 3/00 at 102 Aaa 3,757,215
13,915,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds,
Capital Asset Program Issue, Series F, 7.300%, 10/01/18
(Pre-refunded to 4/01/00) 4/00 at 102 AAA 14,916,045
7,415,000 Massachusetts Health and Educational Facilities Authority,
Revenue Bonds, Emerson Hospital Issue, Series C, 8.000%,
7/01/18 (Pre-refunded to 7/01/00) 7/00 at 102 AAA 8,096,661
1,045,000 Massachusetts Housing Finance Agency, Residential Housing Revenue Bonds,
1988 Series B, 8.100%, 8/01/23 (Alternative Minimum Tax) 8/99 at 102 A- 1,081,857
</TABLE>
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<PAGE> 82
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Massachusetts (continued)
$ 10,300,000 Massachusetts Industrial Finance Agency, Resource Recovery Revenue Bonds
(SEMASS Project), Series 1991A, 9.000%, 7/01/15 7/01 at 103 N/R $11,463,385
Massachusetts Water Resources Authority, General Revenue Bonds,
1990 Series A:
8,770,000 7.625%, 4/01/14 (Pre-refunded to 4/01/00) 4/00 at 102 AAA 9,441,607
11,535,000 7.500%, 4/01/16 (Pre-refunded to 4/01/00) 4/00 at 102 AAA 12,398,510
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan - 3.5%
Chippewa Valley Schools, County of Macomb, State of Michigan,
1998 School Building and Site and Refunding Bonds:
9,740,000 4.750%, 5/01/23 5/08 at 100 AAA 9,351,666
11,175,000 5.000%, 5/01/27 5/08 at 100 AAA 11,032,854
The Economic Development Corporation of the City of Lapeer,
Limited Obligation Revenue Bonds (Lapeer Health Services
Corporation Project), Series 1990:
2,915,000 8.250%, 2/01/04 (Pre-refunded to 2/01/00) 2/00 at 102 BBB*** 3,138,872
3,000,000 8.500%, 2/01/12 (Pre-refunded to 2/01/00) 2/00 at 102 BBB*** 3,239,520
2,000,000 8.625%, 2/01/20 (Pre-refunded to 2/01/00) 2/00 at 102 BBB*** 2,162,700
5,000,000 Michigan State Hospital Finance Authority, Hospital Revenue Bonds
(The Detroit Medical Center Obligated Group), Series 1998A,
5.250%, 8/15/23 8/08 at 101 A- 4,887,750
- ------------------------------------------------------------------------------------------------------------------------------------
Minnesota - 1.3%
Minneapolis/Saint Paul Housing Finance Board, Single Family
Mortgage Revenue Bonds (Minneapolis/ Saint Paul Family Housing
Program, Phase VIII), Series 1990A:
705,000 7.750%, 8/01/10 (Alternative Minimum Tax) 2/00 at 102 AA+ 733,080
3,830,000 8.000%, 2/01/23 (Alternative Minimum Tax) 2/00 at 102 AA+ 3,984,617
3,340,000 Minneapolis Community Development Agency, Limited Tax Supported
Development Revenue Bonds, Common Bond Fund, Series 1988-1,
8.750%, 12/01/17 (Alternative Minimum Tax) 6/99 at 102 A- 3,420,494
2,130,000 Minneapolis Community Development Agency, Limited Tax Supported
Development Revenue Bonds, Common Bond Fund, Series 1988-3,
8.500%, 12/01/08 (Alternative Minimum Tax) 12/98 at 102 BBB+ 2,179,267
2,435,000 Minneapolis Community Development Agency, Limited Tax Supported
Development Revenue Bonds, Common Bond Fund, Series 1989-1,
8.250%, 6/01/19 (Alternative Minimum Tax) 12/99 at 102 A- 2,560,792
- ------------------------------------------------------------------------------------------------------------------------------------
Mississippi - 1.5%
5,280,000 Coahoma-Clarksdale Housing Development Corporation, 1990 Multifamily
Mortgage Revenue Refunding Bonds (Gooden Estates and McLaurin Arms
Project), Series B, 8.000%, 8/01/24 8/03 at 100 AAA 5,730,754
1,595,000 Greenwood-Leflore Housing Development Corporation, 1990 Multifamily
Mortgage Revenue Refunding Bonds (Ivory Apartment Project),
Series D, 7.950%, 2/01/22 2/01 at 100 AA- 1,651,591
2,625,000 Greenwood-Leflore Housing Development Corporation, 1990 Multifamily
Mortgage Revenue Refunding Bonds (Bishop Apartment Project),
Series B, 7.950%, 8/01/22 8/01 at 100 AA- 2,737,219
2,665,000 Greenwood-Leflore Housing Development Corporation, 1990 Multifamily
Mortgage Revenue Refunding Bonds (Jones Apartment Projects),
Series C, 7.950%, 8/01/22 6/02 at 100 AA- 2,787,483
1,675,000 Greenwood-Leflore Housing Development Corporation, 1990 Multifamily
Mortgage Revenue Refunding Bonds (McNeace Apartment Projects),
Series A, 7.950%, 8/01/22 3/02 at 100 AA- 1,747,075
- ------------------------------------------------------------------------------------------------------------------------------------
Montana - 1.7%
15,595,000 Montana Board of Housing, Single Family Program Bonds, 1995 Series B
(Federally Insured or Guaranteed Mortgage Loan), 6.400%, 12/01/27
(Alternative Minimum Tax) 12/05 at 102 AA+ 16,644,699
- ------------------------------------------------------------------------------------------------------------------------------------
Nevada - 0.5%
4,500,000 Nevada Housing Division, Single Family Mortgage Bonds, 1997 Series C-2
Senior Bonds, 5.750%, 4/01/29 (Alternative Minimum Tax) 4/07 at 102 Aaa 4,660,335
- ------------------------------------------------------------------------------------------------------------------------------------
New Hampshire - 1.4%
3,060,000 Business Finance Authority of the State of New Hampshire, Water Facility
Revenue Bonds (Pennichuck Water Works, Inc. - 1994 Issue),
Series A, 6.350%, 12/01/19 12/04 at 102 AAA 3,451,313
1,940,000 Business Finance Authority of the State of New Hampshire, Water Facility
Revenue Bonds (Pennichuck Water Works, Inc.), Series B, 6.450%, 12/01/16
(Alternative Minimum Tax) 12/04 at 102 AAA 2,172,819
</TABLE>
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<PAGE> 83
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New Hampshire (continued)
$ 4,610,000 New Hampshire Housing Finance Authority, Single Family Residential
Mortgage Bonds, 1989 Series A, 7.900%, 7/01/22 (Alternative Minimum Tax) 7/99 at 102 Aa $4,782,276
3,065,000 New Hampshire Housing Finance Authority, Single Family Residential
Mortgage Bonds, 1990 Series A, 7.950%, 7/01/22 (Alternative Minimum Tax) 7/00 at 102 Aa 3,213,040
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey - 1.1%
8,750,000 New Jersey Turnpike Authority, Turnpike Revenue Bonds, Series 1991C,
6.500%, 1/01/16 No Opt. Call AAA 10,515,838
- ------------------------------------------------------------------------------------------------------------------------------------
New Mexico - 0.2%
2,155,000 New Mexico Mortgage Finance Authority, Single Family Mortgage Program
Bonds, 1997 Series F-2, 5.700%, 7/01/29 (Alternative Minimum Tax) 7/07 at 102 AAA 2,226,158
- ------------------------------------------------------------------------------------------------------------------------------------
New York - 11.3%
8,000,000 The City of New York, General Obligation Bonds, Fiscal 1991
Series B, 9.500%, 6/01/03 No Opt. Call A- 9,802,080
The City of New York, General Obligation Bonds, Fiscal 1997 Series G:
95,000 6.000%, 10/15/26 (Pre-refunded to 10/15/07) 10/07 at 101 A-*** 109,270
9,905,000 6.000%, 10/15/26 10/07 at 101 A- 10,792,686
4,605,000 Dormitory Authority of the State of New York, United Health
Services, Inc., FHA- Insured Mortgage Revenue Bonds, Series
1989, 7.350%, 8/01/29 (Pre-refunded to 2/01/00) 2/00 at 102 AAA 4,914,594
26,000,000 Dormitory Authority of the State of New York, City University System
Consolidated Revenue Bonds, Series 1990A, 7.625%, 7/01/20
(Pre-refunded to 7/01/00) 7/00 at 102 Aaa 28,255,760
Dormitory Authority of the State of New York, State University
Educational Facilities Revenue Bonds, Series 1990A:
19,965,000 7.700%, 5/15/12 (Pre-refunded to 5/15/00) 5/00 at 102 Aaa 21,620,897
7,250,000 6.500%, 5/15/19 (Pre-refunded to 5/15/00) 5/00 at 100 AAA 7,586,328
New York State Housing Finance Agency, Health Facilities Revenue
Bonds (New York City), 1990 Series A Refunding:
16,315,000 8.000%, 11/01/08 (Pre-refunded to 11/01/00) 11/00 at 102 AAA 18,048,469
3,885,000 8.000%, 11/01/08 11/00 at 102 BBB+ 4,221,868
5,000,000 New York State Medical Care Facilities Finance Agency, St.
Lukes-Roosevelt Hospital Center FHA-Insured Mortgage Revenue
Bonds, 1989 Series B, 7.450%, 2/15/29 (Pre-refunded to 2/15/00) 2/00 at 102 AAA 5,348,950
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina - 1.9%
5,000,000 North Carolina Medical Care Commission, Health Care Revenue Bonds
(Novant Health Project), Series 1998B, 5.000%, 10/01/28 10/08 at 101 AAA 4,927,250
13,565,000 North Carolina Eastern Municipal Power Agency, Power System Revenue
Bonds, Refunding Series 1993B, 5.500%, 1/01/17 1/03 at 100 AAA 13,901,005
- ------------------------------------------------------------------------------------------------------------------------------------
North Dakota - 1.3%
10,000,000 City of Grand Forks, North Dakota, Sales Tax Revenue Bonds (The Aurora
Project), Series 1997A, 5.625%, 12/15/29 12/07 at 100 AAA 10,637,400
1,945,000 State of North Dakota (North Dakota Housing Finance Agency), Single
Family Mortgage Program Bonds, 1986 Series A, 8.375%, 7/01/19
(Alternative Minimum Tax) 7/01 at 100 Aa2 2,019,941
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio - 1.8%
15,080,000 Ohio Air Quality Development Authority, State of Ohio, Collateralized
Pollution Control Revenue Refunding Bonds, Series 1992 (The Cleveland
Electric Illuminating Company Project), 8.000%, 12/01/13 6/02 at 103 AAA 17,426,900
- ------------------------------------------------------------------------------------------------------------------------------------
Oklahoma - 2.7%
10,480,000 Central Oklahoma Transportation and Parking Authority (Oklahoma City,
Oklahoma), Parking System Revenue and Refunding Bonds, Series 1996,
5.250%, 7/01/16 7/06 at 100 AAA 10,721,459
1,215,000 Cleveland County Home Loan Authority (Oklahoma), Single Family Mortgage
Revenue Refunding Bonds, Series 1992, 8.375%, 2/01/12 8/01 at 102 A1 1,302,602
13,615,000 Trustees of the Tulsa Municipal Airport Trust, Revenue Bonds, Series 1991,
7.600%, 12/01/30 (Alternative Minimum Tax) 6/01 at 102 Baa2 14,768,327
</TABLE>
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<PAGE> 84
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania - 3.0%
$ 3,500,000 Pennsylvania Housing Finance Agency, Rental Housing Refunding Bonds,
Issue 1993, 5.800%, 7/01/18 7/03 at 102 AAA $3,683,190
12,000,000 Philadelphia Authority for Industrial Development, Airport Revenue
Bonds, Series 1998A (Philadelphia Airport System Project),
5.000%, 7/01/23 (Alternative Minimum Tax) 7/08 at 101 AAA 11,659,560
8,500,000 City of Philadelphia, Pennsylvania, Water and Wastewater Revenue Bonds,
Series 1993, 5.000%, 6/15/16 6/03 at 100 AAA 8,511,645
4,640,000 Venango Housing Corporation, Multifamily Mortgage Revenue Refunding Bonds
(FHA-Insured Mortgage/Evergreen Arbors Project), 1990 Series A,
8.000%, 2/01/24 12/03 at 100 AAA 4,966,981
- ------------------------------------------------------------------------------------------------------------------------------------
Rhode Island - 3.1%
6,000,000 Rhode Island Convention Center Authority, Refunding Revenue Bonds,
1993 Series C, 5.000%, 5/15/23 5/04 at 102 AAA 5,895,780
The Housing Authority of the City of Providence, Rhode Island,
Multifamily Mortgage Revenue Bonds (FHA Insured Mortgage Loan -
Cathedral Square Apartments II Project), 1992 Series:
435,000 7.375%, 4/01/10 (Alternative Minimum Tax) 4/02 at 105 AAA 475,699
1,060,000 7.400%, 4/01/20 (Alternative Minimum Tax) 4/02 at 105 AAA 1,159,629
3,050,000 7.500%, 10/01/32 (Alternative Minimum Tax) 4/02 at 105 AAA 3,346,033
5,800,000 Rhode Island Housing and Mortgage Finance Corporation, Homeownership
Opportunity Bonds, Series 2, 7.750%, 4/01/22 4/00 at 102 AA+ 6,055,374
12,250,000 Rhode Island Health and Educational Building Corporation, Hospital
Financing Revenue Bonds, Lifespan Obligated Group Issue, Series 1996,
5.500%, 5/15/16 5/07 at 102 AAA 12,885,285
- ------------------------------------------------------------------------------------------------------------------------------------
South Carolina - 1.6%
15,650,000 South Carolina Public Service Authority, Revenue Bonds, 1993 Refunding
Series C, 5.000%, 1/01/25 1/03 at 102 AAA 15,435,282
- ------------------------------------------------------------------------------------------------------------------------------------
Tennessee - 1.0%
5,500,000 The Tennessee Energy Acquisition Corporation, Gas Revenue Bonds, Series
1998A, 4.500%, 9/01/08 No Opt. Call AAA 5,598,230
3,500,000 Tennessee Housing Development Agency, Mortgage Finance Program Bonds,
1994 Series A, 6.900%, 7/01/25 (Alternative Minimum Tax) 7/04 at 102 A+ 3,778,110
- ------------------------------------------------------------------------------------------------------------------------------------
Texas - 6.6%
5,950,000 Brazos River Authority (Texas), Collateralized Pollution Control Revenue
Bonds (Texas Utilities Electric Company Project), Series 1989A, 8.250%,
1/01/19 (Alternative Minimum Tax) 1/99 at 102 BBB+ 6,105,593
8,000,000 Brazos River Authority (Texas), Collateralized Pollution Control Revenue
Bonds (Texas Utilities Electric Company Project) Series 1990A, 8.125%,
2/01/20 (Alternative Minimum Tax) 2/00 at 102 BBB+ 8,500,160
4,925,000 The Cameron County Housing Finance Corporation, Single Family Mortgage
Revenue Refunding Bonds (GNMA and FNMA Mortgage-Backed Securities
Program), Series 1992, 6.750%, 3/01/26 9/02 at 103 AAA 5,247,735
3,000,000 El Paso Housing Finance Corporation, Multifamily Housing Revenue
Refunding Bonds (Las Flores Development Company Project), Series 1990A,
7.500%, 3/20/25 1/00 at 103 AAA 3,144,870
6,000,000 Harris County, Texas, Health Facilities Development Corporation, Special
Facilities Revenue Bonds (Texas Medical Center Project), Series 1990,
7.375%, 5/15/20 (Pre-refunded to 5/15/00) 5/00 at 102 AAA 6,464,340
10,000,000 Harris County Health Facilities Development Corporation, Special
Facilities Revenue Bonds (Texas Medical Center Project), Series 1996,
5.900%, 5/15/16 5/06 at 102 AAA 10,885,300
5,000,000 City of Houston, Texas, Airport System Subordinate Lien Revenue Bonds,
Series 1998B, 5.000%, 7/01/25 (Alternative Minimum Tax) (DD) 7/08 at 100 AAA 4,821,700
City of Houston, Texas, Water Conveyance System Contract, Certificates
of Participation, Series 1993 A-J:
5,490,000 6.800%, 12/15/10 No Opt. Call AAA 6,662,609
2,000,000 6.800%, 12/15/11 No Opt. Call AAA 2,437,560
7,500,000 Sabine River Authority of Texas (Texas Utilities Electric Company
Project), Series 1990A, 8.125%, 2/01/20 (Alternative Minimum Tax) 2/00 at 102 BBB+ 7,969,575
The Wood Glen (Texas), Housing Finance Corporation, Mortgage
Revenue Refunding Bonds, Series 1990C (FHA Insured Mortgage Loan
- Section 8 Assisted Copperwood II Project):
1,450,000 7.625%, 1/01/10 1/00 at 103 AAA 1,522,506
1,250,000 7.650%, 7/01/23 1/00 at 103 AAA 1,309,600
</TABLE>
S-52
<PAGE> 85
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utah - 0.4%
$ 4,000,000 Intermountain Power Agency, Power Supply Revenue Refunding Bonds, 1996
Series D, 5.000%, 7/01/23 7/06 at 102 A+ $3,886,520
470,000 Utah Housing Finance Agency, Single Family Mortgage Senior Bonds, 1989
Issue B (Federally Insured or Guaranteed Mortgage Loans), 8.250%,
7/01/21 (Alternative Minimum Tax) 7/99 at 102 AAA 482,563
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia - 0.9%
8,130,000 Capital Region Airport Commission, Richmond (Virginia), International
Airport Projects, Airport Revenue Bonds, Series 1995A, 5.625%, 7/01/20 7/05 at 102 AAA 8,650,889
- ------------------------------------------------------------------------------------------------------------------------------------
Washington - 9.4%
5,250,000 Everett School District No. 2, Snohomish County, Washington, Unlimited
Tax General Obligation Bonds, Series 1993, 6.200%, 12/01/12
(Pre-refunded to 12/01/03) 12/03 at 102 AAA 5,916,068
2,500,000 City of Walla Walla, Washington, Water and Wastewater Revenue Bonds,
Series 1997, 5.000%, 8/01/17 8/07 at 100 AAA 2,505,950
7,195,000 State of Washington, Various Purpose General Obligation Bonds,
Series 1991A, 6.000%, 3/01/16 (Pre-refunded to 3/01/01) 3/01 at 100 AA+*** 7,578,494
11,135,000 Washington Public Power Supply System, Nuclear Project No. 1
Refunding Revenue Bonds, Series 1989B, 7.250%, 7/01/15
(Pre-refunded to 1/01/00) 1/00 at 102 AAA 11,835,057
3,000,000 Washington Public Power Supply System, Nuclear Project No. 1
Refunding Revenue Bonds, Series 1993A, 5.750%, 7/01/13 7/03 at 102 Aa1 3,226,620
Washington Public Power Supply System, Nuclear Project No. 1
Refunding Revenue Bonds, Series 1989A:
5,520,000 7.500%, 7/01/15 (Pre-refunded to 7/01/99) 7/99 at 102 AAA 5,795,282
3,595,000 7.500%, 7/01/15 (Pre-refunded to 7/01/99) 7/99 at 102 Aaa 3,773,564
21,700,000 Washington Public Power Supply System, Nuclear Project No. 2
Refunding Revenue Bonds, Series 1990A, 7.375%, 7/01/12
(Pre-refunded to 7/01/00) 7/00 at 102 AAA 23,478,749
11,340,000 Washington Public Power Supply System, Nuclear Project No. 2
Refunding Revenue Bonds, Series 1994A, 5.000%, 7/01/09 7/04 at 102 AAA 11,751,982
6,615,000 Washington Public Power Supply System, Nuclear Project No. 3
Refunding Revenue Bonds, Series 1989A, 7.250%, 7/01/16
(Pre-refunded to 7/01/99) 7/99 at 102 AAA 6,933,115
8,750,000 Washington Public Power Supply System, Nuclear Project No. 3
Refunding Revenue Bonds, Series 1998A, 5.125%, 7/01/18 7/08 at 102 Aa1 8,685,075
- ------------------------------------------------------------------------------------------------------------------------------------
Wisconsin - 4.4%
3,000,000 Housing Authority of the City of Milwaukee, Wisconsin, Multifamily
Housing Refunding Revenue Bonds, Series 1990 (FHA Insured Mortgage
Loan - The Blatz Apartments Project), 7.500%, 12/01/28 6/00 at 102 Aa 3,153,210
11,835,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds,
Series 1990 (Franciscan Health System, Inc. Project), 8.500%,
3/01/20 (Pre-refunded to 3/01/00) 3/00 at 102 Aaa 12,835,530
Wisconsin Health and Educational Facilities Authority, Revenue Bonds,
Series 1996 (Aurora Medical Group, Inc. Project):
10,000,000 5.600%, 11/15/16 5/06 at 102 AAA 10,585,299
15,000,000 5.750%, 11/15/25 5/06 at 102 AAA 15,956,249
- ------------------------------------------------------------------------------------------------------------------------------------
$ 905,260,000 Total Investments - (cost $883,299,371) - 98.7% 962,949,843
====================================================================================================================================
</TABLE>
S-53
<PAGE> 86
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Temporary Investments in Short-Term Municipal Securities - 0.1%
$ 1,300,000 Geisinger Health System Authority, Variable Rate Revenue Bonds, Series 1998B,
3.700%, 8/15/28+ VMGI-1 $ 1,300,000
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.2% 11,159,773
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $975,409,616
====================================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent
auditors): Dates (month and year) and prices of the earliest optional call or
redemption. There may be other call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent auditors): Using
the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient
U.S. government or U.S. government agency securities which ensures the timely
payment of principal and interest. Securities are normally considered to be
equivalent to AAA rated securities.
+ The security has a maturity of more than one year, but has variable
rate and demand features which qualify it as a short-term security. The rate
disclosed is that currently in effect. This rate changes periodically based on
market conditions or a specified market index.
N/R Investment is not rated.
(DD) Security purchased on a delayed delivery basis (note 1).
See accompanying notes to financial statements.
S-54
<PAGE> 87
Portfolio of Investments
Nuveen Municipal Market Opportunity Fund, Inc. (NMO)
October 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alabama - 0.4%
$ 4,000,000 The Governmental Utility Services Corporation of the City of Bessemer
(Alabama), Water Supply Revenue Bonds, Series 1998, 5.200%, 6/01/24 6/08 at 102 AAA $4,053,720
- ------------------------------------------------------------------------------------------------------------------------------------
Alaska - 1.2%
12,000,000 Alaska State Housing Finance Corporation, Governmental Purpose Bonds,
1995 Series A, 5.875%, 12/01/30 12/05 at 102 AAA 12,651,120
- ------------------------------------------------------------------------------------------------------------------------------------
Arizona - 0.2%
2,150,000 The Industrial Development Authority of the County of Pima,
Single Family Mortgage Revenue Bonds, Series 1997A, 7.100%,
11/01/29 (Alternative Minimum Tax) 5/07 at 105 27/32 AAA 2,382,265
- ------------------------------------------------------------------------------------------------------------------------------------
Arkansas - 0.2%
1,480,000 Arkansas Development Finance Authority, Single Family Mortgage Revenue
Refunding Bonds, 1991 Series A (FHA Insured or
VA Guaranteed Mortgage Loans), 8.000%, 8/15/11 8/01 at 103 AA 1,573,699
- ------------------------------------------------------------------------------------------------------------------------------------
California - 13.5%
13,490,000 Certificates of Participation (1991 Financing Project), County of Alameda,
California, Alameda County Public Facilities Corporation,
6.000%, 9/01/21 9/06 at 102 AAA 14,885,271
8,745,000 Bell Community Redevelopment Agency, Bell Redevelopment Area,
1994 Tax Allocation Refunding Bonds, 6.350%, 11/01/23 11/03 at 102 AAA 9,792,826
6,050,000 California Housing Finance Agency, Multifamily Housing Revenue Bonds,
1998 Series A, 5.450%, 8/01/28 (Alternative Minimum Tax) 8/08 at 102 AAA 6,202,642
4,000,000 California Health Facilities Financing Authority, Insured Health
Facilities Revenue Bonds (ValleyCare Hospital Corporation),
1989 Series A, 7.000%, 5/01/20 (Pre-refunded to 5/01/00) 5/00 at 102 A+*** 4,292,960
7,300,000 California Health Facilities Financing Authority, Insured Hospital
Revenue Bonds (Childrens Hospital-San Diego), Series 1990,
6.500%, 7/01/20 (Pre-refunded to 7/01/00) 7/00 at 102 AAA 7,818,592
6,810,000 California Health Facilities Financing Authority, Kaiser Permanente
Revenue Bonds, 1993 Series C, 5.600%, 5/01/33 5/03 at 102 A 7,040,178
5,000,000 State of California, Veterans General Obligation Bonds,
Series BH, 5.600%, 12/01/32 (Alternative Minimum Tax) 12/03 at 102 Aa3 5,161,850
12,250,000 State of California, Veterans General Obligation Bonds,
Series BL, 5.300%, 12/01/12 (Alternative Minimum Tax) 12/08 at 101 Aa3 12,507,005
3,500,000 State of California, General Obligation Bonds, 5.000%, 2/01/21 2/08 at 101 Aa3 3,497,410
2,500,000 The Community Redevelopment Agency of the City of Los Angeles, California,
Central Business District Redevelopment Project, Tax Allocation
Refunding Bonds, Series G, 6.750%, 7/01/10 7/00 at 100 BBB 2,600,950
Department of Water and Power of the City of Los Angeles
(California), Electric Plant Revenue Bonds, Second Issue of 1993:
6,000,000 4.750%, 10/15/20 10/03 at 102 Aa3 5,820,720
6,815,000 5.400%, 11/15/31 11/03 at 102 Aa3 7,079,422
12,080,000 Department of Water and Power of the City of Los Angeles (California),
Electric Plant Revenue Bonds, Issue of 1994, 5.375%, 2/15/34 2/04 at 102 Aa3 12,468,372
6,000,000 Department of Water and Power of the City of Los Angeles, Water Works,
Refunding Revenue Bonds Issue of 1992, 6.400%, 5/15/28 5/01 at 102 AA 6,475,440
5,000,000 The Metropolitan Water District of Southern California, Water Revenue Bonds,
1997 Authorization, Series A, 5.000%, 7/01/37 1/08 at 101 AA 4,961,550
County of Orange, California, 1996 Recovery Certificates of Participation, Series A:
13,000,000 5.875%, 7/01/19 7/06 at 102 AAA 14,143,740
3,450,000 6.000%, 7/01/26 7/06 at 102 AAA 3,873,246
</TABLE>
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<PAGE> 88
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California (continued)
$ 5,870,000 Sacramento Municipal Utility District (California), Electric Revenue
Refunding Bonds, 1993 Series G, 4.750%, 9/01/21 9/03 at 100 AAA $5,674,999
5,000,000 San Joaquin Hills Transportation Corridor Agency, Toll Road Refunding
Revenue Bonds, Series 1997A, 0.000%, 1/15/17 1/14 at 102 AAA 3,597,850
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado - 4.4%
2,395,000 Colorado Housing and Finance Authority, Single-Family Program Senior Bonds,
1990 Issue C (Federally Insured or Guaranteed Mortgage Loans),
7.650%, 8/01/22 (Alternative Minimum Tax) 8/00 at 102 AA+ 2,501,051
City and County of Denver, Colorado, Airport System Revenue Bonds, Series 1992C:
1,605,000 6.750%, 11/15/22 (Pre-refunded to 11/15/02) (Alternative Minimum Tax) 11/02 at 102 Aaa 1,813,425
6,020,000 6.750%, 11/15/22 (Alternative Minimum Tax) 11/02 at 102 Baa1 6,591,298
City and County of Denver, Colorado, Airport System Revenue Bonds, Series 1991A:
3,240,000 8.000%, 11/15/25 (Pre-refunded to 11/15/01) (Alternative Minimum Tax) 11/01 at 100 Aaa 3,641,209
9,010,000 8.000%, 11/15/25 (Alternative Minimum Tax) 11/01 at 100 Baa1 9,908,928
City and County of Denver, Colorado, Airport System Revenue Bonds, Series 1991D:
1,045,000 7.750%, 11/15/21 (Pre-refunded to 11/15/01) (Alternative Minimum Tax) 11/01 at 102 Aaa 1,185,667
3,955,000 7.750%, 11/15/21 (Alternative Minimum Tax) 11/01 at 102 Baa1 4,396,932
1,060,000 7.000%, 11/15/25 (Pre-refunded to 11/15/01) (Alternative Minimum Tax) 11/01 at 100 Aaa 1,161,336
3,940,000 7.000%, 11/15/25 (Alternative Minimum Tax) 11/01 at 100 Baa1 4,227,975
2,785,000 City and County of Denver, Colorado, Airport System Revenue Bonds,
Series 1992B, 7.250%, 11/15/23 (Alternative Minimum Tax) 11/02 at 102 Baa1 3,105,581
6,100,000 Poudre School District R-1, Larimer County, Colorado, General Obligation
Refunding Bonds, Series 1998, 5.000%, 12/15/16 12/08 at 100 AA- 6,116,470
- ------------------------------------------------------------------------------------------------------------------------------------
District of Columbia - 0.2%
2,105,000 District of Columbia Housing Finance Agency, Collateralized Single Family
Mortgage Revenue Bonds, Series 1990A, 8.100%, 12/01/23
(Alternative Minimum Tax) 12/00 at 102 AAA 2,255,087
- ------------------------------------------------------------------------------------------------------------------------------------
Florida - 1.9%
Orange County Housing Finance Authority, GNMA Collateralized
Mortgage Revenue Refunding Bonds, 1990 Series A:
2,425,000 7.500%, 7/01/10 7/00 at 103 AAA 2,559,127
11,035,000 7.600%, 1/01/24 7/00 at 103 AAA 11,720,936
2,055,000 Palm Beach County Health Facilities Authority (Florida),
Hospital Revenue Refunding Bonds, Series 1988 (JFK Medical Center Inc. Projects),
8.875%, 12/01/18 (Pre-refunded to 12/01/98) 12/98 at 102 N/R*** 2,105,861
3,300,000 Housing Finance Authority of Palm Beach County, Florida, Single Family
Mortgage Revenue Bonds, 1990 Series B, 7.600%, 3/01/23 9/00 at 103 Aaa 3,489,090
- ------------------------------------------------------------------------------------------------------------------------------------
Georgia - 0.6%
6,450,000 Development Authority of Fulton County (Georgia), Special Facilities
Revenue Bonds (Delta Air Lines, Inc. Project), Series 1998,
5.450%, 5/01/23 (Alternative Minimum Tax) 5/08 at 101 BBB- 6,383,759
- ------------------------------------------------------------------------------------------------------------------------------------
Illinois - 8.1%
6,500,000 City of Chicago, Illinois, Gas Supply Refunding Revenue Bonds,
1995 Series A (The Peoples Gas Light and Coke Company Project),
6.100%, 6/01/25 6/05 at 102 AA- 7,084,480
21,805,000 City of Chicago, Chicago-O'Hare International Airport,
International Terminal Special Revenue Bonds,
Series 1990A, 7.500%, 1/01/17 (Alternative Minimum Tax) 1/00 at 102 A 22,981,162
7,300,000 City of Chicago, Chicago-O'Hare International Airport,
Special Facility Revenue Bonds (American Airlines Inc. Project),
Series 1990A, 7.875%, 11/01/25 (Alternative Minimum Tax) 11/00 at 102 Baa2 7,868,232
3,945,000 City of Chicago, Sales Tax Revenue Bonds,
Series 1997, 5.375%, 1/01/27 1/08 at 102 AAA 4,058,222
4,000,000 Community College District No. 508, Cook County, Illinois,
Certificates of Participation, 8.750%, 1/01/06 No Opt. Call AAA 5,130,000
15,000,000 Illinois Development Finance Authority, Revenue and Refunding Bonds,
Series 1990A Cabrini Medical Center), 8.500%, 2/01/15
(Pre-refunded to 2/01/00) 2/00 at 102 Baa2*** 16,195,650
5,210,000 Illinois Housing Development Authority, Section 8 Elderly Housing
Revenue Bonds (Garden House of (Columbus-Cuneo-River
Oaks West Development), Series 1992A, 6.875%, 1/01/20 1/03 at 102 A 5,518,224
</TABLE>
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<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illinois (continued)
$ 1,845,000 Illinois Housing Development Authority, Section 8
Elderly Housing Revenue Bonds (Village Center
Development), Series 1992C, 6.600%, 3/01/07 3/03 at 102 A $1,957,213
1,960,000 City of Peoria, Peoria County, City of Pekin, Tazewell and
Peoria Counties, and City of Waukegan, Lake County (Illinois),
Jointly, GNMA Collateralized Mortgage Revenue Bonds,
Series 1990, 7.875%, 8/01/22 (Alternative Minimum Tax) 8/00 at 103 AA+ 2,058,274
9,195,000 Regional Transportation Authority, Cook, DuPage, Kane, Lake, McHenry
and Will Counties, Illinois, General Obligation Bonds,
Series 1992A, 6.125%, 6/01/22 6/02 at 100 AAA 9,786,055
- ------------------------------------------------------------------------------------------------------------------------------------
Indiana - 6.3%
5,000,000 Columbus Multi-School Building Corporation, Bartholomew County, Indiana,
First Mortgage Bonds, 7.600%, 1/15/14
(Pre-refunded to 1/15/01) 1/01 at 102 N/R*** 5,501,900
9,400,000 Fort Wayne (Indiana), Economic Development Revenue Bonds
(Oaklawn Court Apartments Project), Series 1998A, 7.000%,
4/01/28 (Alternative Minimum Tax) 4/08 at 102 N/R 9,446,060
13,500,000 Indiana Health Facility Financing Authority, Hospital Revenue Bonds,
Series 1990 (Bartholomew County Hospital District),
7.750%, 8/15/20 (Pre-refunded to 8/15/00) 8/00 at 102 AAA 14,748,075
3,075,000 Indiana Housing Finance Authority, Single Family Mortgage Revenue Bonds
(GNMA Collateralized Home Mortgage Program), 1990 Series D,
7.800%, 1/01/22 (Alternative Minimum Tax) 7/00 at 102 Aaa 3,212,514
10,000,000 Indiana State Office Building Commission, Capitol Complex Revenue Bonds,
Series 1990B (State Office Building I Facility),
7.250%, 7/01/12 (Pre-refunded to 7/01/00) 7/00 at 102 AAA 10,802,100
The Indianapolis Local Public Improvement Bond Bank, Series 1992 D Bonds:
3,750,000 6.750%, 2/01/20 2/03 at 102 AA 4,152,713
5,500,000 6.500%, 2/01/22 No Opt. Call AA 5,510,780
10,080,000 The Trustees of Purdue University, Purdue University Student Fee Bonds,
Series M, 6.100%, 7/01/17 7/06 at 101 Aa2 11,094,250
- ------------------------------------------------------------------------------------------------------------------------------------
Iowa - 0.8%
3,310,000 City of Des Moines, Iowa, Aviation System Revenue Bonds,
Series 1998A (Non-AMT), 5.125%, 7/01/28 7/08 at 100 AAA 3,309,768
4,215,000 Iowa Finance Authority, Solid Waste Disposal Revenue Bonds,
Series 1997 (IPSCO Project), 6.000%, 6/01/27
(Alternative Minimum Tax) No Opt. Call N/R 4,478,901
- ------------------------------------------------------------------------------------------------------------------------------------
Kentucky - 0.3%
1,500,000 Kentucky Economic Development Finance Authority, Health Care
Facilities Revenue Bonds, Series 1998 (The Christian Church Homes
of Kentucky Inc. Obligated Group), 5.375%, 11/15/23 5/08 at 102 BBB 1,505,085
1,520,000 Kentucky Housing Corporation, Housing Revenue Bonds (FHA Insured/VA
Guaranteed), 1990 Series C Bonds, 8.100%, 1/01/22
(Alternative Minimum Tax) 7/00 at 102 AAA 1,601,806
- ------------------------------------------------------------------------------------------------------------------------------------
Louisiana - 0.5%
4,900,000 East Baton Rouge Mortgage Finance Authority, Single Family
Mortgage Revenue Bonds (GNMA Mortgage Backed Securities Program),
Series 1990A, 7.875%, 8/01/23 (Alternative Minimum Tax) 8/00 at 102 Aaa 5,127,017
- ------------------------------------------------------------------------------------------------------------------------------------
Maine - 0.1%
925,000 Maine State Housing Authority, Single-Family Mortgage
Acquisition Bonds, 1991 Series 1, 7.150%, 11/01/21 11/01 at 102 Aa1 980,583
- ------------------------------------------------------------------------------------------------------------------------------------
Maryland - 0.4%
4,245,000 Community Development Administration, Department of Housing and
Community Development, State of Maryland, Single Family Program
Bonds, 1990 Fifth Series, 7.700%, 4/01/15 (Alternative Minimum Tax) 4/00 at 102 Aa2 4,394,594
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts - 7.1%
Massachusetts Bay Transportation Authority,
General Transportation System Bonds, 1990 Series A:
7,500,000 7.000%, 3/01/10 (Pre-refunded to 3/01/00) 3/00 at 100 Aaa 7,848,225
10,800,000 7.625%, 3/01/15 (Pre-refunded to 3/01/00) 3/00 at 102 Aaa 11,593,692
Massachusetts Health and Educational Facilities Authority,
Revenue Bonds, Daughters of Charity National Health
System-Carney Hospital Issue, Series C:
4,200,000 7.500%, 7/01/05 (Pre-refunded to 7/01/00) 7/00 at 102 Aaa 4,552,338
10,800,000 7.750%, 7/01/14 (Pre-refunded to 7/01/00) 7/00 at 102 Aaa 11,749,428
</TABLE>
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<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Massachusetts (continued)
$ 5,900,000 Massachusetts Health and Educational Facilities Authority,
Revenue Bonds, New England Medical Center
Hospitals Issue, Series F, 6.625%, 7/01/25 7/02 at 102 AAA $6,507,169
Massachusetts Health and Educational Facilities Authority,
Revenue Bonds, Goddard Memorial Hospital Issue, Series B:
3,090,000 9.000%, 7/01/15 (Pre-refunded to 7/01/00) 7/00 at 102 Aaa 3,423,751
4,615,000 9.000%, 7/01/15 7/00 at 102 BBB 4,994,722
Massachusetts Water Resources Authority,
General Revenue Bonds, 1990 Series A:
8,450,000 7.625%, 4/01/14 (Pre-refunded to 4/01/00) 4/00 at 102 AAA 9,097,101
6,615,000 7.500%, 4/01/16 (Pre-refunded to 4/01/00) 4/00 at 102 AAA 7,110,199
5,195,000 7.000%, 4/01/18 (Pre-refunded to 4/01/00) 4/00 at 102 AAA 5,548,987
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan - 2.3%
8,500,000 Michigan State Hospital Finance Authority, Hospital Revenue and
Refunding Bonds (Bay Medical Center),
Series 1990A, 8.250%, 7/01/12 7/00 at 102 A3 9,281,235
4,500,000 Michigan State Hospital Finance Authority, Hospital Revenue Bonds
(The Detroit Medical Center Obligated Group), Series 1991A,
7.500%, 8/15/11 (Pre-refunded to 8/15/01) 8/01 at 102 AAA 5,040,450
8,500,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Waste Management, Inc. Project), Series 1992,
6.625%, 12/01/12 (Alternative Minimum Tax) 12/02 at 102 BBB+ 9,192,495
- ------------------------------------------------------------------------------------------------------------------------------------
Minnesota - 1.6%
2,260,000 The Dakota County Housing and Redevelopment Authority,
The Washington County Housing and Redevelopment Authority, and
Stearns County Housing and Redevelopment Authority, Single Family
Residential Mortgage Revenue Bonds (GNMA MBS Program),
Series 1990, 7.850%, 12/01/30 (Alternative Minimum Tax) 12/00 at 102 AAA 2,356,321
8,845,000 City of Minneapolis, Minnesota, and The Housing and Redevelopment
Authority of The City of Saint Paul, Minnesota, Health Care
System Revenue Bonds (Health One Obligated Group), Series 1990C,
8.000%, 8/15/19 (Pre-refunded to 8/15/00) 8/00 at 102 AAA 9,702,434
3,720,000 The Housing and Redevelopment Authority of the City of Saint Paul,
Minnesota, Sales Tax Revenue Refunding Bonds (Civic Center Project),
Series 1996, 7.100%, 11/01/23 11/15 at 103 AAA 4,683,257
- ------------------------------------------------------------------------------------------------------------------------------------
Mississippi - 1.1%
5,000,000 Mississippi Business Finance Corporation, Pollution Control
Revenue Refunding Bonds (System Energy Resources, Inc. Project),
Series 1998, 5.875%, 4/01/22 (DD) 10/03 at 102 BBB- 5,002,800
5,410,000 Mississippi Home Corporation, Single Family Mortgage Revenue Bonds,
Series 1997D, Class 5, 5.500%, 7/01/29 (Alternative Minimum Tax) 7/07 at 105 Aaa 6,040,698
- ------------------------------------------------------------------------------------------------------------------------------------
Nevada - 1.1%
Nevada Housing Division, Single Family Program Senior Bonds,
1990 Issue B (Federally Insured or Guaranteed Mortgage Loans):
2,030,000 7.850%, 10/01/10 (Alternative Minimum Tax) 4/00 at 102 AA+ 2,112,114
1,755,000 7.900%, 4/01/22 (Alternative Minimum Tax) 4/00 at 102 AA+ 1,820,093
6,000,000 State of Nevada, General Obligation (Limited Tax)
(Nevada Municipal Bond Bank Project No. 52),
Series July 1, 1996A, 6.000%, 5/15/21 (Pre-refunded to 5/15/06) 5/06 at 101 AA*** 6,791,760
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey - 0.7%
4,750,000 Pollution Control Financing Authority of Camden County
(Camden County, New Jersey), Solid Waste Disposal and
Resource Recovery System Revenue Bonds, Series 1991 C,
7.125%, 12/01/01 (Alternative Minimum Tax) No Opt. Call B2 4,740,880
2,000,000 Pollution Control Financing Authority of Camden County
(Camden County, New Jersey), Solid Waste
Disposal and Resource Recovery System Revenue Bonds,
Series 1991 D, 7.250%, 12/01/10 12/01 at 102 B2 2,008,300
- ------------------------------------------------------------------------------------------------------------------------------------
New Mexico - 0.7%
7,050,000 New Mexico Mortgage Finance Authority, Single Family
Mortgage Program Senior Bonds, 1990 Series A
(Federally Insured or Guaranteed Mortgage Loans), 7.800%, 9/01/17 9/00 at 102 AAA 7,498,098
</TABLE>
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<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York - 24.8%
$ 10,000,000 The City of New York, General Obligation Bonds,
Fiscal 1996 Series G, 5.750%, 2/01/20 2/06 at 101 1/2 A- $ 10,634,100
21,715,000 The City of New York, General Obligation Bonds, Fiscal 1996 Series I,
5.875%, 3/15/18 3/06 at 101 1/2 A- 23,287,600
10,000,000 The City of New York, General Obligation Bonds, Fiscal 1997 Series H,
6.125%, 8/01/25 8/07 at 101 A- 10,991,700
6,750,000 The City of New York, General Obligation Bonds, Fiscal 1995 Series F, 6.625%, 2/15/25
(Pre-refunded to 2/15/05) 2/05 at 101 A-*** 7,793,348
7,585,000 New York City Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds, Fiscal
1991 Series A, 6.000%, 6/15/20 (Pre-refunded to 6/15/00) 6/00 at 100 Aaa 7,895,682
New York City Municipal Water Finance Authority, Water and Sewer
System Revenue Bonds, Fiscal 1991 Series A:
12,875,000 7.500%, 6/15/19 (Pre-refunded to 6/15/00) 6/00 at 101 1/2 Aaa 13,883,756
5,915,000 6.000%, 6/15/20 (Pre-refunded to 6/15/00) 6/00 at 100 Aaa 6,157,278
2,550,000 New York City Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds,
Fiscal 1993 Series A, 5.750%, 6/15/18 6/02 at 101 1/2 AAA 2,672,553
13,515,000 New York City (New York), Transitional Finance Authority,
Future Tax Secured Bonds, Fiscal 1998
Series A, 5.000%, 8/15/27 8/07 at 101 AA 13,281,055
6,080,000 Dormitory Authority of the State of New York,
City University System Consolidated Second General
Resolution Revenue Bonds, Series 1990C, 9.250%, 7/01/99 No Opt. Call Baa1 6,331,165
15,000,000 Dormitory Authority of the State of New York,
City University System Consolidated Second General
Resolution Revenue Bonds, Series 1990D, 8.750%, 7/01/03 No Opt. Call BBB+ 17,982,750
9,010,000 Dormitory Authority of the State of New York,
State University Educational Facilities Revenue Bonds,
Series 1989B, 7.250%, 5/15/15 (Pre-refunded to 5/15/00) 5/00 at 102 Aaa 9,698,274
10,000,000 Dormitory Authority of the State of New York,
State University Educational Facilities Revenue Bonds,
Series 1989A, 7.125%, 5/15/17 (Pre-refunded to 5/15/99) 5/99 at 102 AAA 10,425,800
13,250,000 New York State Dormitory Authority,
Mental Health Services Authority, Improvement Bonds,
Series 1996-B, 5.375%, 2/15/26 2/06 at 102 A- 13,570,120
27,000,000 Dormitory Authority of the State of New York,
Mental Health Services Facilities Improvement Revenue
Bonds, Series 1997A, 5.750%, 2/15/27 2/07 at 102 A- 28,982,340
5,765,000 Dormitory Authority of the State of New York,
Mental Health Services Facilities Improvement Revenue
Bonds, Series 1997B, 5.500%, 8/15/17 2/07 at 102 A- 6,020,217
4,000,000 Dormitory Authority of the State of New York,
Mental Health Services Facilities Improvement Revenue
Bonds, Series 1998D, 5.000%, 8/15/17 8/08 at 101 AAA 4,012,080
4,500,000 New York State Energy Research and Development Authority,
Gas Facilities Revenue Bonds, Series C
(The Brooklyn Union Gas Company Project), 5.600%, 6/01/25
(Alternative Minimum Tax) 7/03 at 102 AAA 4,689,675
16,580,000 New York State Housing Finance Agency,
Health Facilities Revenue Bonds (New York City), 1990 Series A Refunding,
8.000%, 11/01/08 (Pre-refunded to 11/01/00) 11/00 at 102 AAA 18,341,625
3,420,000 New York State Housing Finance Agency, Health Facilities Revenue Bonds
(New York City), 1990 Series A
Refunding, 8.000%, 11/01/08 11/00 at 102 BBB+ 3,716,548
3,745,000 New York State Medical Care Facilities Finance Agency,
Hospital and Nursing Home Insured Mortgage
Revenue Bonds, 1987 Series A, 8.000%, 2/15/27 8/99 at 100 AA 3,794,584
470,000 New York State Medical Care Facilities Finance Agency,
Albany Medical Center Hospital Project Revenue
Bonds, 1987 Series A, 8.000%, 2/15/28 8/00 at 100 AAA 480,909
5,000,000 New York State Medical Care Facilities Finance Agency,
Hospital Medical Center Secured Hospital
Revenue Bonds, Series 1995-A, 6.850%, 2/15/17 (Pre-refunded to 2/15/05) 2/05 at 102 AAA 5,869,700
4,785,000 New York State Medical Care Facilities Finance Agency, Health Center Projects Revenue Bonds
(Secured Mortgage Program), 1995 Series A, 6.375%, 11/15/19 11/05 at 102 Aa1 5,389,633
7,150,000 New York State Thruway Authority, General Revenue Bonds, Series C, 6.000%, 1/01/25
(Pre-refunded to 1/01/05) 1/05 at 102 AAA 8,059,552
10,000,000 The Port Authority of New York and New Jersey, Special Project Bonds,
Series 6, JFK International Air Terminal LLC Project,
5.750%, 12/01/22 (Alternative Minimum Tax) 12/07 at 102 AAA 10,636,300
</TABLE>
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<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
North Carolina - 1.5%
$ 10,500,000 North Carolina Eastern Municipal Power Agency, Power System
Revenue Bonds, Refunding Series 1991A, 6.250%, 1/01/03 1/02 at 102 Baa1 $11,269,020
3,690,000 North Carolina Housing Finance Agency, Single Family Revenue Bonds,
Series-M (1985 Resolution),
7.850%, 9/01/28 (Alternative Minimum Tax) 3/00 at 102 AA 3,854,906
- ------------------------------------------------------------------------------------------------------------------------------------
Oklahoma - 1.4%
8,500,000 Trustees of the Tulsa Municipal Airport Trust,
1988 Adjustable Rate Revenue Obligations,
7.375%, 12/01/20 (Alternative Minimum Tax) 12/00 at 102 Baa2 9,098,825
5,000,000 Trustees of the Tulsa Municipal Airport Trust,
Revenue Bonds, Series 1991, 7.600%, 12/01/30
(Alternative Minimum Tax) 6/01 at 102 Baa2 5,423,550
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania - 0.3%
2,965,000 Allegheny County Residential Finance Authority,
Single Family Mortgage Revenue Bonds (GNMA
Mortgage-Backed Securities Program), Series 1990M.,
7.950%, 6/01/23 (Alternative Minimum Tax) 6/00 at 102 Aaa 3,111,679
- ------------------------------------------------------------------------------------------------------------------------------------
Rhode Island - 1.6%
10,080,000 Rhode Island Housing and Mortgage Finance Corporation,
Homeownership Opportunity Bonds, Series 2,
7.750%, 4/01/22 4/00 at 102 AA+ 10,523,822
5,000,000 Rhode Island Health and Educational Building Corporation,
Higher Education Facility Revenue Bonds,
Johnson and Wales University (Series 1990), 8.375%, 4/01/20
(Pre-refunded to 4/01/00) 4/00 at 102 AAA 5,434,400
- ------------------------------------------------------------------------------------------------------------------------------------
South Carolina - 0.7%
3,640,000 South Carolina Jobs-Economic Development Authority,
Economic Development Revenue Bonds (Carolinas Hospital System Project),
Series 1992, 7.550%, 9/01/22
(Pre-refunded to 9/01/02) 9/02 at 102 N/R*** 4,183,197
2,450,000 Three Rivers Solid Waste Authority (South Carolina),
Solid Waste Disposal Facilities Revenue Bonds,
Series 1997, 5.300%, 1/01/27 1/07 at 102 AAA 2,508,849
- ------------------------------------------------------------------------------------------------------------------------------------
Tennessee - 0.5%
4,750,000 The Health and Educational Facilities Board of the
Metropolitan Government of Nashville and Davidson
County, Tennessee, Revenue Refunding Bonds,
Series 1998 (The Blakford at Green Hills), 5.650%, 7/01/16 7/03 at 102 N/R 4,773,133
- ------------------------------------------------------------------------------------------------------------------------------------
Texas - 6.8%
6,000,000 Alliance Airport Authority, Inc., Special Facilities Revenue Bonds,
Series 1990 (American Airlines, Inc.
Project), 7.500%, 12/01/29 (Alternative Minimum Tax) 12/00 at 102 Baa2 6,433,740
Arlington Independent School District (Tarrant County, Texas),
Unlimited Tax Refunding and Improvement Bonds, Series 1995:
8,940,000 0.000%, 2/15/12 (Pre-refunded to 2/15/05) 2/05 at 67 5/16 Aaa 4,654,164
3,710,000 0.000%, 2/15/12 2/05 at 67 5/16 Aaa 1,844,278
8,930,000 0.000%, 2/15/13 (Pre-refunded to 2/15/05) 2/05 at 62 15/16 Aaa 4,346,052
3,710,000 0.000%, 2/15/13 2/05 at 62 15/16 Aaa 1,714,651
20,500,000 Dallas-Fort Worth International Airport Facility
Improvement Corporation, American Airlines, Inc.
Revenue Bonds, Series 1990, 7.500%, 11/01/25
(Alternative Minimum Tax) 11/00 at 102 Baa2 21,950,375
2,870,000 El Paso Housing Finance Corporation,
Single Family Mortgage Revenue Refunding Bonds,
Series 1991A, 8.750%, 10/01/11 4/01 at 103 A2 3,183,375
1,145,000 County of Fort Bend, Texas, Municipal Utility District No. 42,
5.875%, 9/01/21 9/06 at 100 AAA 1,235,134
3,885,000 Houston Independent School District Public Facility Corporation
(Harris County, Texas), Lease Revenue Bonds
(Cesar E. Chavez High School), Series 1998A,
0.000%, 9/15/12 No Opt. Call AAA 2,017,170
15,130,000 Lubbock Health Facilities Development Corporation,
Hospital Revenue Bonds (Methodist Hospital,
Lubbock, Texas), Series 1990, 7.250%, 12/01/19
(Pre-refunded to 12/01/00) 12/00 at 102 AAA 16,554,943
4,694,828 General Services Commission (an Agency of the State of Texas),
as Lessee, Participation Interests, 7.500%, 9/01/22 9/99 at 101 1/2 A 5,332,056
- ------------------------------------------------------------------------------------------------------------------------------------
Utah - 0.5%
4,750,000 Tooele County, Hazardous Waste Disposal Revenue Bonds
(Laidlaw Inc/USPCI Clive PJ), Series 1995,
6.750%, 8/01/10 (Alternative Minimum Tax) 8/05 at 102 BBB+ 5,232,315
</TABLE>
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<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Virginia - 1.1%
$ 4,190,000 Industrial Development Authority of the County of Henrico,
Virginia, Adjustable Rate Revenue Bonds,
(St. Marys Hospital Project), Series 1985C, 7.500%, 9/01/07
(Pre-refunded to 8/01/00) 8/00 at 102 A+*** $ 4,517,826
4,000,000 Virginia Housing Development Authority,
Commonwealth Mortgage Revenue Bonds, 1992 Series B
Subseries B-4, 6.550%, 1/01/27 (Alternative Minimum Tax) 1/02 at 102 AA+ 4,204,320
2,000,000 Virginia Housing Development Authority, Multi-Family
Housing Bonds, 1992 Series D, 7.050%, 5/01/18 5/02 at 102 AA+ 2,196,500
- ------------------------------------------------------------------------------------------------------------------------------------
Washington - 4.9%
650,000 Washington Public Power Supply System, Nuclear Project
No. 1 Revenue Bonds, 14.375%, 7/01/01 No Opt. Call AAA 760,474
3,225,000 Washington Public Power Supply System, Nuclear Project
No. 1 Refunding Revenue Bonds, Series 1989B, 7.250%,
7/01/15 (Pre-refunded to 1/01/00) 1/00 at 102 AAA 3,427,755
5,430,000 Washington Public Power Supply System, Nuclear Project
No. 1 Refunding Revenue Bonds, Series 1990A,
7.600%, 7/01/05 (Pre-refunded to 7/01/00) 7/00 at 102 AAA 5,894,264
9,775,000 Washington Public Power Supply System, Nuclear Project
No. 1 Refunding Revenue Bonds, Series 1991A, 6.875%,
7/01/17 (Pre-refunded to 7/01/01) 7/01 at 102 Aaa 10,746,732
3,030,000 Washington Public Power Supply System, Nuclear Project
No. 1 Refunding Revenue Bonds, Series 1989A, 7.500%,
7/01/15 (Pre-refunded to 7/01/99) 7/99 at 102 AAA 3,181,105
Washington Public Power Supply System, Nuclear Project
No. 2 Refunding Revenue Bonds, Series 1990A:
6,835,000 7.625%, 7/01/08 (Pre-refunded to 7/01/00) 7/00 at 102 AAA 7,422,126
13,240,000 7.375%, 7/01/12 (Pre-refunded to 7/01/00) 7/00 at 102 AAA 14,325,283
3,650,000 Washington Public Power Supply System,
Nuclear Project No. 3 Refunding Revenue Bonds,
Series 1989B, 7.250%, 7/01/15 (Pre-refunded to 1/01/00) 1/00 at 102 AAA 3,879,475
- ------------------------------------------------------------------------------------------------------------------------------------
Wisconsin - 0.2%
2,250,000 Wisconsin Health and Educational Facilities Authority,
Revenue Bonds, Series 1998 (United Lutheran
Program for the Aging, Inc.), 5.700%, 3/01/28 3/08 at 101 N/R 2,252,587
- ------------------------------------------------------------------------------------------------------------------------------------
Wyoming - 0.3%
2,800,000 Town of Jackson, Wyoming, National Rural Utilities Cooperative
Finance Corporation, Guaranteed Gas Supply Revenue Bonds
(Lower Valley Power and Light, Inc. Project), Series 1997B,
5.875%, 5/01/26 (Alternative Minimum Tax) 5/07 at 102 AA- $2,943,695
- ------------------------------------------------------------------------------------------------------------------------------------
$ 954,754,828 Total Investments - (cost $915,618,060) - 98.3% 1,003,949,884
====================================================================================================================================
Temporary Investments in Short-Term Municipal Securities - 0.6%
5,000,000 Harris County Facilities Development Corporation, Hospital Revenue Bonds (The Methodist Hospital),
Series 1994, Variable Rate Demand Bonds, 3.700%, 12/01/25+ A-1+ 5,000,000
1,000,000 Orange County Irvine Coast Assessment District #88-1, Variable Rate Demand Bonds,
3.600%, 9/02/18+ VMGI-1 1,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
$ 6,000,000 Total Temporary Investments - 0.6% 6,000,000
====================================================================================================================================
Other Assets Less Liabilities - 1.1% 11,256,857
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $1,021,206,741
====================================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent
auditors): Dates (month and year) and prices of the earliest optional call or
redemption. There may be other call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent auditors): Using
the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient
U.S. government or U.S. government agency securities which ensures the timely
payment of principal and interest. Securities are normally considered to be
equivalent to AAA rated securities.
+ The security has a maturity of more than one year, but has variable
rate and demand features which qualify it as a short-term security. The rate
disclosed is that currently in effect. This rate changes periodically based on
market conditions or a specified market index.
N/R Investment is not rated.
(DD) Security purchased on a delayed delivery basis (note 1).
See accompanying notes to financial statements.
S-61
<PAGE> 94
Statement of Net Assets
October 31, 1998
<TABLE>
<CAPTION>
Performance Plus Advantage Opportunity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments in municipal securities, at market value (note 1) $1,296,003,283 $962,949,843 $1,003,949,884
Temporary investments in short-term municipal securities,
at amortized cost, which approximates market value (note 1) 2,100,000 1,300,000 6,000,000
Cash 388,928 8,737 576,741
Receivables:
Interest 25,797,870 20,179,843 19,766,340
Investments sold 11,878,089 250,805 740,292
Other assets 60,578 22,818 29,239
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 1,336,228,748 984,712,046 1,031,062,496
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities
Payable for investments purchased 8,145,739 4,833,506 4,978,003
Accrued expenses:
Management fees (note 6) 696,146 518,424 541,678
Other 394,598 297,883 411,106
Preferred share dividends payable 145,065 115,044 128,602
Common share dividends payable 4,660,699 3,537,573 3,796,366
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 14,042,247 9,302,430 9,855,755
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets (note 7) $1,322,186,501 $975,409,616 $1,021,206,741
====================================================================================================================================
Preferred shares, at liquidation value $ 400,000,000 $300,000,000 $ 300,000,000
====================================================================================================================================
Preferred shares outstanding 16,000 12,000 12,000
====================================================================================================================================
Common shares outstanding 59,752,567 42,621,364 45,194,829
====================================================================================================================================
Net asset value per Common share outstanding (net assets less Preferred shares
at liquidation value, divided by Common shares outstanding) $ 15.43 $ 15.85 $ 15.96
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
S-62
<PAGE> 95
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<CAPTION>
Performance Plus Advantage Opportunity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income (note 1) $80,842,860 $59,970,003 $64,254,765
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 8,115,717 6,046,556 6,331,295
Preferred shares - auction fees 1,000,001 749,998 729,314
Preferred shares - dividend disbursing agent fees 40,000 40,000 27,931
Shareholders' servicing agent fees and expenses 238,450 139,448 157,179
Custodian's fees and expenses 154,468 121,363 127,450
Directors' fees and expenses (note 6) 12,316 8,986 9,445
Professional fees 22,610 21,515 21,673
Shareholders' reports - printing and mailing expenses 304,833 215,017 237,763
Stock exchange listing fees 53,199 36,847 38,792
Investor relations expense 118,093 82,596 88,902
Other expenses 64,706 47,335 49,633
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 10,124,393 7,509,661 7,819,377
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 70,718,467 52,460,342 56,435,388
- ------------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 6,830,490 410,207 797,092
Net change in unrealized appreciation or depreciation of investments 5,944,124 6,827,515 5,539,573
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain from investments 12,774,614 7,237,722 6,336,665
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $83,493,081 $59,698,064 $62,772,053
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
S-63
<PAGE> 96
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Performance Plus Advantage Opportunity
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
10/31/98 10/31/97 10/31/98 10/31/97 10/31/98 10/31/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income $ 70,718,467 $ 73,434,381 $ 52,460,342 $ 53,688,593 $ 56,435,388 $ 57,903,551
Net realized gain from
investment transactions
(notes 1 and 4) 6,830,490 853,940 410,207 946,565 797,092 1,806,219
Net change in unrealized appreciation
or depreciation of investments 5,944,124 7,720,715 6,827,515 7,309,164 5,539,573 6,812,086
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
from operations 83,493,081 82,009,036 59,698,064 61,944,322 62,772,053 66,521,856
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Common shareholders (56,892,715) (59,163,226) (42,274,725) (43,220,811) (45,439,581) (46,488,963)
Preferred shareholders (13,848,428) (14,091,748) (10,287,913) (10,466,289) (10,834,625) (11,717,683)
From accumulated net realized gains
from investment transactions:
Common shareholders -- -- -- -- (1,234,583) --
Preferred shareholders -- -- -- -- (310,600) --
- -----------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from
distributions to shareholders (70,741,143) (73,254,974) (52,562,638) (53,687,100) (57,819,389) (58,206,646)
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions (note 2)
Net proceeds from Common shares
issued to shareholders due to
reinvestment of distributions 5,237,739 4,808,086 6,216,101 2,145,347 5,052,060 1,899,633
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 17,989,677 13,562,148 13,351,527 10,402,569 10,004,724 10,214,843
Net assets at beginning of year 1,304,196,824 1,290,634,676 962,058,089 951,655,520 1,011,202,017 1,000,987,174
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $1,322,186,501 $1,304,196,824 $975,409,616 $962,058,089 $1,021,206,741 $1,011,202,017
===================================================================================================================================
Balance of undistributed net investment
income at end of year $ 1,352,772 $ 1,375,448 $ 955,288 $ 1,057,584 $ 923,953 $ 762,771
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
S-64
<PAGE> 97
Notes to Financial Statements
1. General Information and Significant Accounting Policies
The National Funds (the "Funds") covered in this report and their corresponding
New York Stock Exchange symbols are Nuveen Performance Plus Municipal Fund, Inc.
(NPP), Nuveen Municipal Advantage Fund, Inc. (NMA) and Nuveen Municipal Market
Opportunity Fund, Inc. (NMO).
Each Fund invests primarily in a diversified portfolio of municipal obligations
issued by state and local government authorities. The Funds are registered under
the Investment Company Act of 1940 as closed-end, diversified management
investment companies.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
The prices of municipal bonds in each Fund's investment portfolio are provided
by a pricing service approved by the Fund's Board of Directors. When price
quotes are not readily available (which is usually the case for municipal
securities), the pricing service establishes fair market value based on yields
or prices of municipal bonds of comparable quality, type of issue, coupon,
maturity and rating, indications of value from securities dealers and general
market conditions. Temporary investments in securities that have variable rate
and demand features qualifying them as short-term securities are valued at
amortized cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. The securities so purchased are subject to
market fluctuation during this period. The Funds have instructed the custodian
to segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At
October 31, 1998, Performance Plus, Advantage and Opportunity had outstanding
when-issued and delayed delivery purchase commitments of $4,730,403, $4,833,506
and $4,978,003, respectively.
Investment Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
Federal Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount realized from investment transactions. The
Funds currently consider significant net realized capital gains and/or market
discount as amounts in excess of $.001 per Common share for Performance Plus and
$.01 per Common share for Advantage and Opportunity. Furthermore, each Fund
intends to satisfy conditions which will enable interest from municipal
securities, which is exempt from regular federal income tax, to retain such
tax-exempt status when distributed to shareholders of the Funds. All monthly
tax-exempt income dividends paid during the fiscal year ended October 31, 1998,
have been designated Exempt Interest Dividends. Net realized capital gain and
market discount distributions are subject to federal taxation.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions are distributed to shareholders not less frequently
than annually. Furthermore, capital gains are distributed only to the extent
they exceed available capital loss carryforwards.
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount, if any, are recorded on the ex-dividend
date. The amount and timing of distributions are determined in accordance with
federal income tax regulations, which may differ from generally accepted
accounting principles. Accordingly, temporary over-distributions as a result of
these differences may occur and will be classified as either distributions in
excess of net investment income, distributions in excess of net realized gains
and/or distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
S-65
<PAGE> 98
Preferred Shares
The Funds have issued and outstanding $25,000 stated value Preferred shares.
Each Fund's Preferred shares are issued in more than one Series. The dividend
rate on each Series may change every seven days, as set by the auction agent.
The number of shares outstanding, by Series and in total, for each Fund is
as follows:
<TABLE>
<CAPTION>
Performance
Plus Advantage Opportunity
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of shares:
Series M 4,000 3,000 4,000
Series T 4,000 3,000 4,000
Series W 4,000 3,000 --
Series F 4,000 3,000 4,000
- ---------------------------------------------------------------------------------------------------------
Total 16,000 12,000 12,000
=========================================================================================================
</TABLE>
Derivative Financial Instruments
The Funds may invest in transactions in certain derivative financial instruments
including futures, forward, swap and option contracts, and other financial
instruments with similar characteristics. Although the Funds are authorized to
invest in such financial instruments, and may do so in the future, they did not
make any such investments during the fiscal year ended October 31, 1998.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results may differ
from those estimates.
2. Fund Shares
Transactions in Common shares were as follows:
<TABLE>
<CAPTION>
Performance Plus Advantage
- ----------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
10/31/98 10/31/97 10/31/98 10/31/97
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued to shareholders
due to reinvestment of
distributions 335,829 313,402 389,093 135,025
==========================================================================================================
<CAPTION>
Opportunity
- ----------------------------------------------------------------------------------------------------------
Year Ended Year Ended
10/31/98 10/31/97
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares issued to shareholders
due to reinvestment of
distributions 313,666 119,092
==========================================================================================================
</TABLE>
3. Distributions to Common Shareholders
The Funds declared Common share dividend distributions from their tax-exempt net
investment income which were paid on December 1, 1998, to shareholders of record
on November 15, 1998, as follows:
<TABLE>
<CAPTION>
Performance
Plus Advantage Opportunity
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend per share $.0750 $.0830 $.0840
=========================================================================================================
</TABLE>
S-66
<PAGE> 99
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments during the fiscal year ended
October 31, 1998, were as follows:
<TABLE>
<CAPTION>
Performance
Plus Advantage Opportunity
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases:
Investments in municipal securities $306,485,428 $ 86,695,370 $136,601,090
Temporary municipal investments 189,205,000 111,570,000 57,600,000
Sales and Maturities:
Investments in municipal securities 297,892,967 71,691,739 134,694,656
Temporary municipal investments 191,005,000 116,520,000 51,600,000
=========================================================================================================
</TABLE>
At October 31, 1998, the identified cost of investments owned for federal income
tax purposes was the same as the cost for financial reporting purposes for each
Fund.
At October 31, 1998, Advantage had unused capital loss carryforwards of $929,166
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, $427,467 of the carryforward will expire in the
year 2001 and $501,699 of the carryforward will expire in the year 2002.
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
at October 31, 1998, were as follows:
<TABLE>
<CAPTION>
Performance
Plus Advantage Opportunity
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized:
appreciation $84,680,917 $79,707,226 $88,513,236
depreciation (236,135) (56,754) (181,412)
- ---------------------------------------------------------------------------------------------------------
Net unrealized appreciation $84,444,782 $79,650,472 $88,331,824
=========================================================================================================
</TABLE>
6. Management Fee and Other Transactions with Affiliates
Under the Funds' investment management agreements with Nuveen Advisory Corp.
(the "Adviser"), a wholly owned subsidiary of The John Nuveen Company, each Fund
pays to the Adviser an annual management fee, payable monthly, at the rates set
forth below, which are based upon the average daily net asset value of each Fund
as follows:
<TABLE>
<CAPTION>
Average Daily Net Asset Value Management Fee
- -----------------------------------------------------------------------------
<S> <C>
For the first $125 million .6500 of 1%
For the next $125 million .6375 of 1
For the next $250 million .6250 of 1
For the next $500 million .6125 of 1
For the next $1 billion .6000 of 1
For net assets over $2 billion .5875 of 1
=============================================================================
</TABLE>
The fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Funds pay no
compensation directly to those of its Directors who are affiliated with the
Adviser or to their officers, all of whom receive remuneration for their
services to the Funds from the Adviser.
S-67
<PAGE> 100
7. Composition of Net Assets At October 31, 1998, net assets consisted of:
<TABLE>
<CAPTION>
Performance
Plus Advantage Opportunity
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred shares, $25,000 stated value per share,
at liquidation value $ 400,000,000 $300,000,000 $300,000,000
Common shares, $.01 par value per share 597,526 426,214 451,948
Paid-in surplus 835,010,857 595,306,808 630,724,782
Balance of undistributed net investment income 1,352,772 955,288 923,953
Accumulated net realized gain (loss) from investment transactions 780,564 (929,166) 794,802
Net unrealized appreciation of investments 84,444,782 79,650,472 88,331,824
- ------------------------------------------------------------------------------------------------------------
Net assets $1,322,186,501 $975,409,616 $1,021,206,741
- ------------------------------------------------------------------------------------------------------------
Authorized shares:
Common 200,000,000 200,000,000 200,000,000
Preferred 1,000,000 1,000,000 1,000,000
============================================================================================================
</TABLE>
8. Investment Composition
At October 31, 1998, the revenue sources by municipal purpose, expressed as a
percent of total investments, were as follows:
<TABLE>
<CAPTION>
Performance
Plus Advantage Opportunity
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Education and Civic Organizations 2% 3% 4%
Health Care 11 8 4
Housing/Multifamily 4 4 3
Housing/Single Family 11 8 10
Tax Obligation/General 10 5 8
Tax Obligation/Limited 11 6 15
Transportation 5 7 13
U.S. Guaranteed 27 38 33
Utilities 13 14 7
Water and Sewer 5 5 2
Other 1 2 1
- --------------------------------------------------------------------------------------------------------
100% 100% 100%
========================================================================================================
</TABLE>
Certain long-term and intermediate-term investments owned by the Funds are
either covered by insurance issued by several private insurers or are backed by
an escrow or trust containing U.S. government or U.S. government agency
securities, both of which ensure the timely payment of principal and interest in
the event of default (67% for Performance Plus, 68% for Advantage and 48% for
Opportunity).
All of the temporary investments in short-term municipal securities have credit
enhancements (letters of credit, guarantees or insurance) issued by third party
domestic or foreign banks or other institutions.
For additional information regarding each investment security, refer to the
Portfolio of Investments of each Fund.
S-68
<PAGE> 101
Financial Highlights
Selected data for a Common share outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
Investment Operations
----------------------------------------
Net Realized/
Beginning Net Unrealized
Net Asset Investment Investment
Value Income Gain (Loss) Total
<S> <C> <C> <C> <C>
Performance Plus
Year Ended 10/31:
1998 $15.22 $1.19 $ .20 $1.39
1997 15.07 1.24 .15 1.39
1996 15.21 1.27 (.12) 1.15
1995 14.40 1.32 .85 2.17
1994 15.95 1.32 (1.53) (.21)
<CAPTION>
Advantage
<S> <C> <C> <C> <C>
Year Ended 10/31:
1998 15.68 1.24 .17 1.41
1997 15.48 1.27 .21 1.48
1996 15.57 1.29 (.07) 1.22
1995 14.60 1.33 1.01 2.34
1994 16.38 1.33 (1.76) (.43)
<CAPTION>
Opportunity
<S> <C> <C> <C> <C>
Year Ended 10/31:
1998 15.85 1.25 .15 1.40
1997 15.66 1.29 .20 1.49
1996 15.77 1.30 (.10) 1.20
1995 14.69 1.33 1.12 2.45
1994 16.58 1.33 (1.81) (.48)
</TABLE>
S-69
<PAGE> 102
<TABLE>
<CAPTION>
Less Distributions
-------------------------------------------------------------------------
Net Net
Investment Investment Capital Capital
Income Income Gains Gains
To Common To Preferred To Common To Preferred
Shareholders Shareholders+ Shareholders Shareholders+ Total
<S> <C> <C> <C> <C> <C>
Performance Plus
Year Ended 10/31:
1998 $ (.95) $(.23) $-- $-- $(1.18)
1997 (1.00) (.24) -- -- (1.24)
1996 (1.04) (.25) -- -- (1.29)
1995 (1.08) (.28) -- -- (1.36)
1994 (1.10) (.24) -- -- (1.34)
Advantage
Year Ended 10/31:
1998 (1.00) (.24) -- -- (1.24)
1997 (1.03) (.25) -- -- (1.28)
1996 (1.05) (.26) -- -- (1.31)
1995 (1.09) (.28) -- -- (1.37)
1994 (1.13) (.22) -- -- (1.35)
Opportunity
Year Ended 10/31:
1998 (1.01) (.24) (.03) (.01) (1.29)
1997 (1.04) (.26) -- -- (1.30)
1996 (1.05) (.26) -- -- (1.31)
1995 (1.09) (.28) -- -- (1.37)
1994 (1.13) (.23) (.04) (.01) (1.41)
</TABLE>
S-70
<PAGE> 103
<TABLE>
<CAPTION>
Total Returns
-------------------------------
Ending
Net Asset Ending Based on Based on Net
Value Market Value Market Value* Asset Value*
<S> <C> <C> <C> <C>
Performance Plus
Year Ended 10/31:
1998 $15.43 $15.4375 9.48% 7.87%
1997 15.22 15.0000 5.94 7.89
1996 15.07 15.1250 6.17 6.15
1995 15.21 15.2500 22.77 13.58
1994 14.40 13.3750 (13.56) (2.92)
Advantage
Year Ended 10/31:
1998 15.85 15.8125 5.58 7.65
1997 15.68 15.9375 12.57 8.20
1996 15.48 15.1250 7.04 6.37
1995 15.57 15.1250 20.69 14.62
1994 14.60 13.5000 (14.66) (4.16)
<CAPTION>
Opportunity
<S> <C> <C> <C> <C>
Year Ended 10/31:
1998 15.96 15.9375 5.40 7.45
1997 15.85 16.1250 13.01 8.12
1996 15.66 15.2500 8.82 6.15
1995 15.77 15.0000 21.98 15.30
1994 14.69 13.2500 (17.27) (4.57)
</TABLE>
S-71
<PAGE> 104
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------------------------------
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Net Assets Average Average Turnover
(000) Net Assets++ Net Assets++ Rate
<S> <C> <C> <C> <C>
Performance Plus
Year Ended 10/31:
1998 $1,322,187 .77% 5.38% 23%
1997 1,304,197 .77 5.69 12
1996 1,290,635 .78 5.83 15
1995 1,289,804 .78 6.08 7
1994 1,240,637 .79 6.01 12
Advantage
Year Ended 10/31:
1998 975,410 .78 5.41 8
1997 962,058 .78 5.64 8
1996 951,656 .78 5.72 13
1995 954,277 .78 5.98 4
1994 913,355 .79 5.88 10
Opportunity
Year Ended 10/31:
1998 1,021,207 .77 5.55 13
1997 1,011,202 .77 5.78 20
1996 1,000,987 .77 5.81 19
1995 1,005,798 .76 6.04 13
1994 957,443 .78 5.96 18
</TABLE>
* Total Return on Market Value is the combination of reinvested dividend income,
reinvested capital gains distributions, if any, and changes in stock price per
share. Total Return on Net Asset Value is the combination of reinvested dividend
income, reinvested capital gains distributions, if any, and changes in net asset
value per share. Total returns are not annualized.
+ The amounts shown are based on Common share equivalents.
++ Ratios do not reflect the effect of dividend payments to Preferred
shareholders.
S-72
<PAGE> 105
APPENDIX A
RATINGS OF INVESTMENTS
STANDARD & POOR'S RATINGS GROUP -- A brief description of the applicable
Standard & Poor's Ratings Group ("S&P") rating symbols and their meanings (as
published by S&P) follows:
LONG TERM DEBT
An S&P corporate or municipal debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees. The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished by
the issuer or obtained by S&P from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances. The ratings are based, in varying degrees, on the
following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
INVESTMENT GRADE
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
A-1
<PAGE> 106
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE RATING
Debt rated "BB", "B", "CCC", "CLARK CURBO" and "C" is regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics these are outweighed by major uncertainties or major exposures
to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CLARK CURBO The rating "CLARK CURBO" typically is applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC" debt rating.
C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period
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has not expired, unless S&P believes that such payments will be made during such
grace period. The "D" rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
PROVISIONAL RATINGS: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should exercise judgment
with respect to such likelihood and risk.
L The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is federally
insured and interest is adequately collateralized.* In the case of certificates
of deposit the letter "L" indicates that the deposit, combined with other
deposits being held in the same right and capacity, will be honored for
principal and accrued pre-default interest up to the federal insurance limits
within 30 days after closing of the insured institution or, in the event that
the deposit is assumed by a successor insured institution, upon maturity.
* Continuance of the rating is contingent upon S&P's receipt of an executed
copy of the escrow agreement or closing documentation confirming investments and
cash flow.
NR Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access
risks unique to notes. Notes due in 3 years or less will likely receive a note
rating. Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
-- 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:
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SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
A note rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of such
information or based on other circumstances.
COMMERCIAL PAPER
An S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designation.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
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A commercial paper rating is not a recommendation to purchase, sell, or
hold a security, inasmuch as it does not comment as to market price or
suitability for a particular investor. The ratings are based on current
information furnished to S&P by the issuer or obtained by S&P from other sources
it considers reliable. S&P does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information or based on other circumstances.
MOODY'S INVESTORS SERVICE, INC -- A brief description of the applicable Moody's
Investors Service, Inc. ("Moody's") rating symbols and their meanings (as
published by Moody's) follows:
MUNICIPAL BONDS
AAA Bonds that 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 are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA Bonds that 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 that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
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B Bonds that 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 that 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 that are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C Bonds that are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
CON(-) Bonds for which the security depends upon the completion of some act or
the fulfillment of some condition are rated conditionally. These are bonds
secured by (a) earnings of projects under construction, (b) earnings of projects
unseasoned in operation experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
NOTE: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
SHORT-TERM LOANS
MIG 1/VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
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.
MIG 3/VMIG 3 This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well-established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
S.G. This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.
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COMMERCIAL PAPER
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
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APPENDIX B
NUVEEN MUNICIPAL MARKET
OPPORTUNITY FUND, INC.
Statement Establishing and Fixing the Rights and Preferences of Municipal
Auction Rate Cumulative Preferred Stock ("MuniPreferred(R)"),
Series W
Nuveen Municipal Market Opportunity Fund, Inc., a Minnesota
corporation (the "Corporation"), hereby certifies to the Secretary of State of
Minnesota as follows:
First: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by its amended and restated articles of incorporation, the
Board of Directors has, by resolution duly adopted on December 18, 1998,
authorized the issuance of a series of its authorized Preferred Stock
designated as its Municipal Auction Rate Cumulative Preferred Stock, Series W2.
Second: The rights and preferences of the shares of such series of
stock are as follows:
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NUVEEN MUNICIPAL MARKET OPPORTUNITY FUND, INC., a Minnesota corporation
(the "Fund"), certifies to the Secretary of State of the State of Minnesota
that:
FIRST: Pursuant to authority expressly vested in the Board of Directors of
the Fund by Article FIFTH of the Fund's Articles of Incorporation, as amended
(which, as hereafter restated or amended from time to time are, together with
this Statement, herein called the "Articles"), the Board of Directors has, by
resolution, authorized the issuance of shares of the Fund's authorized Preferred
Stock, par value $.01 per share, liquidation preference $25,000 per share,
having such designation or designations as to series as is set forth in Section
1 of APPENDIX A hereto and such number of shares per such series as is set forth
in Section 2 of APPENDIX A hereto.
SECOND: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the shares
of each series of MuniPreferred described in Section I of APPENDIX A hereto are
as follows (each such series being referred to herein as a series of
MuniPreferred, and shares of all such series being referred to herein
individually as a share of MuniPreferred and collectively as shares of
MuniPreferred):
DEFINITIONS
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN SECTION 3 of APPENDIX A
HERETO, as used in Parts I and II of this Statement, the following terms shall
have the following meanings (with terms defined in the singular having
comparable meanings when used in the plural and vice versa), unless the context
otherwise requires:
(a) "AA" COMPOSITE COMMERCIAL PAPER RATE," on any date for any Rate Period
of shares of a series of MuniPreferred, shall mean (i) (A) in the case of any
Minimum Rate Period or any Special Rate Period of fewer than 49 Rate Period
Days, the interest equivalent of the 30-day rate; PROVIDED, HOWEVER, that if
such Rate Period is a Minimum Rate Period and the "AA" Composite Commercial
Paper Rate is being used to determine the Applicable Rate for shares of such
series when all of the Outstanding shares of such series are subject to
Submitted Hold Orders, then the interest equivalent of the seven day rate, and
(B) in the case of any Special Rate Period of (1) 49 or more but fewer than 70
Rate Period Days, the interest equivalent of the 60-day rate; (2) 70 or more but
fewer than 85 Rate Period Days, the arithmetic average of the interest
equivalent of the 60-day and 90-day rates; (3) 85 or more but fewer than 99 Rate
Period Days, the interest equivalent of the 90-day rate; (4) 99 or more but
fewer than 120 Rate Period Days, the arithmetic average of the interest
equivalent of the 90-day and 120-day rates; (5) 120 or more but fewer than 141
Rate Period Days, the interest equivalent of the 120-day rate; (6) 141 or more
but fewer than 162 Rate Period Days, the arithmetic average of the 120-day and
180-day rates; and (7) 162 or more but fewer than ) 183 Rate
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Period Days, the interest equivalent of the 180-day rate, in each case on
commercial paper placed on behalf of issuers whose corporate bonds are rated
"AA" by S&P or the equivalent of such rating by S&P or another rating
agency, as made available on a discount basis or otherwise by the Federal
Reserve Bank of New York for the Business Day next preceding such date; or (ii)
in the event that the Federal Reserve Bank of New York does not make available
any such rate, then the arithmetic average of such rates, as quoted on a
discount basis or otherwise, by the Commercial Paper Dealers to the Auction
Agent for the close of business on the Business Day next preceding such date. If
any Commercial Paper Dealer does not quote a rate required to determine the
"AA" Composite Commercial Paper Rate, the "AA" Composite Commercial Paper Rate
shall be determined on the basis of the quotation or quotations furnished by the
remaining Commercial Paper Dealer or Commercial Paper Dealers and any
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the Fund to provide such rate or rates not being supplied by any
Commercial Paper Dealer or Commercial Paper Dealers, as the case may be, or, if
the Fund does not select any such Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers, by the remaining Commercial Paper Dealer or
Commercial Paper Dealers. For purposes of this definition, the "interest
equivalent" of a rate stated on a discount basis (a "discount rate") for
commercial paper of a given days' maturity shall be equal to the quotient
(rounded upwards to the next higher one-thousandth (.001) of 1%) of (A) the
discount rate divided by (B) the difference between (x) 1.00 and (y) a fraction
the numerator of which shall be the product of the discount rate times the
number of days in which such commercial paper matures and the denominator of
which shall be 360.
(b) "ACCOUNTANT'S CONFIRMATION" shall have the meaning specified in
paragraph (c) of Section 7 of Part I of this Statement.
(c) "AFFILIATE" shall mean, for purposes of the definition of
"Outstanding," any Person known to the Auction Agent to be controlled by, in
control of or under common control with the Fund; PROVIDED, HOWEVER, that no
Broker-Dealer controlled by, in control of or under common control with the Fund
shall be deemed to be an Affiliate nor shall any corporation or any Person
controlled by, in control of or under common control with such corporation one
of the directors, trustees or executive officers of which is a director of the
Fund be deemed to be an Affiliate solely because such director, trustee or
executive officer is also a director of the Fund.
(d) "AGENT MEMBER" shall mean a member of or participant in the Securities
Depository that will act on behalf of a Bidder.
(e) "ANTICIPATION NOTES" shall mean Tax Anticipation Notes (TANs), Revenue
Anticipation Notes (RANs), Tax and Revenue Anticipation Notes (TRANs), Grant
Anticipation Notes (GANs) that are rated by S&P and Bond Anticipation Notes
(BANs) that are rated by S&P.
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(f) "APPLICABLE RATE" shall have the meaning specified in subparagraph
(e)(i) of Section 2 of Part I of this Statement.
(g) "ARTICLES" shall have the meaning specified on the first page of this
Statement.
(h) "AUCTION" shall mean each periodic implementation of the Auction
Procedures.
(i) "AUCTION AGENCY AGREEMENT" shall mean the agreement between the Fund
and the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction Procedures for purposes of determining the Applicable
Rate for shares of a series of MuniPreferred so long as the Applicable Rate for
shares of such series is to be based on the results of an Auction.
(j) "AUCTION AGENT" shall mean the entity appointed as such by a resolution
of the Board of Directors in accordance with Section 6 of Part II of this
Statement.
(k) "AUCTION DATE," with respect to any Rate Period, shall mean the
Business Day next preceding the first day of such Rate Period.
(l) "AUCTION PROCEDURES" shall mean the procedures for conducting Auctions
set forth in Part II of this Statement.
(m) "AVAILABLE MUNIPREFERRED" shall have the meaning specified in paragraph
(a) of Section 3 of Part II of this Statement.
(n) "BENCHMARK RATE" shall have the meaning specified in Section 12 of
APPENDIX A hereto.
(o) "BENEFICIAL OWNER," with respect to shares of a series of
MuniPreferred, means a customer of a Broker-Dealer who is listed on the records
of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of
shares of such series.
(p) "BID" and "BIDS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement.
(q) "BIDDER" and "BIDDERS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement; PROVIDED, HOWEVER, that
neither the Fund nor any affiliate thereof shall be permitted to be a Bidder in
an Auction, except that any Broker-Dealer that is an affiliate of the Fund may
be a Bidder in an Auction, but only if the Orders placed by such Broker-Dealer
are not for its own account.
(r) "BOARD OF DIRECTORS" shall mean the Board of Directors of the Fund or
any duly authorized committee thereof.
(s) "BROKER-DEALER" shall mean any broker-dealer, commercial bank or other
entity permitted by law to perform the functions required of a Broker-
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Dealer in Part II of this Statement, that is a member of, or a participant in,
the Securities Depository or is an affiliate of such member or participant, has
been selected by the Fund and has entered into a Broker-Dealer Agreement that
remains effective.
(t) "BROKER-DEALER AGREEMENT" shall mean an agreement among the Fund, the
Auction Agent and a Broker-Dealer pursuant to which such Broker Dealer agrees to
follow the procedures specified in Part II of this Statement.
(u) "BUSINESS DAY" shall mean a day on which the New York Stock Exchange is
open for trading and which is neither a Saturday, Sunday nor any other day on
which banks in The City of New York, New York, are authorized by law to close.
(v) "Code" means the Internal Revenue Code of 1986, as amended.
(w) "COMMERCIAL PAPER DEALERS" shall mean Lehman Commercial Paper
Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated or, in lieu of any thereof, their respective affiliates or
successors, if such entity is a commercial paper dealer.
(x) "COMMON STOCK" shall mean the common stock, par value $.01 per share,
of the Fund.
(y) "Cure Date" shall mean the MuniPreferred Basic Maintenance Cure Date or
the 1940 Act Cure Date, as the case may be.
(z) "DATE OF ORIGINAL ISSUE," with respect to shares of a series of
MuniPreferred, shall mean the date on which the Fund initially issued such
shares.
(aa) "DEPOSIT SECURITIES" shall mean cash and Municipal Obligations rated
at least A-1+ or SP-1+ by S&P, except that, for purposes of subparagraph (a)(v)
of Section 11 of Part I of this Statement, such Municipal Obligations shall be
considered "Deposit Securities" only if they are also rated P-1, MIG-1 or VMIG-1
by Moody's.
(bb) "DISCOUNTED VALUE," as of any Valuation Date, shall mean, (i) with
respect to an S&P Eligible Asset, the quotient of the Market Value thereof
divided by the applicable S&P Discount Factor and (ii)(a) with respect to a
Moody's Eligible Asset that is not currently callable as of such Valuation Date
at the option of the issuer thereof, the quotient of the Market Value thereof
divided by the applicable Moody's Discount Factor, or (b) with respect to a
Moody's Eligible Asset that is currently callable as of such Valuation Date at
the option of the issuer thereof, the quotient of (1) the lesser of the Market
Value or call price thereof, including any call premium, divided by (2) the
applicable Moody's Discount Factor.
(cc) (reserved)
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(dd) (reserved)
(ee) "DIVIDEND PAYMENT DATE," with respect to shares of a series of
MuniPreferred, shall mean any date on which dividends are payable on shares of
such series pursuant to the provisions of paragraph (d) of Section 2 of Part I
of this Statement.
(ff) "DIVIDEND PERIOD," with respect to shares of a series of
MuniPreferred, shall mean the period from and including the Date of Original
Issue of shares of such series to but excluding the initial Dividend Payment
Date for shares of such series and any period thereafter from and including one
Dividend Payment Date for shares of such series to but excluding the next
succeeding Dividend Payment Date for shares of such series.
(gg) "EXISTING HOLDER," with respect to shares of a series of
MuniPreferred, shall mean a Broker-Dealer (or any such other Person as may be
permitted by the Fund) that is listed on the records of the Auction Agent as a
holder of shares of such series.
(hh) "FAILURE TO DEPOSIT," with respect to shares of a series of
MuniPreferred, shall mean a failure by the Fund to pay to the Auction Agent, not
later than 12:00 noon, New York City time, (A) on the Business Day next
preceding any Dividend Payment Date for shares of such series, in funds
available on such Dividend Payment Date in The City of New York, Now York, the
full amount of any dividend (whether or not earned or declared) to be paid on
such Dividend Payment Date on any share of such series or (B) on the Business
Day next preceding any redemption date in funds available on such redemption
date for shares of such series in The City of New York, New York, the Redemption
Price to be paid on such redemption date for any share of such series after
notice of redemption is mailed pursuant to paragraph (c) of Section 11 of Part I
of this Statement; PROVIDED, HOWEVER, that the foregoing clause (B) shall not
apply to the Fund's failure to pay the Redemption Price in respect of shares of
MuniPreferred when the related Notice of Redemption provides that redemption of
such shares is subject to one or more conditions precedent and any such
condition precedent shall not have been satisfied at the time or times and in
the manner specified in such Notice of Redemption.
(ii) "FEDERAL TAX RATE INCREASE" shall have the meaning specified in the
definition of "Moody's Volatility Factor."
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(jj) "FUND" shall mean the entity named on the first page of this
Statement, which is the issuer of the shares of MuniPreferred.
(kk) "GROSS-UP PAYMENT" shall have the meaning specified in Section 4 of
APPENDIX A hereto.
(ll) "Holder," with respect to shares of a series of MuniPreferred, shall
mean the registered holder of such shares as the same appears on the stock books
of the Fund.
(mm) "HOLD ORDER" and "HOLD ORDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(nn) "INDEPENDENT ACCOUNTANT" shall mean a nationally recognized
accountant, or firm of accountants, that is with respect to the Fund an
independent public accountant or firm of independent public accountants under
the Securities Act of 1933, as amended from time to time.
(oo) "INITIAL RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall have the meaning specified with respect to shares of such
series in Section 5 of APPENDIX A hereto.
(pp) "INTEREST EQUIVALENT" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security,
(qq) "Issue Type Category," if defined in Section 4 of Appendix A hereto,
shall have the meaning specified in that section.
(rr) "KENNY INDEX" shall have the meaning specified in the definition of
"Taxable Equivalent of the Short-Term Municipal Bond Rate."
(ss) "Late Charge" shall have the meaning specified in subparagraph
(e)(1)(B) of Section 2 of Part I of this Statement.
(tt) "LIQUIDATION PREFERENCE," with respect to a given number of shares of
MuniPreferred, means $25,000 times that number.
(uu) "MARKET VALUE" of any asset of the Fund shall mean the market value
thereof determined by the pricing service designated from time to time by the
Board of Directors. Market Value of any asset shall include any interest accrued
thereon. The pricing service, values portfolio securities at the mean between
the quoted bid and asked price or the yield equivalent when quotations are
readily available. Securities for which quotations are not readily available are
valued at fair value as determined by the pricing service using methods which
include consideration of: yields or prices of municipal bonds of comparable
quality, type of issue, coupon, maturity and rating; indications as to value
from dealers; and general market conditions. The pricing service may employ
electronic data processing techniques or a matrix system, or both, to determine
valuations.
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(vv) "MAXIMUM POTENTIAL GROSS-UP PAYMENT LIABILITY," as of any Valuation
Date, shall mean the aggregate amount of Gross-up Payments that would be due if
the Fund were to make Taxable Allocations, with respect to any taxable year,
estimated based upon dividends paid and the amount of undistributed realized net
capital gains and other taxable income earned by the Fund, as of the end of the
calendar month immediately preceding such Valuation Date, and assuming such
Gross-up Payments are fully taxable.
(ww) "MAXIMUM RATE," for shares of a series of MuniPreferred on any Auction
Date for shares of such series, shall mean:
(i) in the case of any Auction Date which is not the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Fund pursuant to Section 4 of Part I of this Statement,
the product of (A) the Reference Rate on such Auction Date for the next
Rate Period of shares of such series and (B) the Rate Multiple on such
Auction Date, unless shares of such series have or had a Special Rate
Period (other than a Special Rate Period of 28 Rate Period Days or fewer)
and an Auction at which Sufficient Clearing Bids existed has not yet
occurred for a Minimum Rate Period of shares of such series after such
Special Rate Period, in which case the higher of:
(A) the dividend rate on shares of such series for the then-ending Rate
Period; and
(B) the product of (1) the higher of (x) the Reference Rate on such
Auction Date for a Rate Period equal in length to the then-ending Rate
Period of shares of such series, if such then-ending Rate-Period was
364 Rate Period Days or fewer, or the Treasury Note Rate on such
Auction Date for a Rate Period equal in length to the then-ending Rate
Period of shares of such series, if such then-ending Rate Period was
more than 364 Rate Period Days, and (y) the Reference Rate on such
Auction Date for a Rate Period equal in length to such Special Rate
Period of shares of such series, if such Special Rate Period was 364
Rate Period Days or fewer, or the Treasury Note Rate on such Auction
Date for a Rate Period equal in length to such Special Rate Period, if
such Special Rate Period was more than 364 Rate Period Days and (2) the
Rate Multiple on such Auction Date; or
(ii) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Fund pursuant to Section 4 of Part I of this Statement,
the product of (A) the highest of (1) the Reference Rate on such Auction
Date for a Rate Period equal in length to the then-ending Rate Period of
shares of such series, if such then-ending Rate Period was 364 Rate Period
Days or fewer, or the Treasury Note Rate on such Auction Date for a Rate
Period equal in length to the then-ending Rate Period of shares of
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such series, if such then-ending Rate Period was more than 364 Rate Period
Days, (2) the Reference Rate on such Auction Date for the Special Rate
Period for which the Auction is being held if such Special Rate Period is
364 Rate Period Days or fewer or the Treasury Note Rate on such Auction
Date for the Special Rate Period for which the Auction is being held if
such Special Rate Period is more than 364 Rate Period Days, and (3) the
Reference Rate on such Auction Date for Minimum Rate Periods and (B) the
Rate Multiple on such Auction Date.
(xx) (reserved)
(yy) "MINIMUM RATE PERIOD" shall mean any Rate Period consisting of 7 Rate
Period Days.
(zz) "Moody's" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors.
(aaa) "MOODY'S DISCOUNT FACTOR" shall have the meaning specified in Section
4 of APPENDIX A hereto.
(bbb) "MOODY'S ELIGIBLE ASSET" shall have the meaning specified in Section
4 of APPENDIX A hereto.
(ccc) "MOODY'S EXPOSURE PERIOD" shall mean the period commencing on a given
Valuation Date and ending 56 days thereafter.
(ddd) "MOODY'S VOLATILITY FACTOR" shall mean, as of any Valuation Date, (i)
in the case of any Minimum Rate Period, any Special Rate Period of 28 Rate
Period Days or fewer, or any Special Rate Period of 57 Rate Period Days or more,
a multiplicative factor equal to 275%, except as otherwise provided in the last
sentence of this definition; (ii) in the case of any Special Rate Period of more
than 28 but fewer than 36 Rate Period Days, a multiplicative factor equal to
203%; (iii) in the case of any Special Rate Period of more than 35 but fewer
than 43 Rate Period Days, a multiplicative factor equal to 217%; (iv) in the
case of any Special Rate Period of more than 42 but fewer than 50 Rate Period
Days, a multiplicative factor equal to 226%; and (v) in the case of any Special
Rate Period of more than 49 but fewer than 57 Rate Period Days, a multiplicative
factor equal to 235%. If as a result of the enactment of changes to the Code,
the greater of the maximum marginal Federal individual income tax rate
applicable to ordinary income and the maximum marginal Federal corporate income
tax rate applicable to ordinary income will increase, such increase being
rounded up to the next five percentage points (the "Federal Tax Rate Increase"),
until the effective date of such increase, the Moody's Volatility Factor in the
case of any Rate Period described in (i) above in this definition instead shall
be determined by reference to the following table:
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FEDERAL
TAX RATE VOLATILITY
INCREASE FACTOR
-------- ------
5% 295%
10% 317%
15% 341%
20% 369%
25% 400%
30% 436%
35% 477%
40% 525%
(eee) "MUNIPREFERRED" shall have the meaning set forth on the first page of
this Statement.
(fff) "MUNIPREFERRED BASIC MAINTENANCE AMOUNT," as of any Valuation Date,
shall mean the dollar amount equal to the sum of (i)(A) the product of the
number of shares of MuniPreferred outstanding on such date multiplied by $25,000
(plus the product of the number of shares of any other series of Preferred Stock
outstanding on such date multiplied by the liquidation preference of such
shares), plus any redemption premium applicable to shares of MuniPreferred (or
other Preferred Stock) then subject to redemption; (B) the aggregate amount of
dividends that will have accumulated at the respective Applicable Rates (whether
or not earned or declared) to (but not including) the first respective Dividend
Payment Dates for shares of MuniPreferred outstanding that follow such Valuation
Date (plus the aggregate amount of dividends, whether or not earned or declared,
that will have accumulated in respect of other outstanding shares of Preferred
Stock to, but not including, the first respective dividend payment dates for
such other shares that follow such Valuation Date); (C) the aggregate amount of
dividends that would accumulate on shares of each series of MuniPreferred
outstanding from such first respective Dividend Payment Date therefor through
the 56th day after such Valuation Date, at the Maximum Rate (calculated as if
such Valuation Date were the Auction Date for the Rate Period commencing on such
Dividend Payment Date) for a Minimum Rate Period of shares of such series to
commence on such Dividend Payment Date, assuming, solely for purposes of the
foregoing, that if on such Valuation Date the Fund shall have delivered a Notice
of Special Rate Period to the Auction Agent pursuant to Section 4(d)(i) of this
Part I with respect to shares of such series, such Maximum Rate shall be the
higher of (a) the Maximum Rate for the Special Rate Period of shares of such
series to commence on such Dividend Payment Date and (b) the Maximum Rate for a
Minimum Rate Period of shares of such series to commence on such Dividend
Payment Date, multiplied by the Volatility Factor applicable to a Minimum Rate
Period, or, in the event the Fund shall have delivered a Notice of Special Rate
Period to the Auction Agent pursuant to
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Section 4(d)(i) of this Part I with respect to shares of such series designating
a Special Rate Period consisting of 56 Rate Period Days or more, the Volatility
Factor applicable to a Special Rate Period of that length (plus the aggregate
amount of dividends that would accumulate at the maximum dividend rate or rates
on any other shares of Preferred Stock outstanding from such respective dividend
payment dates through the 56th day after such Valuation Date, as established by
or pursuant to the respective statements establishing and fixing the rights and
preferences of such other shares of Preferred Stock) (except that (1) if such
Valuation Date occurs at a time when a Failure to Deposit (or, in the case of
shares of Preferred Stock other than MuniPreferred, a failure similar to a
Failure to Deposit) has occurred that has not been cured, the dividend for
purposes of calculation would accumulate at the current dividend rate then
applicable to the shares in respect of which such failure has occurred and (2)
for those days during the period described in this subparagraph (C) in respect
of which the Applicable Rate in effect immediately prior to such Dividend
Payment Date will remain in effect (or, in the case of shares of Preferred Stock
other than MuniPreferred, in respect of which the dividend rate or rates in
effect immediately prior to such respective dividend payment dates will remain
in effect), the dividend for purposes of calculation would accumulate at such
Applicable Rate (or other rate or rates, as the case may be) in respect of those
days); (D) the amount of anticipated expenses of the Fund for the 90 days
subsequent to such Valuation Date; (E) the amount of the Fund's Maximum
Potential Gross-up Payment Liability in respect of shares of MuniPreferred (and
similar amounts payable in respect of other shares of Preferred Stock pursuant
to provisions similar to those contained in Section 3 of Part I of this
Statement) as of such Valuation Date; and (F) any current liabilities as of such
Valuation Date to the extent not reflected in any of (i)(A) through (i)(E)
(including, without limitation, any payables for Municipal Obligations purchased
as of such Valuation Date and any liabilities incurred for the purpose of
clearing securities transactions ) less (ii) the value (i.e., for purposes of
current Moody's guidelines, the face value of cash, short-term Municipal
Obligations rated MIG-1, VMIG-1 or P-1, and short-term securities that are the
direct obligation of the U.S. government, provided in each case that such
securities mature on or prior to the date upon which any of (i)(A), through
(i)(F) become payable, otherwise the Moody's Discounted Value) of any of the
Fund's assets irrevocably deposited by the Fund for the payment of any of (i)(A)
through (i)(F).
(ggg) "MUNIPREFERRED BASIC MAINTENANCE CURE DATE," with respect to the
failure by the Fund to satisfy the MuniPreferred Basic Maintenance Amount (as
required by paragraph (a) of Section 7 of Part I of this Statement) as of a
given Valuation Date, shall mean the seventh Business Day following such
Valuation Date.
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(hhh) "MUNIPREFERRED BASIC MAINTENANCE REPORT" shall mean a report signed
by the President, Treasurer or any Senior Vice President or Vice President of
the Fund which sets forth, as of the related Valuation Date, the assets of the
Fund, the Market Value and the Discounted Value thereof (seriatim and in
aggregate), and the MuniPreferred Basic Maintenance Amount.
(iii) "MUNICIPAL OBLIGATIONS" shall mean "Municipal Obligations" as defined
in the Fund's registration statement on Form N-2 on file with the Securities and
Exchange Commission, as such registration statement may be amended from time to
time (the "Registration Statement").
(jjj) "1940 ACT" shall mean the Investment Company Act of 1940, as amended
from time to time.
(kkk) "1940 ACT CURE DATE," with respect to the failure by the Fund to
maintain the 1940 Act MuniPreferred Asset Coverage (as required by Section 6 of
Part I of this Statement) as of the last Business Day of each month, shall mean
the last Business Day of the following month.
(lll) "1940 ACT MUNIPREFERRED ASSET COVERAGE" shall mean asset coverage, as
defined in Section 18(h) of the 1940 Act, of at least 200% with respect to all
outstanding senior securities of the Fund which are stock, including all
outstanding shares of MuniPreferred (or such other asset coverage as may in the
future be specified in or under the 1940 Act as the minimum asset coverage for
senior securities which are stock of a closed-end investment company as a
condition of declaring dividends on its common stock).
(mmm) "NOTICE OF REDEMPTION" shall mean any notice with respect to the
redemption of shares of MuniPreferred pursuant to paragraph (c) of Section 11 of
Part I of this Statement.
(nnn) "NOTICE OF SPECIAL RATE PERIOD" shall mean any notice with respect to
a Special Rate Period of shares of MuniPreferred pursuant to subparagraph (d)(i)
of Section 4 of Part I of this Statement.
(ooo) "ORDER" and "ORDERS" shall have the respective meanings specified in
paragraph (a) of Section I of Part 11 of this Statement.
(ppp) "ORIGINAL ISSUE INSURANCE," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.
(qqq) "OTHER ISSUES," if defined in Section 4 of Appendix A hereto, shall
have the meaning specified in that section.
(rrr) "OUTSTANDING" shall mean, as of any Auction Date with respect to
shares of a series of MuniPreferred, the number of shares of such series
theretofore issued by the Fund except, without duplication, (i) any shares of
such series theretofore cancelled or delivered to the Auction Agent for
cancellation or redeemed by the Fund, (ii) any shares of such series as to which
the Fund or any Affiliate thereof shall be an Existing Holder and (iii) any
shares of such
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series represented by any certificate in lieu of which a new certificate has
been executed and delivered by the Fund.
(sss) "PERMANENT INSURANCE," if defined in Section 4 of APPENDIX A hereto,
shall have the meaning specified in that section.
(ttt) "PERSON" shall mean and include an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
(uuu) "PORTFOLIO INSURANCE," if defined in Section 4 of APPENDIX A hereto,
shall have the meaning specified in that section.
(vvv) "POTENTIAL BENEFICIAL OWNER," with respect to shares of a series of
MuniPreferred, shall mean a customer of a Broker-Dealer that is not a Beneficial
Owner of shares of such series but that wishes to purchase shares of such
series, or that is a Beneficial Owner of shares of such series that wishes to
purchase additional shares of such series.
(www) "POTENTIAL HOLDER," with respect to shares of a series of
MuniPreferred, shall mean a Broker-Dealer (or any such other person as may be
permitted by the Fund) that is not an Existing Holder of shares of such series
or that is an Existing Holder of shares of such series that wishes to become the
Existing Holder of additional shares of such series.
(xxx) "PREFERRED STOCK" shall mean the preferred stock of the Fund, and
includes the shares of MuniPreferred.
(yyy) "QUARTERLY VALUATION DATE" shall mean the last Business Day of each
February, May, August and November of each year, commencing on the date set
forth in Section 6 of APPENDIX A hereto.
(zzz) "RATE MULTIPLE" shall have the meaning specified in Section 4 of
APPENDIX A hereto.
(aaaa) "RATE PERIOD," with respect to shares of a series of MuniPreferred,
shall mean the Initial Rate Period of shares of such series and any Subsequent
Rate Period, including any Special Rate Period, of shares of such series.
(bbbb) "RATE PERIOD DAYS," for any Rate Period or Dividend Period, means
the number of days that would constitute such Rate Period or Dividend Period but
for the application of paragraph (d) of Section 2 of Part I of this Statement or
paragraph (b) of Section 4 of Part I of this Statement.
(cccc) "RECEIVABLES FOR MUNICIPAL OBLIGATIONS SOLD" shall mean (A) for
purposes of calculation of Moody's Eligible Assets as of any Valuation Date, no
more than the aggregate of the following: (i) the book value of receivables for
Municipal Obligations sold as of or prior to such Valuation Date if such
receivables are due within five business days of such Valuation Date, and if
the trades which generated such receivables are (x) settled through clearing
house firms with respect to which the Fund has received prior written
authorization
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from Moody's or (y) with counterparties having a Moody's long-term debt rating
of at least Baa3; and (ii) the Moody's Discounted Value of Municipal Obligations
sold as of or prior to such Valuation Date which generated receivables, if such
receivables are due within five business days of such Valuation Date but do not
comply with either of the conditions specified in (i) above, and (B) for
purposes of calculation of S&P Eligible Assets as of any Valuation Date, the
book value of receivables for Municipal Obligations sold as of or prior to such
Valuation Date if such receivables are due within five business days of such
Valuation Date.
(dddd) "REDEMPTION PRICE" shall mean the applicable redemption price
specified in paragraph (a) or (b) of Section 11 of Part I of this Statement.
(eeee) "REFERENCE RATE" shall mean (i) the higher of the Taxable Equivalent
of the Short-Term Municipal Bond Rate and the "AA" Composite Commercial Paper
Rate in the case of Minimum Rate Periods and Special Rate Periods of 28 Rate
Period Days or fewer; (ii) the "AA" Composite Commercial Paper Rate in the case
of Special Rate Periods of more than 28 Rate Period Days but fewer than 183 Rate
Period Days; and (iii) the Treasury Bill Rate in the case of Special Rate
Periods of more than 182 Rate Period Days but fewer than 365 Rate Period Days.
(ffff) "REGISTRATION STATEMENT" has the meaning specified in the definition
of "Municipal Obligations."
(gggg) "S&P" shall mean Standard & Poor's Corporation, a New York
corporation, and its successors.
(hhhh) "S&P DISCOUNT FACTOR" shall have the meaning specified in Section 4
of APPENDIX A hereto.
(iiii) "S&P ELIGIBLE ASSET" shall have the meaning specified in Section 4
of APPENDIX A hereto.
(jjjj) "S&P EXPOSURE PERIOD" shall mean the maximum period of time
following a Valuation Date that the Fund has under this Statement to cure any
failure to maintain, as of such Valuation Date, the Discounted Value for its
portfolio at least equal to the MuniPreferred Basic Maintenance Amount (as
described in paragraph (a) of Section 7 of Part E of this Statement).
(kkkk) "S&P VOLATILITY FACTOR" shall mean, as of any Valuation Date, a
multiplicative factor equal to (i) 305% in the case of any Minimum Rate Period
or any Special Rate Period of 28 Rate Period Days or fewer; (ii) 268% in the
case of any Special Rate Period of more than 28 Rate Period Days but fewer than
183 Rate Period Days; and (iii) 204% in the case of any Special Rate Period of
more than 182 Rate Period Days.
(llll) "SECONDARY MARKET INSURANCE," if defined in Section 4 of APPENDIX A
hereto, shall have the meaning specified in that section.
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(mmmm) "SECURITIES DEPOSITORY" shall mean The Depository Trust Company and
its successors and assigns or any other securities depository selected by the
Fund which agrees to follow the procedures required to be followed by such
securities depository in connection with shares of MuniPreferred.
(nnnn) "SELL ORDER" AND "SELL ORDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(oooo) "SPECIAL RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall have the meaning specified in paragraph (a) of Section 4 of
Part I of this Statement.
(pppp) "SPECIAL REDEMPTION PROVISIONS" shall have the meaning specified in
subparagraph (a)(i) of Section 11 of Part I of this Statement.
(qqqq) "SUBMISSION DEADLINE" shall mean 1:30 P.M., New York City time, on
any Auction Date or such other time on any Auction Date by which Broker-Dealers
are required to submit Orders to the Auction Agent as specified by the Auction
Agent from time to time.
(rrrr) "SUBMITTED BID" AND "SUBMITTED BIDS" shall have the respective
meanings specified in paragraph (a) of Section 3 of Part 11 of this Statement.
(ssss) "SUBMITTED HOLD ORDER" AND "SUBMITTED HOLD ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part 11 of this
Statement.
(tttt) "SUBMITTED ORDER" AND "SUBMITTED ORDERS" shall have the respective
meanings specified in paragraph (a) of Section 3 of Part 11 of this Statement.
(uuuu) "SUBMITTED SELL ORDER" AND "SUBMITTED SELL ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part 11 of this
Statement.
(vvvv) "SUBSEQUENT RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall mean the period from and including the first day following
the Initial Rate Period of shares of such series to but excluding the next
Dividend Payment Date for shares of such series and any period thereafter from
and including one Dividend Payment Date for shares of such series to but
excluding the next succeeding Dividend Payment Date for shares, of such series;
PROVIDED, HOWEVER, that if any Subsequent Rate Period is also a Special Rate
Period, such term shall mean the period commencing on the first day of such
Special Rate Period and ending on the last day of the last Dividend Period
thereof.
(wwww) "SUBSTITUTE COMMERCIAL PAPER DEALER" shall mean The First Boston
Company or Morgan Stanley & Co. Incorporated or their respective
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affiliates or successors, if such entity is a commercial paper dealer; PROVIDED,
HOWEVER, that none of such entities shall be a Commercial Paper Dealer.
(xxxx) "SUBSTITUTE U.S. GOVERNMENT SECURITIES DEALER" shall mean The First
Boston Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated or their
respective affiliates or successors, if such entity is a U.S. Government
securities dealer; PROVIDED, HOWEVER, that none of such entities shall be a U.S.
Government Securities Dealer.
(yyyy) "SUFFICIENT CLEARING BIDS" shall have the meaning specified in
paragraph (a) of Section 3 of Part 11 of this Statement.
(zzzz) "TAXABLE ALLOCATION" shall have the meaning specified in Section 3
of Part I of this Statement.
(aaaaa) "TAXABLE INCOME" shall have the meaning specified in Section 12 OF
APPENDIX A hereto.
(bbbbb) "TAXABLE EQUIVALENT OF THE SHORT-TERM MUNICIPAL BOND RATE," on any
date for any Minimum Rate Period or Special Rate Period of 28 Rate Period Days
or fewer, shall mean 90% of the quotient of (A) the per annum rate expressed on
an interest equivalent basis equal to the Kenny S&P 30 day High Grade Index or
any successor index (the "Kenny Index") (PROVIDED, HOWEVER, that any such
successor index must be approved by Moody's (if Moody's is then rating the
shares of MuniPreferred) and S&P (if S&P is then rating the shares of
MuniPreferred)), made available for the Business Day immediately preceding such
date but in any event not later than 8:30 A.M,, New York City time, on such date
by Kenny S&P Evaluation Services or any successor thereto, based upon 30-day
yield evaluations at par of short-term bonds the interest on which is excludable
for regular Federal income, tax purposes under the Code of "high grade"
component issuers selected by Kenny S&P Evaluation Services or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds, but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57(a)(5) of the Code, or successor provisions, for purposes of the
"alternative minimum tax," divided by (B) 1.00 minus the maximum marginal
regular Federal individual income tax rate applicable to ordinary income or the
maximum marginal regular Federal corporate income tax rate applicable to
ordinary income (in each case expressed as a decimal), whichever is greater:
PROVIDED, HOWEVER, that if the Kenny Index is not made so available by 8:30
A.M., New York City time, on such date by Kenny S&P Evaluation Services or any
successor, the Taxable Equivalent of the Short-Term. Municipal Bond Rate shall
mean the quotient of (A) the per annum rate expressed on an interest equivalent
basis equal to the most recent Kenny Index so made available for any preceding
Business Day, divided by (B) 1.00 minus the maximum marginal regular Federal
individual
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income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income (in each case
expressed as a decimal), whichever is greater.
(ccccc) "TREASURY BILL" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of 364 days or less.
(ddddd) "TREASURY BILL RATE," on any date for any Rate Period, shall mean
(i) the bond equivalent yield, calculated in accordance with prevailing industry
convention, of the rate on the most recently auctioned Treasury Bill with a
remaining maturity closest to the length of such Rate Period, as quoted in The
Wall Street Journal on such date for the Business Day next preceding such date;
or (ii) in the event that any such rate is not published in The Wall Street
Journal, then the bond equivalent yield, calculated in accordance with
prevailing industry convention, as calculated by reference to the arithmetic
average of the bid price quotations of the most recently auctioned Treasury Bill
with a remaining maturity closest to the length of such Rate Period, as
determined by bid price quotations as of the close of business on the Business
Day immediately preceding such date obtained from the U.S. Government Securities
Dealers to the Auction Agent.
(eeeee) "TREASURY NOTE" shall mean a direct obligation of the U,S.
Government having a maturity at the time of issuance of five years or less but
more than 364 days.
(fffff) "TREASURY NOTE RATE," on any date for any Rate Period, shall mean
(i) the yield on the most recently auctioned Treasury Note with a remaining
maturity closest to the length of such Rate Period, as quoted in The Wall Street
Journal on such date for the Business Day next preceding such date; or (ii) in
the event that any such rate is not published in The Wall Street Journal, then
the yield as calculated by reference to the arithmetic average of the bid price
quotations of the most recently auctioned Treasury Note with a remaining
maturity closest to the length of such Rate Period, as determined by bid price
quotations as of the close of business on the Business Day immediately preceding
such date obtained from the U.S. Government Securities Dealers to the Auction
Agent. If any U.S. Government Securities Dealer does not quote a rate required
to determine the Treasury Bill Rate or the Treasury Note Rate, the Treasury Bill
Rate or the Treasury Note Rate shall be determined on the basis of the quotation
or quotations furnished by the remaining U.S. Government Securities Dealer or
U.S. Government Securities Dealers and any Substitute U.S. Government Securities
Dealers selected by the Fund to provide such rate or rates not being supplied by
any U.S. Government Securities Dealer or U.S. Government Securities Dealers, as
the case may be, or, if the Fund does not select any such Substitute U.S.
Government Securities Dealer or Substitute U.S. Government Securities Dealers,
by the remaining U.S. Government Securities Dealer or U.S. Government Securities
Dealers.
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(ggggg) "U.S. GOVERNMENT SECURITIES DEALER" shall mean Lehman Government
Securities Incorporated, Goldman, Sachs & Co., Salomon Brothers Inc and Morgan
Guaranty Trust Company of New York or their respective affiliates or successors,
if such entity is a U.S. Government securities dealer.
(hhhhh) "VALUATION DATE" shall mean, for purposes of determining whether
the Fund is maintaining the MuniPreferred Basic Maintenance Amount, each
Business Day,
(iiiii) "VOLATILITY FACTOR" shall mean, as of any Valuation Date, the
greater of the Moody's Volatility Factor and the S&P Volatility Factor.
(jjjjj) "VOTING PERIOD" shall have the meaning specified in paragraph (b)
of Section 5 of Part I of this Statement.
(kkkkk) "WINNING BID RATE" shall have the meaning specified in paragraph
(a) of Section 3 of Part II of this Statement.
Any additional definitions specifically set forth in Section 8 OF APPENDIX
A hereto shall be incorporated herein and made part hereof by reference thereto.
PART I
1. NUMBER OF AUTHORIZED SHARES.
The number of authorized shares constituting a series of MuniPreferred
shall be as set forth with respect to such series in Section 2 of APPENDIX A
hereto.
2. DIVIDENDS.
(a) RANKING. The shares of a series of MuniPreferred shall rank on a parity
with each other, with shares of any other series of MuniPreferred and with
shares of any other series of Preferred Stock as to the payment of dividends by
the Fund.
(b) CUMULATIVE CASH DIVIDENDS. The Holders of shares of MuniPreferred of
any series shall be entitled to receive, when, as and if declared by the Board
of Directors, out of funds legally available therefor, cumulative cash dividends
at the Applicable Rate for shares of such series, determined as set forth in
paragraph (e) of this Section 2, and no more (except to the extent set forth in
Section 3 of this Part I), payable on the Dividend Payment Dates with respect to
shares of such series determined pursuant to paragraph (d) of this Section 2.
Holders of shares of MuniPreferred shall not be entitled to any dividend,
whether payable in cash, property or stock, in excess of full cumulative
dividends, as herein provided, on shares of MuniPreferred. No interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on shares of MuniPreferred which may be in arrears, and,
except to the extent set forth in subparagraph (e)(i) of this Section 2, no
additional sum of money shall be payable in respect of any such arrearage.
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(c) DIVIDENDS CUMULATIVE FROM DATE OF ORIGINAL ISSUE. Dividends on shares
of MuniPreferred of any series shall accumulate at the Applicable Rate for
shares of such series from the Date of Original Issue thereof.
(d) DIVIDEND PAYMENT DATES AND ADJUSTMENT THEREOF. The Dividend Payment
Dates with respect to shares of a series of MuniPreferred shall be as set forth
with respect to shares of such series in Section 9 of APPENDIX A hereto;
PROVIDED, HOWEVER, that:
(i) (A) in the case of a series of MuniPreferred designated as "Series F
MuniPreferred" or "Series M MuniPreferred" in Section 1 of APPENDIX A
hereto, if the Monday or Tuesday, as the case may be, on which dividends
would otherwise be payable on shares of such series is not a Business Day,
then such dividends shall be payable on such shares on the first Business
Day that falls after such Monday or Tuesday, as the case may be, and (B) in
the case of a series of MuniPreferred designated as "Series T
MuniPreferred," "Series W MuniPreferred" or "Series TH MuniPreferred" in
Section 1 of APPENDIX A hereto, if the Wednesday, Thursday or Friday, as
the case may be, on which dividends would otherwise be payable on shares of
such series is not a Business Day, then such dividends shall be payable on
such shares on the first Business Day that falls prior to such Wednesday,
Thursday or Friday, as the case may be; and
(ii) notwithstanding Section 9 of APPENDIX A hereto, the Fund in its
discretion may establish the Dividend Payment Dates in respect of any
Special Rate Period of shares of a series of MuniPreferred consisting of
more than 28 Rate Period Days; PROVIDED, HOWEVER, that such dates shall be
set forth in the Notice of Special Rate Period relating to such Special
Rate Period, as delivered to the Auction Agent, which Notice of Special
Rate Period shall be filed with the Secretary of the Fund; and further
provided that (1) any such Dividend Payment Date shall be a Business Day
and (2) the last Dividend Payment Date in respect of such Special Rate
Period shall be the Business Day immediately following the last day
thereof, as such last day is determined in accordance with paragraph (b) of
Section 4 of this Part 1.
(e) DIVIDEND RATES AND CALCULATION OF DIVIDENDS. (i) DIVIDEND RATES. The
dividend rate on shares of MuniPreferred of any series during the period from
and after the Date of Original Issue of shares of such series to and including
the last day of the Initial Rate Period of shares of such series shall be equal
to the rate per annum set forth with respect to shares of such series under
"Designation" in Section I of APPENDIX A hereto. For each Subsequent Rate Period
of shares of such series thereafter, the dividend rate on shares of such series
shall be equal to the rate per annum that results from an Auction for shares of
such series on the Auction Date next preceding such Subsequent Rate Period;
PROVIDED, HOWEVER, that if:
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(A) an Auction for any such Subsequent Rate Period is not hold for any
reason other than as described below, the dividend rate on shares of such series
for such Subsequent Rate Period will be the Maximum Rate for shares of such
series on the Auction Date therefor;
(B) any Failure to Deposit shall have occurred with respect to shares of
such series during any Rate Period thereof (other than any Special Rate Period
consisting of more than 364 Rate Period Days or any Rate Period succeeding any
Special Rate Period consisting of more than 364 Rate Period Days during which a
Failure to Deposit occurred that has not been cured), but, prior to 12:00 Noon,
New York City time, on the third Business Day next succeeding the date on which
such Failure to Deposit occurred, such Failure to Deposit shall have been cured
in accordance with paragraph (f) of this Section 2 and the Fund shall have paid
to the Auction Agent a late charge ("Late Charge") equal to the sum of (1) if
such Failure to Deposit consisted of the failure timely to pay to the Auction
Agent the full amount of dividends with respect to any Dividend Period of the
shares of such series, an amount computed by multiplying (x) 200% of the
Reference Rate for the Rate Period during which such Failure to Deposit occurs
on the Dividend Payment Date for such Dividend Period by (y) a fraction, the
numerator of which shall be the number of days for which such Failure to Deposit
has not been cured in accordance with paragraph (Q of this Section 2 (including
the day such Failure to Deposit occurs and excluding the day such Failure to
Deposit is cured) and the denominator of which shall be 360, and applying the
rate obtained against the aggregate Liquidation Preference of the outstanding
shares of such series and (2) if such Failure to Deposit consisted of the
failure timely to pay to the Auction Agent the Redemption Price of the shares,
if any, of such series for which Notice of Redemption has been mailed by the
Fund pursuant to paragraph (c) of Section 11 of this Part 1, an amount computed
by multiplying (x) 200% of the Reference Rate for the Rate Period during which
such Failure to Deposit occurs on the redemption date by (y) a fraction, the
numerator of which shall be the number of days for which such Failure to Deposit
is not cured in accordance with paragraph (f) of this Section 2 (including the
day such Failure to Deposit occurs and excluding the day such Failure to Deposit
is cured) and the denominator of which shall be 360, and applying the rate
obtained against the aggregate Liquidation Preference of the outstanding shares
of such series to be redeemed, no Auction will be held in respect of shares of
such series for the Subsequent Rate Period thereof and the dividend rate for
shares of such series for such Subsequent Rate Period will be the Maximum Rate
for shares of such series on the Auction Date for such Subsequent Rate Period;
(C) any Failure to Deposit shall have occurred with respect to shares of
such series during any Rate Period thereof (other than any Special Rate
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Period consisting of more than 364 Rate Period Days or any Rate Period
succeeding any Special Rate Period consisting of more than 364 Rate Period Days
during which a Failure to Deposit occurred that has not been cured), and, prior
to 12:00 Noon, New York City time, on the third Business Day next succeeding the
date on which such Failure to Deposit occurred, such Failure to Deposit shall
not have been cured in accordance with paragraph (f) of this Section 2 or the
Fund shall not have paid the applicable Late Charge to the Auction Agent, no
Auction will be held in respect of shares of such series for the first
Subsequent Rate Period thereof thereafter (or for any Rate Period thereof
thereafter to and including the Rate Period during which (1) such Failure to
Deposit is cured in accordance with paragraph (f) of this Section 2 and (2) the
Fund pays the applicable Late Charge to the Auction Agent (the condition set
forth in this clause (2) to apply only in the event Moody's is rating such
shares at the time the Fund cures such Failure to Deposit), in each case no
later than 12:00 Noon, New York City time, on the fourth Business Day prior to
the end of such Rate Period), and the dividend rate for shares of such series
for each such Subsequent Rate Period shall be a rate per annum equal to the
Maximum Rate for shares of such series on the Auction Date for such Subsequent
Rate Period (but with the prevailing rating for shares of such series, for
purposes of determining such Maximum Rate, being deemed to be "Below
'ba3'/BB-"); or
(D) any Failure to Deposit shall have occurred with respect to shares of
such series during a Special Rate Period thereof consisting of more than 364
Rate Period Days, or during any Rate Period thereof succeeding any Special Rate
Period consisting of more than 364 Rate Period Days during which a Failure to
Deposit occurred that has not been cured, and, prior to 12:00 Noon, New York
City time, on the fourth Business Day preceding the Auction Date for the Rate
Period subsequent to such Rate Period, such Failure to Deposit shall not have
been cured in accordance with paragraph (f) of this Section 2 or, in the event
Moody's is then rating such shares, the Fund shall not have paid the applicable
Late Charge to the Auction Agent (such Late Charge, for purposes of this
subparagraph (D), to be calculated by using, as the Reference Rate, the
Reference Rate applicable to a Rate Period (x) consisting of more than 182 Rate
Period Days but fewer than 365 Rate Period Days and (y) commencing on the date
on which the Rate Period during which Failure to Deposit occurs commenced), no
Auction will be held in respect of shares of such series for such Subsequent
Rate Period (or for any Rate Period thereof thereafter to and including the
Rate Period during which (1) such Failure to Deposit is cured in accordance with
paragraph (f) of this Section 2 and (2) the Fund pays the applicable Late Charge
to the Auction Agent (the condition set forth in this clause (2) to apply only
in the event Moody's is rating such shares at the time the Fund cures such
Failure to Deposit), in each case no later than 12:00 Noon, New York City
time, on the fourth
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Business Day prior to the end of such Rate Period), and the dividend rate
for shares of such series for each such Subsequent Rate Period shall be a
rate per annum equal to the Maximum Rate for shares of such series on the
Auction Date for such Subsequent Rate Period (but with the prevailing
rating for shares of such series, for purposes of determining such Maximum
Rate, being deemed to be "Below 'ba3'/BB-") (the rate per, annum at which
dividends are payable on shares of a series of MuniPreferred for any Rate
Period thereof being herein referred to as the "Applicable Rate" for shares
of such series).
(ii) CALCULATION OF DIVIDENDS. The amount of dividends per share payable on
shares of a series of MuniPreferred on any date on which dividends shall be
payable on shares of such series shall be computed by multiplying the Applicable
Rate for shares of such series in effect for such Dividend Period or Dividend
Periods or part thereof for which dividends have not been paid by a fraction,
the numerator of which shall be the number of days in such Dividend Period or
Dividend Periods or part thereof and the denominator of which shall be 365 if
such Dividend Period consists of 7 Rate Period Days and 360 for all other
Dividend Periods, and applying the rate obtained against $25,000.
(f) CURING A FAILURE TO DEPOSIT. A Failure to Deposit with respect to
shares of a series of MuniPreferred shall have been cured (if such Failure to
Deposit is not solely due to the willful failure of the Fund to make the
required payment to the Auction Agent) with respect to any Rate Period of shares
of such series if, within the respective time periods described in subparagraph
(e)(i) of this Section 2, the Fund shall have paid to the Auction Agent (A) all
accumulated and unpaid dividends on shares of such series and (B) without
duplication, the Redemption Price for shares, if any, of such series for which
Notice of Redemption has been mailed by the Fund pursuant to paragraph (c) of
Section II of Part I of this Statement; provided however, that the foregoing
clause (B) shall not apply to the Fund's failure to pay the Redemption Price in
respect of shares of MuniPreferred when the related Redemption Notice provides
that redemption of such shares is subject to one or more conditions precedent
and any such condition precedent shall not have been satisfied at the time or
times and in the manner specified in such Notice of Redemption.
(g) DIVIDEND PAYMENTS BY FUND TO AUCTION AGENT. The Fund shall pay to the
Auction Agent, not later than 12:00 Noon, New York City time, on the Business
Day next preceding each Dividend Payment Date for shares of a series of
MuniPreferred, an aggregate amount of funds available on the next Business Day
in The City of New York, New York, equal to the dividends to be paid to all
Holders of shares of such series on such Dividend Payment Date.
(h) AUCTION AGENT AS TRUSTEE OF DIVIDEND PAYMENTS BY FUND. All moneys paid
to the Auction Agent for the payment of dividends (or for the
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payment of any Late Charge) shall be held in trust for the payment of such
dividends (and any such Late Charge) by the Auction Agent for the benefit of the
Holders specified in paragraph (i) of this Section 2. Any moneys paid to the
Auction Agent in accordance with the foregoing but not applied by the Auction
Agent to the payment of dividends (and any such Late Charge) will, to the extent
permitted by law, be repaid to the Fund at the end of 90 days from the date on
which such moneys were so to have been applied.
(i) DIVIDENDS PAID TO HOLDERS. Each dividend on shares of MuniPreferred
shall be paid on the Dividend Payment Date therefor to the Holders thereof as
their names appear on the stock books of the Fund on the Business Day next
preceding such Dividend Payment Date.
(j) DIVIDENDS CREDITED AGAINST EARLIEST ACCUMULATED BUT UNPAID DIVIDENDS.
Any dividend payment made on shares of MuniPreferred shall first be credited
against the earliest accumulated but unpaid dividends due with respect to such
shares. Dividends in arrears for any past Dividend Period may be declared and
paid at any time, without reference to any regular Dividend Payment Date, to the
Holders as their names appear on the stock books of the Fund on such date, not
exceeding 15 days preceding the payment date thereof, as may be fixed by the
Board of Directors.
(k) DIVIDENDS DESIGNATED AS EXEMPT-INTEREST DIVIDENDS. Dividends on shares
of MuniPreferred shall be designated as exempt-interest dividends up to the
amount of tax-exempt income of the Fund, to the extent permitted by, and for
purposes of, Section 852 of the Code.
3. GROSS-UP PAYMENTS.
Holders of shares of MuniPreferred shall be entitled to receive, when, as
and if declared by the Board of Directors, out of funds legally available
therefor, dividends in an amount equal to the aggregate Gross-up Payments as
follows:
(a) MINIMUM RATE PERIODS AND SPECIAL RATE PERIODS OF 28 RATE PERIOD
DAYS OR FEWER. If, in the case of any Minimum Rate Period or any Special
Rate Period of 28 Rate Period Days or fewer, the Fund allocates any net
capital gains or other income taxable for Federal income tax purposes to a
dividend paid on shares of MuniPreferred without having given advance
notice thereof to the Auction Agent as provided in Section 5 of Part II of
this Statement (such allocation being referred to herein as a "Taxable
Allocation") solely by reason of "the fact that such allocation is made
retroactively as a result of the redemption of all or a portion of the
outstanding shares of MuniPreferred or the liquidation of the Fund, the
Fund shall, prior to the end of the calendar year in which such dividend
was paid, provide notice thereof to the Auction Agent and direct the Fund's
dividend disbursing agent to send such notice with a Gross-up Payment to
each Holder of such shares that was entitled to such dividend
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payment during such calendar year at such Holder's address as the same
appears or last appeared on the stock books of the Fund.
(b) SPECIAL RATE PERIODS OF MORE THAN 28 RATE PERIOD DAYS. If, in the
case of any Special Rate Period of more than 28 Rate Period Days, the Fund
makes a Taxable Allocation to a dividend paid on shares of MuniPreferred,
the Fund shall, prior to the end of the calendar year in which such
dividend was paid, provide notice thereof to the Auction Agent and direct
the Fund's dividend disbursing agent to send such notice with a Gross-up
Payment to each Holder of shares that was entitled to such dividend payment
during such calendar year at such Holder's address as the same appears or
last appeared on the stock books of the Fund.
(c) NO GROSS-UP PAYMENTS IN THE EVENT OF A REALLOCATION. The Fund shall
no- be required to make Gross-up Payments with respect to any net capital
gains or other taxable income determined by the Internal Revenue Service to
be allocable in a manner different from that allocated by the Fund.
4. DESIGNATION OF SPECIAL RATE PERIODS.
(a) LENGTH OF AND PRECONDITIONS. FOR SPECIAL RATE PERIOD. The Fund, at its
option, may designate any succeeding Subsequent Rate Period of shares of a
series of MuniPreferred as a Special Rate Period consisting of a specified
number of Rate Period Days evenly divisible by seven and not more than 1,820,
subject to adjustment as provided in paragraph (b) of this Section 4. A
designation of a Special Rate Period shall be effective only if (A) notice
thereof shall have been given in accordance with paragraph (c) and subparagraph
(d)(i) of this Section 4, (B) an Auction for shares of such series shall have
been held on the Auction Date immediately preceding the first day of such
proposed Special Rate Period and Sufficient Clearing, Bids for shares of such
series shall have existed in such Auction, and (C) if any Notice of Redemption
shall have been mailed by the Fund pursuant to paragraph (c) of Section 11 of
this Part I with respect to any shares of such series, the Redemption Price with
respect to such shares shall have been deposited with the Auction Agent. In the
event the Fund wishes to designate any succeeding Subsequent Rate Period for
shares of a series of MuniPreferred as a Special Rate Period consisting of more
than 28 Rate Period Days, the Fund shall notify S&P (if S&P is then rating such
series) and Moody's (if Moody's is then rating such series) in advance of the
commencement of such Subsequent Rate Period that the Fund wishes to designate
such Subsequent Rate Period as a Special Rate Period and shall provide S&P (if
S&P is then rating such series) and Moody's (if Moody's is then rating such
series) with such documents as either may request.
(b) ADJUSTMENT OF LENGTH OF SPECIAL RATE PERIOD. In the event the Fund
wishes to designate a Subsequent Rate Period as a Special Rate Period, but the
day following what would otherwise be the last day of such Special
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Rate Period is not (a) a Tuesday that is a Business Day in the case of a series
of MuniPreferred designated as "Series M MuniPreferred" in Section I of APPENDIX
A hereto, (b) a Wednesday that is a Business Day in the case of a series of
MuniPreferred designated as "Series T MuniPreferred" in Section I of APPENDIX A
hereto, (c) a Thursday that is a Business Day in the case of a series of
MuniPreferred designated as "Series W MuniPreferred" in Section I OF APPENDIX A
hereto, (d) a Friday that is a Business Day in the case of a series of
MuniPreferred designated as "Series TH MuniPreferred" in Section I of APPENDIX A
hereto, (e) a Monday that is a Business Day in the case of a series of
MuniPreferred designated as "Series F MuniPreferred" in Section I of APPENDIX A
hereto, then the Fund shall designate such Subsequent Rate Period as a Special
Rate Period consisting of the period commencing on the first day following the
end of the immediately preceding Rate Period and ending (a) on the first Monday
that is followed by a Tuesday that is a Business Day preceding what would
otherwise be such last day, in the case of Series M MuniPreferred, (b) on the
first Tuesday that is followed by a Wednesday that is a Business Day preceding
what would otherwise be such last day, in the case of Series T MuniPreferred,
(c) on the first Wednesday that is followed by a Thursday that is a Business Day
preceding what would otherwise be such last day, in the case of Series W
MuniPreferred, (d) on the first Thursday that is followed by a Friday that is a
Business Day preceding what would otherwise be such last day, in the case of
Series TH MuniPreferred, and (e) on the first Sunday that is followed by a
Monday that is a Business Day preceding what would otherwise be such last day,
in the case of Series F MuniPreferred.
(C) NOTICE OF PROPOSED SPECIAL RATE PERIOD. If the Fund proposes to
designate any succeeding Subsequent Rate Period of shares of a series of
MuniPreferred as a Special Rate Period pursuant to paragraph (a) of this Section
4, not less than 20 (or such lesser number of days as may be agreed to from time
to time by the Auction Agent) nor more than 30 days prior to the date the Fund
proposes to designate as the first day of such Special Rate Period (which shall
be such day that would otherwise be the first day of a Minimum Rate Period),
notice shall be (i) published or caused to be published by the Fund in a
newspaper of general circulation to the financial community in The City of New
York, New York, which carries financial news, and (ii) mailed by the Fund by
first-class mail, postage prepaid, to the Holders of shares of such series. Each
such notice shall state (A) that the Fund may exercise its option to designate a
succeeding Subsequent Rate Period of shares of such series as a Special Rate
Period, specifying the first day thereof and (B) that the Fund will, by 11:00
A.M., New York City time, on the second Business Day next preceding such date
(or by such later time or date, or both, as may be agreed to by the Auction
Agent) notify the Auction Agent of either (x) its determination, subject to
certain conditions, to exercise such option, in which case the Fund shall
specify the Special Rate Period designated, or (y) its determination not to
exercise such option.
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(d) NOTICE OF SPECIAL RATE PERIOD. No later than 11:00 A.M., New York City
time, on the second Business Day next preceding the first day of any proposed
Special Rate Period of shares of a series of MuniPreferred as to which notice
has been given as set forth in paragraph (c) of this Section 4 (or such later
time or date, or both, as may be agreed to by the Auction Agent), the Fund shall
deliver to the Auction Agent either:
(i) a notice ("Notice of Special Rate Period") stating (A) that the
Fund has determined to designate the next succeeding Rate Period of shares
of such series as a Special Rate Period, specifying the same and the first
day thereof, (B) the Auction Date immediately prior to the first day of
such Special Rate Period, (C) that such Special Rate Period shall not
commence if (1) an Auction for shares of such series shall not be held on
such Auction Date for any reason or (2) an Auction for shares of such
series shall be held on such Auction Date but Sufficient Clearing Bids for
shares of such series shall not exist in such Auction, (D) the scheduled
Dividend Payment Dates for shares of such series during such Special Rate
Period and (E) the Special Redemption Provisions, if any, applicable to
shares of such series in respect of such Special Rate Period; such notice
to be accompanied by a MuniPreferred Basic Maintenance Report showing that,
as of the third Business Day next preceding such proposed Special Rate
Period, Moody's Eligible Assets (if Moody's is then rating such series) and
S&P Eligible Assets (if S&P is then rating such series) each have an
aggregate Discounted Value at least equal to the MuniPreferred Basic
Maintenance Amount as of such Business Day (assuming for purposes of the
foregoing calculation that (a) the Maximum Rate is the Maximum Rate on such
Business Day as if such Business Day were the Auction Date for the proposed
Special Rate Period, and (b) the Moody's Discount Factors applicable to
Moody's Eligible Assets are determined by reference to the first Exposure
Period longer than the Exposure Period then applicable to the Fund, as
described in the definition of Moody's Discount Factor herein); or
(ii) a notice stating that the Fund has determined not to exercise its
option to designate a Special Rate Period of shares of such series and that
the next succeeding Rate Period of shares of such series shall be a Minimum
Rate Period.
(e) FAILURE TO DELIVER NOTICE OF SPECIAL RATE PERIOD. If the Fund fails to
deliver either of the notices described in subparagraphs (d)(i) or (d)(ii) of
this Section 4 (and, in the case of the notice described in subparagraph (d)(i)
of this Section 4, a MuniPreferred Basic Maintenance Report to the effect set
forth in such subparagraph (if either Moody's or S&P is then rating the series
in question)) with respect to any designation of any proposed Special Rate
Period to the Auction Agent by 11:00 A.M., New York City time, oil the second
Business Day next preceding the first day of such proposed Special Rate Period
(or by such later time or date, or both, as may be agreed to by the
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Auction Agent), the Fund shall be deemed to have delivered a notice to the
Auction Agent with respect to such Special Rate Period to the effect set forth
in subparagraph (d)(ii) of this Section 4. In the event the Fund delivers to the
Auction Agent a notice described in subparagraph (d)(i) of this Section 4, it
shall file a copy of such notice with the Secretary of the Fund, and the
contents of such notice shall be binding on the Fund. In the event the Fund
delivers to the Auction Agent a notice described in subparagraph (d)(ii) of this
Section 4, the Fund will provide Moody's (if Moody's is then rating tile series
in question) and S&P (if S&P is then rating the series in question) a copy of
such notice.
5. VOTING RIGHTS.
(a) ONE VOTE PER SHARE OF MUNIPREFERRED Except as otherwise provided in the
Articles or as otherwise required by law, (;N each Holder of shares of
MuniPreferred shall be entitled to one vote for each share of MuniPreferred held
by such Holder on each matter submitted to a vote of shareholders of the Fund,
and (ii) the holders of outstanding shares of Preferred Stock, including each
share of MuniPreferred, and of shares of Common Stock shall vote together as a
single class; PROVIDED HOWEVER, that, at any meeting of the shareholders of the
Fund held for the election of directors, the holders of outstanding shares of
Preferred Stock, including MuniPreferred, represented in person or by proxy at
said meeting, shall be entitled, as a class, to the exclusion of the holders of
all other securities and classes of capital stock of the Fund, to elect two
directors of the Fund, each share of Preferred Stock, including each share of
MuniPreferred, entitling the holder thereof to one vote. Subject to paragraph
(b) of this Section 5, the holders of outstanding shares of Common Stock and
Preferred Stock, including MuniPreferred, voting together as a single class,
shall elect the balance of the directors.
(b) VOTING FOR ADDITIONAL DIRECTORS. (i) VOTING PERIOD. During any period
in which any one or more of the conditions described in subparagraphs (A) or (B)
of this subparagraph (b)(i) shall exist (such period being referred to herein as
a "Voting Period"), the number of directors constituting the Board of Directors
shall be automatically increased by the smallest number that, when added to the
two directors elected exclusively by the holders of shares of Preferred Stock,
including shares of MuniPreferred, would constitute a majority of the Board of
Directors as so increased by such smallest number; and the holders of shares of
Preferred Stock, including MuniPreferred, shall be entitled, voting as a class
on a one-vote-per-share basis (to the exclusion of the holders of all other
securities and classes of capital stock of the Fund), to elect such smallest
number of additional directors, together with the two directors that such
holders are in any event entitled to elect. A Voting Period shall commence:
(A) if at the close of business on any dividend payment date
accumulated dividends (whether or not earned or declared) on any
outstanding
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share of Preferred Stock, including MuniPreferred, equal to at least two
full years' dividends shall be due and unpaid and sufficient cash or
specified securities shall not have been deposited with the Auction Agent
for the payment of such accumulated dividends; or
(B) if at any time holders of shares of Preferred Stock are entitled
under the 1940 Act to elect a majority of the directors of the Fund.
Upon the termination of a Voting Period, the voting rights described irk this
subparagraph (b)(i) shall cease, subject always, however, to the revesting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this subparagraph (b)(i).
(ii) NOTICE OF SPECIAL MEETING. As soon as practicable after the accrual of
any right of the holders of shares of Preferred Stock to elect additional
directors as described in subparagraph (b)(i) of this Section 5, the Fund shall
notify the Auction Agent and the Auction Agent shall call a special meeting of
such holders, by mailing a notice of such special meeting to such holders, such
meeting to be held not less than 10 nor more than 20 days after the date of
mailing of such notice. If the Fund fails to send such notice to the Auction
Agent or if the Auction Agent does not call such a special meeting, it may be
called by any such holder on like notice. The record date for determining the
holders entitled to notice of and to vote at such special meeting shall be the
close of business on the fifth Business Day preceding the day on which such
notice is mailed. At any such special meeting and at each meeting of holders of
shares of Preferred Stock held during a Voting Period at which directors are to
be elected, such holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of capital stock of the Fund), shall
be entitled to elect the number of directors prescribed in subparagraph (b)(i)
of this Section 5 on a one-vote-per-share basis.
(iii) TERMS OF OFFICE OF EXISTING DIRECTORS. The terms of office of all
persons who are directors of the Fund at the time of a special meeting of
Holders and holders of other Preferred Stock to elect directors shall continue,
notwithstanding the election at such meeting by the Holders and such other
holders of the number of directors that they are entitled to elect, and the
persons so elected by the Holders and such other holders, together with the two
incumbent directors elected by the Holders and such other holders of Preferred
Stock and the remaining incumbent directors elected by the holders of the Common
Stock and Preferred Stock, shall constitute the duty elected directors of the
Fund.
(iv) TERMS OF OFFICE OF CERTAIN DIRECTORS TO TERMINATE UPON TERMINATION OF
VOTING PERIOD. Simultaneously with the termination of a Voting Period, the terms
of office of the additional directors elected by the Holders and holders of
other Preferred Stock pursuant to subparagraph (b)(i) of this Section 5 shall
terminate, the remaining directors shall constitute the directors of the Fund
and the voting rights of the Holders and such other holders to elect
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additional directors pursuant to subparagraph (b)(i) of this Section 5 shall
cease, subject to the provisions of the last sentence of subparagraph (b)(i) of
this Section 5.
(C) HOLDERS OF MUNIPREFERRED TO VOTE ON CERTAIN OTHER MATTERS. (i)
INCREASES IN CAPITALIZATION. So long as any shares of MuniPreferred are
outstanding, the Fund shall not, without the affirmative vote or consent of the
Holders of at least a majority of the shares of MuniPreferred outstanding at the
time, in person or by proxy, either in writing or at a meeting (voting
separately as one class): (a) authorize, create or issue any class or series of
stock ranking prior to or on a parity with shares of MuniPreferred with respect
to the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Fund, or increase the authorized
amount of any series of MuniPreferred (except that, notwithstanding the
foregoing, but subject to the provisions of paragraph (c) of Section 10 of this
Part 1, the Board of Directors, without the vote or consent of the Holders of
MuniPreferred, may from time to time authorize and create, and the Fund may from
time to time issue, classes or series of Preferred Stock ranking on a parity
with shares of MuniPreferred with respect to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Fund; PROVIDED, HOWEVER, that if Moody's or S&P is not then
rating the shares of MuniPreferred, the aggregate liquidation preference of all
Preferred Stock of the Fund outstanding after any such issuance, exclusive of
accumulated and unpaid dividends, may not exceed the amount set forth in Section
10 of APPENDIX A hereto) or (b) amend, alter or repeal the provisions of the
Articles, including this Statement, whether by merger, consolidation or
otherwise, so as to affect any preference, right or power of such shares of
MuniPreferred or the Holders thereof; PROVIDED HOWEVER, that (i) none of the
actions permitted by the exception to (a) above will be deemed to affect such
preferences, rights or powers and (ii) the authorization, creation and issuance
of classes or series of stock ranking junior to shares of MuniPreferred with
respect to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund, will be
deemed to affect such preferences, rights or powers only if Moody's or S&P is
then rating shares of MuniPreferred and such issuance would, at the time
thereof, cause the Fund not to satisfy the 1940 Act MuniPreferred Asset Coverage
or the MuniPreferred Basic Maintenance Amount. So long as any shares of
MuniPreferred are outstanding, the Fund shall not, without the affirmative vote
or consent of the Holders of at least 66 2/3% of the shares of MuniPreferred
outstanding at the time, in person or by proxy, either in writing or at a
meeting (voting separately as one class), file a voluntary application for
relief under Federal bankruptcy law or any similar application under state law
for so long as the Fund is solvent and does not foresee becoming insolvent. To
the extent that shares of MuniPreferred constitute a series of stock under
Minnesota law and to the extent the Holders of such shares are empowered under
the Minnesota Business Corporation Act to vote as a class on the actions set
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forth above in this subparagraph (c)(i), the Fund shall not approve any such
action without the affirmative vote or consent of the Holders of at least a
majority of the shares of MuniPreferred of such series outstanding at the time,
in person or by proxy, either in writing or at a meeting (voting separately as a
class).
(ii) 1940 ACT MATTERS. Unless a higher percentage is provided for in the
Articles, the affirmative vote of the holders of a majority of the outstanding
shares of Preferred Stock, including MuniPreferred, voting as a separate class,
shall be required to approve any plan of reorganization (as such term is used in
the 1940 Act) adversely affecting such shares or any action requiring a vote of
security holders of the Fund under Section 13(a) of the 1940 Act. In the event a
vote of Holders of MuniPreferred is required pursuant to the provisions of
Section 13(a) of the 1940 Act, the Fund shall, not later than ten Business Days
prior to the date on which such vote is to be taken, notify Moody's (if Moody's
is then rating the shares of MuniPreferred) and S&P (if S&P is then rating the
shares of MuniPreferred) that such vote is to be taken and the nature of the
action with respect to which such vote is to be taken. The Fund shall, not later
than ten Business Days after the date on which such vote is taken, notify
Moody's (if Moody's is then rating the shares of MuniPreferred) of the results
of such vote.
(d) BOARD MAY TAKE CERTAIN ACTIONS WITHOUT SHAREHOLDER APPROVAL
The Board of Directors, without the vote or consent of the shareholders of
the Fund, may from time to time amend, alter or repeal any or all of the
definitions of the terms listed below, or any provision of this Statement viewed
by Moody's or S&P as a predicate for any such definition, and any such
amendment, alteration or repeal will not be deemed to affect the preferences,
rights or powers of shares of MuniPreferred or the Holders thereof, PROVIDED,
HOWEVER, that the Board of Directors receives written confirmation from Moody's
(such confirmation being required to be obtained only in the event Moody's is
rating the shares of MuniPreferred and in no event being required to be obtained
in the case of the definitions of (x) Deposit Securities, Discounted Value,
Receivables for Municipal Obligations Sold, Issue Type Category and Other Issues
as such terms apply to S&P Eligible Assets, (y) Dividend Coverage Amount,
Dividend Coverage Assets, Minimum Liquidity Level, S&P Discount Factor, S&P
Eligible Asset, S&P Exposure Period and S&P Volatility Factor and (z) Valuation
Date as such term applies to the definitions of Dividend Coverage Amount,
Dividend Coverage Assets and Minimum Liquidity Level) and S&P (such
confirmation being required to be obtained only in the event S&P is rating the
shares of MuniPreferred and in no event being required to be obtained in the
case of the definitions of (x) Discounted Value, Receivables for Municipal
Obligations Sold, issue Type Category and Other Issues as such terms apply to
Moody's Eligible Assets, and (y) Moody's Discount Factor, Moody's Eligible
Asset, Moody's Exposure Period and Moody's Volatility Factor) that any such
amendment, alteration or
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repeat would not impair the ratings then assigned by Moody's or S&P, as the case
may be, to shares of MuniPreferred:
Deposit Securities Moody's Eligible Asset
Discounted Value Moody's Exposure Period
Moody's Volatility Factor
1940 Act Cure Date
Issue Type Category 1940 Act MuniPreferred Asset
Market Value Coverage
Maximum Potential Gross-up Other Issues
Payment Liability Quarterly Valuation Date
Receivables for Municipal
MuniPreferred Basic Maintenance Obligations Sold
Amount S&P Discount Factor
MuniPreferred Basic Maintenance S&P Eligible Asset
Cure Date S&P Exposure Period
MuniPreferred Basic Maintenance S&P Volatility Factor
Report Valuation Date
Moody's Discount Factor Volatility Factor
(e) VOTING RIGHTS SET FORTH HEREIN ARE SOLE VOTING RIGHTS. Unless
otherwise required by law, the Holders of shares of MuniPreferred shall not have
any relative rights or preferences or other special rights other than those
specifically set forth herein.
(f) NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING. The Holders of shares of
MuniPreferred shall have no preemptive rights or rights to cumulative voting.
(g) VOTING FOR DIRECTORS SOLE REMEDY FOR FUND'S FAILURE TO PAY DIVIDENDS.
In the event that the Fund fails to pay any dividends on the shares of
MuniPreferred, the exclusive remedy of the Holders shall be the right to vote
for directors pursuant to the provisions of this Section 5.
(H) HOLDERS ENTITLED TO VOTE. For purposes of determining any rights of the
Holders to vote on any matter, whether such right is created by this Statement,
by the other provisions of the Articles, by statute or otherwise, no Holder
shall be entitled to vote any share of MuniPreferred and no share of
MuniPreferred shall be deemed to be "outstanding" for the purpose of voting or
determining the number of shares required to constitute a quorum if, prior to or
concurrently with the time of determination of shares entitled to vote or shares
deemed outstanding for quorum purposes, as the case may be, the requisite Notice
of Redemption with respect to such shares shall have been mailed as provided in
paragraph (c) of Section 11 of this Part I and the Redemption Price for the
redemption of such shares shall have been deposited in trust with the Auction
Agent for that purpose. No share of MuniPreferred held by the Fund or any
affiliate of the Fund (except for shares held by a
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Broker-Dealer that is an affiliate of the Fund for the account of its customers)
shall have any voting rights or be deemed to be outstanding for voting or other
purposes.
6. 1940 ACT MUNIPREFERRED ASSET COVERAGE.
The Fund shall maintain, as of the last Business Day of each month in which
any share of MuniPreferred is outstanding, the 1940 Act MuniPreferred Asset
Coverage.
7. MUNIPREFERREDD BASIC MAINTENANCE AMOUNT.
(a) So long as shares of MuniPreferred are outstanding, the Fund shall
maintain, on each Valuation Date, and shall verify to its satisfaction that it
is maintaining on such Valuation Date, (i) S&P Eligible Assets having an
aggregate Discounted Value equal to or greater than the MuniPreferred Basic
Maintenance Amount (if S&P is then rating the shares of MuniPreferred) and (ii)
Moody's Eligible Assets having an aggregate Discounted Value equal to or greater
than the MuniPreferred Basic Maintenance Amount (if Moody's is then rating the
shares of MuniPreferred).
(b) On or before 5:00 P.M., New York City time, on the third Business Day
after a Valuation Date on which the Fund fails to satisfy the MuniPreferred
Basic Maintenance Amount, and on the third Business Day after the MuniPreferred
Basic Maintenance Cure Date with respect to such Valuation Date, the Fund shall
complete and deliver to S&P (if S&P is then rating the shares of MuniPreferred),
Moody's (if Moody's is then rating the shares of MuniPreferred) and the Auction
Agent (if either S&P or Moody's is then rating the shares of MuniPreferred) a
MuniPreferred Basic Maintenance Report as of the date of such failure,~or such
MuniPreferred Basic Maintenance Cure Date, as the case may be, which will be
deemed to have been delivered to the Auction Agent if the Auction Agent receives
a copy or telecopy, telex or other electronic transcription thereof and on the
same day the Fund mails to the Auction Agent for delivery on the next Business
Day the full MuniPreferred Basic Maintenance Report. The Fund shall also deliver
a MuniPreferred Basic Maintenance Report to (i) the Auction Agent (if either
Moody's or S&P is then rating the shares of MuniPreferred) as of (A) the
fifteenth day of each month (or, if such day is not a Business Day, the next
succeeding Business Day) and (B) the last Business Day of each month, (ii)
Moody's (if Moody's is then rating the shares of MuniPreferred) and S&P (if S&P
is then rating the shares of MuniPreferred) as of any Quarterly Valuation Date,
in each case on or before the third Business Day after such day, and (iii) S&P,
if and when requested for any Valuation Date, on or before the third Business
Day after such request. A failure by the Fund to deliver a MuniPreferred Basic
Maintenance Report pursuant to the preceding sentence shall be deemed to be
delivery of a MuniPreferred Basic Maintenance Report indicating the Discounted
Value for all assets of the Fund is less than the MuniPreferred Basic
Maintenance Amount, as of the relevant Valuation Date.
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(c) Within ten Business Days after the date of delivery of a MuniPreferred
Basic Maintenance Report in accordance with paragraph (b) of this Section 7
relating to a Quarterly Valuation Date, the Fund shall cause the Independent
Accountant to confirm in writing to S&P (if S&P is then rating the shares of
MuniPreferred), Moody's (if Moody's is then rating the shares of MuniPreferred)
and the Auction Agent (if either S&P or Moody's is then rating the shares of
MuniPreferred) (i) the mathematical accuracy of the calculations reflected in
such Report (and in any other MuniPreferred Basic Maintenance Report, randomly
selected by the Independent Accountant, that was delivered by the Fund during
the quarter ending on such Quarterly Valuation Date) and (ii) that, in such
Report (and in such randomly selected Report), the Fund determined in accordance
with this Statement whether the Fund had, at such Quarterly Valuation Date (and
at the Valuation Date addressed in such randomly-selected Report), S&P Eligible
Assets (if S&P is then rating the shares of MuniPreferred) of an aggregate
Discounted Value at least equal to the MuniPreferred Basic Maintenance Amount
and Moody's Eligible Assets (if Moody's is then rating the shares of
MuniPreferred) of an aggregate Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount (such confirmation being herein called
the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery of a MuniPreferred
Basic Maintenance Report in accordance with paragraph (b) of this Section 7
relating to any Valuation Date on which the Fund failed to satisfy the
MuniPreferred Basic Maintenance Amount, and relating to the MuniPreferred Basic
Maintenance Cure Date with respect to such failure to satisfy the MuniPreferred
Basic Maintenance Amount, the Fund shall cause the Independent Accountant to
provide to S&P (if S&P is then rating the shares of MuniPreferred), Moody's (if
Moody's is then rating the shares of MuniPreferred) and the Auction Agent (if
either S&P or Moody's is then rating the shares of MuniPreferred) an
Accountant's Confirmation as to such MuniPreferred Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to paragraph (c) or
(d) of this Section 7 shows that an error was made in the MuniPreferred Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation was required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all S&P Eligible Assets (if S&P is then
rating the shares of MuniPreferred) or Moody's Eligible Assets (if Moody's is
then rating the shares of MuniPreferred), as the case may be, of the Fund was
determined by the Independent Accountant, the calculation or determination made
by such Independent Accountant shall be final and conclusive and shall be
binding on the Fund, and the Fund shall accordingly amend and deliver the
MuniPreferred Basic Maintenance Report to S&P (if S&P is then rating the shares
of MuniPreferred), Moody's (if Moody's is then rating the shares of
MuniPreferred) and the Auction Agent (if either S&P or
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Moody's is then rating the shares of MuniPreferred) promptly following receipt
by the Fund of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business Day
after the Date of Original Issue of any shares of MuniPreferred, the Fund shall
complete and deliver to S&P (if S&P is then rating the shares of MuniPreferred)
and Moody's (if Moody's is then rating the shares of MuniPreferred) a
MuniPreferred Basic Maintenance Report as of the close of business on such Date
of Original Issue. Within five Business Days of such Date of Original Issue, the
Fund shall cause the Independent Accountant to confirm in writing to S&P (if S&P
is then rating the shares of MuniPreferred) (i) the mathematical accuracy of the
calculations reflected in such Report and (ii) that the Discounted Value of S&P
Eligible Assets reflected thereon equals or exceeds the MuniPreferred Basic
Maintenance Amount reflected thereon.
(g) On or before 5:00 p.m., New York City time, on the third Business Day
after either (i) the Fund shall have redeemed Common Stock or (ii) the ratio of
the Discounted Value of S&P Eligible Assets or the Discounted Value of Moody's
Eligible Assets to the MuniPreferred Basic Maintenance Amount is less than or
equal to 105%, the Fund shall complete and deliver to S&P (if S&P is then rating
the shares of MuniPreferred) or Moody's (if Moody's is then rating the shares of
MuniPreferred), as the case may be, a MuniPreferred Basic Maintenance Report as
of the date of either such event.
8. (reserved)
9. RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS.
(a) DIVIDENDS ON PREFERRED STOCK OTHER THAN MUNIPREFERRED. Except as set
forth in the next sentence, no dividends shall be declared or paid or set apart
for payment on the shares of any class or series of stock ranking, as to the
payment of dividends, on a parity with shares of MuniPreferred for any period
unless full cumulative dividends have been or contemporaneously are declared and
paid on the shares of each series of MuniPreferred through its most recent
Dividend Payment Date. When dividends are not paid in full upon the shares of
each series of MuniPreferred through its most recent Dividend Payment Date or
upon the shares of any other class or series of stock ranking on a parity as to
the payment of dividends with shares of MuniPreferred through their most recent
respective dividend payment dates, all dividends
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declared upon shares of MuniPreferred and any other such class or series of
stock ranking on a parity as to the payment of dividends with shares of
MuniPreferred shall be declared pro rata so that the amount of dividends
declared per share on shares of MuniPreferred and such other class or series of
stock shall in all cases bear to each other the same ratio that accumulated
dividends per share on the shares of MuniPreferred and such other class or
series of stock bear to each other (for purposes of this sentence, the amount
of dividends declared per share of MuniPreferred shall be based on the
Applicable Rate for such share for the Dividend Periods during which dividends
were not paid in full).
(b) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO COMMON STOCK UNDER
THE 1940 ACT. The Board of Directors shall not declare any dividend (except a
dividend payable in shares of Common Stock), or declare any other distribution,
upon shares of Common Stock, or purchase shares of Common Stock, unless in
every such case the shares of Preferred Stock have, it the time of any such
declaration or purchase, an asset coverage (as defined in and determined
pursuant to the 1940 Act) of at least 200% (or such other asset coverage as may
in the future be specified in or under the 1940 Act as the minimum asset
coverage for senior securities which are stock of a closed-end investment
company as a condition of declaring dividends on its common stock) after
deducting the amount of such dividend, distribution or purchase price, as the
case may be.
(c) OTHER RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. For so long as
any share of MuniPreferred is outstanding, and except as set forth in paragraph
(a) of this Section 9 and paragraph (c) of Section 12 of this Part 1, (A) the
Fund shall not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or in
options, warrants or rights to subscribe for or purchase, Common Stock or other
stock, if any, ranking junior to the shares of MuniPreferred as to the payment
of dividends and the distribution of assets upon dissolution, liquidation or
winding up) in respect of the Common Stock or any other stock of the Fund
ranking junior to or on a parity with the shares of MuniPreferred as to the
payment of dividends or the distribution of assets upon dissolution, liquidation
or winding up, or call for redemption, redeem, purchase or otherwise acquire for
consideration any shares of Common Stock or any other such junior stock (except
by conversion into or exchange for stock of the Fund ranking junior to the
shares of MuniPreferred as to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up), or any such parity stock
(except by conversion into or exchange for stock of the Fund ranking junior to
or on a parity with MuniPreferred as to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up), unless (i)
full cumulative dividends on shares of each series of MuniPreferred through its
most recently ended Dividend Period shall have been paid or shall have been
declared and sufficient funds for the payment
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thereof deposited with the Auction Agent and (ii) the Fund has redeemed the full
number of shares of MuniPreferred required to be redeemed by any provision for
mandatory redemption pertaining thereto, and (B) the Fund shall not declare, pay
or set apart for payment any dividend or other distribution (other than a
dividend or distribution paid in shares of, or in options, warrants or rights to
subscribe for or purchase, Common Stock or other stock, if any, ranking junior
to shares of MuniPreferred as to the payment of dividends and the distribution
of assets upon dissolution, liquidation or winding up) in respect of Common
Stock or any other stock of the Fund ranking junior to shares of MuniPreferred
as to the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up, or call for redemption, redeem, purchase or otherwise
acquire for consideration any shares of Common Stock or any other such junior
stock (except by conversion into or exchange for stock of the Fund ranking
junior to shares of MuniPreferred as to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up), unless
immediately after such transaction the Discounted Value of Moody's Eligible
Assets (if Moody's is then rating the shares of MuniPreferred) and S&P Eligible
Assets (if S&P is then rating the shares of MuniPreferred) would each at least
equal the MuniPreferred Basic Maintenance Amount.
10. RATING AGENCY RESTRICTIONS.
For so long as any shares of MuniPreferred are outstanding and Moody's or
S&P or both, are rating such shares, the Fund will not, unless it has received
written confirmation from Moody's or S&P, or both, as appropriate, that any such
action would not impair the ratings then assigned by such rating agency to such
shares, engage in any one or more of the following transactions:
(a) buy or sell futures or write put or call options;
(b) borrow money, except that the Fund may, without obtaining the
written confirmation described above, borrow money for the purpose of
clearing securities transactions if (i) the MuniPreferred Basic Maintenance
Amount would continue to be satisfied after giving effect to such borrowing
and (ii) such borrowing (A) is privately arranged with a bank or other
person and is evidenced by a promissory note or other evidence of
indebtedness that is not intended to be publicly distributed or (B) is for
"temporary purposes," is evidenced by a promissory note or other evidence
of indebtedness and is in an amount not exceeding 5 per centum of the
value of the total assets of the Fund at the time of the borrowing, for
purposes of the foregoing, "temporary purpose" means that the borrowing is
to be repaid within sixty days and is not to be extended or renewed;
(c) issue any class or series of stock ranking prior to or on a parity
with shares of MuniPreferred with respect to the payment of dividends or
the distribution of assets upon dissolution, liquidation or winding up of
the
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Fund, or reissue any shares of MuniPreferred previously purchased or
redeemed by the Fund;
(d) engage in any short sales of securities;
(e) lend securities;
(f) merge or consolidate into or with any other corporation;
(g) change the pricing service (currently J.J. Kenny) referred to in
the definition of Market Value; or
(h) enter into reverse repurchase agreements.
11. REDEMPTION.
(a) OPTIONAL REDEMPTION. (i) Subject to the provisions of subparagraph (v)
of this paragraph (a), shares of MuniPreferred of any series may be redeemed, at
the option of the Fund, as a whole or from time to time in part, on the second
Business Day preceding any Dividend Payment Date for shares of such series, out
of funds legally available therefor, at a redemption price per share equal to
the sum of $25,000 plus an amount equal to accumulated but unpaid dividends
thereon (whether or not earned or declared) to (but not including) the date
fixed for redemption; PROVIDED, HOWEVER, that (1) shares of a series of
MuniPreferred may not be redeemed in part if after such partial redemption fewer
than 500 shares of such series remain outstanding; (2) unless otherwise provided
in Section 11 of APPENDIX A hereto, shares of a series of MuniPreferred are
redeemable by the Fund during the Initial Rate Period thereof only on the second
Business Day next preceding the last Dividend Payment Date for such Initial Rate
Period; and (3) subject to subparagraph (ii) of this paragraph (a), the Notice
of Special Rate Period relating to a Special Rate Period of shares of a series
of MuniPreferred, as delivered to the Auction Agent and filed with the Secretary
of the Fund, may provide that shares of such series shall not be redeemable
during the whole or any part of such Special Rate Period (except as provided in
subparagraph (iv) of this paragraph (a)) or shall be redeemable during the whole
or any part of such Special Rate Period only upon payment of such redemption
premium or premiums as shall be specified therein ("Special Redemption
Provisions").
(ii) A Notice of Special Rate Period relating to shares of a series of
MuniPreferred for a Special Rate Period thereof may contain Special Redemption
Provisions only if the Fund's Board of Directors, after consultation with the
Broker-Dealer or Broker-Dealers for such Special Rate Period of shares of such
series, determines that such Special Redemption Provisions are in the best
interest of the Fund.
(iii) If fewer than all of the outstanding shares of a series of
MuniPreferred are to be redeemed pursuant to subparagraph (i) of this paragraph
(a), the number of shares of such series to be redeemed shall be determined by
the Board of Directors, and such shares shall be redeemed pro rata from the
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Holders of shares of such series in proportion to the number of shares of such
series held by such Holders.
(iv) Subject to the provisions of subparagraph (v) of this paragraph (a),
shares of any series of MuniPreferred may be redeemed, at the option of the
Fund, as a whole but not in part, out of funds legally available therefor, on
the first day following any Dividend Period thereof included in a Rate Period
consisting of more than 364 Rate Period Days if, on the date of determination of
the Applicable Rate for shares of such series for such Rate Period, such
Applicable Rate equalled or exceeded on such date of determination the Treasury
Note Rate for such Rate Period, at a redemption price per share equal to the sum
of $25,000 plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed for
redemption.
(v) The Fund may not on any date mail a Notice of Redemption pursuant to
paragraph (c) of this Section 11 in respect of a redemption contemplated to be
effected pursuant to this paragraph (a) unless on such date (a) the Fund has
available Deposit Securities with maturity or tender dates not later than the
day preceding the applicable redemption date and having a value not less than
the amount (including any applicable premium) due to Holders of shares of
MuniPreferred by reason of the redemption of such shares on such redemption date
and (b) the Discounted Value of Moody's Eligible Assets (if Moody's is then
rating the shares of MuniPreferred) and the Discounted Value of S&P Eligible
Assets (if S&P is then rating the shares of MuniPreferred) each at least equal
the MuniPreferred Basic Maintenance Amount, and would at least equal the
MuniPreferred Basic Maintenance Amount immediately subsequent to such redemption
if such redemption were to occur on such date. For purposes of determining in
clause (b) of the preceding sentence whether the Discounted Value of Moody's
Eligible Assets at least equals the MuniPreferred Basic Maintenance Amount, the
Moody's Discount Factors applicable to Moody's Eligible Assets shall be
determined by reference to the first Exposure Period longer than the Exposure
Period then applicable to the Fund, as described in the definition of Moody's
Discount Factor herein.
(B) MANDATORY REDEMPTION. The Fund shall redeem, at a redemption price
equal to $25,000 per share plus accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed by the
Board of Directors for redemption, certain of the shares of MuniPreferred, if
the Fund fails to have either Moody's Eligible Assets with a Discounted Value or
S&P Eligible Assets with a Discounted Value greater than or equal to the
MuniPreferred Basic Maintenance Amount or fails to maintain the 1940 Act
MuniPreferred Asset Coverage, in accordance with the requirements of the rating
agency or agencies then rating the shares of MuniPreferred, and such failure is
not cured on or before the MuniPreferred Basic Maintenance Cure Date or the 1940
Act Cure Date, as the case may be. The number of shares of MuniPreferred to be
redeemed shall be equal to the
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lesser of (i) the minimum number of shares of MuniPreferred, together with all
shares of other Preferred Stock subject to redemption or retirement, the
redemption of which, if deemed to have occurred immediately prior to the opening
of business on the Cure Date, would have resulted in the Fund's having both
Moody's Eligible Assets with a Discounted Value and S&P Eligible Assets with a
Discounted Value greater than or equal to the MuniPreferred Basic Maintenance
Amount or maintaining the 1940 Act MuniPreferred Asset Coverage, as the case may
be, on such Cure Date (PROVIDED, HOWEVER, that if there is no such minimum
number of shares of MuniPreferred and shares of other Preferred Stock the
redemption or retirement of which would have had such result, all shares of
MuniPreferred and Preferred Stock then outstanding shall be redeemed), and (ii)
the maximum number of shares of MuniPreferred, together with all shares of other
Preferred Stock subject to redemption or retirement, that can be redeemed out of
funds expected to be legally available therefor. In determining the shares of
MuniPreferred required to be redeemed in accordance with the foregoing, the Fund
shall allocate the number required to be redeemed to satisfy the MuniPreferred
Basic Maintenance Amount or the 1940 Act MuniPreferred Asset Coverage, as the
case may be, pro rata among shares of MuniPreferred and other Preferred Stock
(and, then, pro rata among each series of MuniPreferred) subject to redemption
or retirement. The Fund shall effect such redemption on the date fixed by the
Fund therefor, which date shall not be earlier than 20 days nor later than 40
days after such Cure Date, except that if the Fund does not have funds legally
available for the redemption of all of the required number of shares of
MuniPreferred and shares of other Preferred Stock which are subject to
redemption or retirement or the Fund otherwise is unable to effect such
redemption on or prior to 40 days after such Cure Date, the Fund shall redeem
those shares of MuniPreferred and shares of other Preferred Stock which it was
unable to redeem on the earliest practicable date on which it is able to effect
such redemption. If fewer than all of the outstanding shares of a series of
MuniPreferred are to be redeemed pursuant to this paragraph (b), the number of
shares of such series to be redeemed shall be redeemed pro rata from the Holders
of shares of such series in proportion to the number of shares of such series
held by such Holders.
(C) NOTICE OF REDEMPTION. If the Fund shall determine or be required to
redeem shares of a series of MuniPreferred pursuant to paragraph (a) or (b) of
this Section 11, it shall mail a Notice of Redemption with respect to such
redemption by first class mail, postage prepaid, to each Holder of the shares of
such series to be redeemed, at such Holder's address as the same appears on the
stock books of the Fund on the record date established by the Board of
Directors. Such Notice of Redemption shall be so mailed not less than 20 nor
more than 45 days prior to the date fixed for redemption. Each such Notice of
Redemption shall state: (i) the redemption date; (ii) the number of shares of
MuniPreferred to be redeemed and the series thereof; (iii) the CUSIP number for
shares of such series; (iv) the Redemption Price; (v) the place or places
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where the certificate(s) for such shares (properly endorsed or assigned for
transfer, if the Board of Directors shall so require and the Notice of
Redemption shall so state) are to be surrendered for payment of the Redemption
Price; (vi) that dividends on the shares to be redeemed will cease to accumulate
on such redemption date; and (vii) the provisions of this Section 11 under which
such redemption is made. If fewer than all shares of a series of MuniPreferred
held by any Holder are to be redeemed, the Notice of Redemption mailed to such
Holder shall also specify the number of shares of such series to be redeemed
from such Holder. The Fund may provide in any Notice of Redemption relating to a
redemption contemplated to be effected pursuant to paragraph (a) of this Section
11 that such redemption is subject to one or more conditions precedent and that
the Fund shall not be required to effect such redemption unless each such
condition shall have been satisfied at the time or time and in the manner
specified in such Notice of Redemption.
(d) No REDEMPTION UNDER CERTAIN CIRCUMSTANCES. Notwithstanding the
provisions of paragraphs (a) or (b) of this Section 11, if any dividends on
shares of a series of MuniPreferred (whether or not earned or declared) are in
arrears, no shares of such series shall be redeemed unless all outstanding
shares of such series are simultaneously redeemed, and the Fund shall not
purchase or otherwise acquire any shares of such series; PROVIDED, HOWEVER, that
the foregoing shall not prevent the purchase or acquisition of all outstanding
shares of such series pursuant to the successful completion of an otherwise
lawful purchase or exchange offer made on the same terms to, and accepted by,
Holders of all outstanding shares of such series.
(e) ABSENCE OF FUNDS AVAILABLE FOR REDEMPTION. To the extent that any
redemption for which Notice of Redemption has been mailed is not made by reason
of the absence of legally available funds therefor, such redemption shall be
made as soon as practicable to the extent such funds become available. Failure
to redeem shares of MuniPreferred shall be deemed to exist at any time after the
date specified for redemption in a Notice of Redemption when the Fund shall have
failed, for any reason whatsoever, to deposit in trust with the Auction Agent
the Redemption Price with respect to any shares for which such Notice of
Redemption has been mailed; PROVIDED, HOWEVER, that the foregoing shall not
apply in the case of the Fund's failure to deposit in trust with the Auction
Agent the Redemption Price with respect to any shares where (1) the Notice of
Redemption relating to such redemption provided that such redemption was subject
to one or more conditions precedent and (2) any such condition precedent shall
not have been satisfied at the time or times and in the manner specified in such
Notice of Redemption. Notwithstanding the fact that the Fund may not have
redeemed shares of MuniPreferred for which a Notice of Redemption has been
mailed, dividends may be declared and paid on shares of MuniPreferred and shall
include those shares of MuniPreferred for which a Notice of Redemption has
been mailed.
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(f) AUCTION AGENT AS TRUSTEE OF REDEMPTION PAYMENTS BY FUND. All moneys
paid to the Auction Agent for payment of the Redemption Price of shares of
MuniPreferred called for redemption shall be held in trust by the Auction Agent
for the benefit of Holders of shares so to be redeemed.
(g) SHARES FOR WHICH NOTICE OF REDEMPTION HAS BEEN GIVEN ARE NO LONGER
OUTSTANDING. Provided a Notice of Redemption has been mailed pursuant to
paragraph (c) of this Section 11, upon the deposit with the Auction Agent (on
the Business Day next preceding the date fixed for redemption thereby, in funds
available on the next Business Day in The City of New York, New York) of funds
sufficient to redeem the shares of MuniPreferred that are the subject of such
notice, dividends on such shares shall cease to accumulate and such shares shall
no longer be deemed to be outstanding for any purpose, and all rights of the
Holders of the shares so called for redemption shall cease and terminate, except
the right of such Holders to receive the Redemption Price, but without any
interest or other additional amount, except as provided in subparagraph (e)(i)
of Section 2 of this Part I and in Section 3 of this Part I. Upon surrender in
accordance with the Notice of Redemption of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Board of Directors
shall so require and the Notice of Redemption shall so state), the Redemption
Price shall be paid by the Auction Agent to the Holders of shares of
MuniPreferred subject to redemption. In the case that fewer than all of the
shares represented by any such certificate are redeemed, a new certificate shall
be issued, representing the unredeemed shares, without cost to the Holder
thereof. The Fund shall be entitled to receive from the Auction Agent, promptly
after the date fixed for redemption, any cash deposited with the Auction Agent
in excess of (i) the aggregate Redemption Price of the shares of MuniPreferred
called for redemption on such date and (ii) all other amounts to which Holders
of shares of MuniPreferred called for redemption may be entitled. Any funds so
deposited that are unclaimed at the end of 90 days from such redemption date
shall, to the extent permitted by law, be repaid to the Fund, after which time
the Holders of shares of MuniPreferred so called for redemption may look only to
the Fund for payment of the Redemption Price and all other amounts to which they
may be entitled. The Fund shall be entitled to receive, from time to time after
the date fixed for redemption, any interest on the funds so deposited.
(h) COMPLIANCE WITH APPLICABLE LAW. In effecting any redemption pursuant to
this Section 11, the Fund shall use its best efforts to comply with all
applicable conditions precedent to effecting such redemption under the 1940 Act
and Minnesota law, but shall effect no redemption except in accordance with the
1940 Act and Minnesota law.
(i) ONLY WHOLE SHARES OF MUNIPREFERRED MAY BE REDEEMED. In the case of any
redemption pursuant to this Section 11, only whole shares of MuniPreferred shall
be redeemed, and in the event that any provision of the
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Articles would require redemption of a fractional share, the Auction Agent shall
be authorized to round up so that only whole shares are redeemed.
12. LIQUIDATION RIGHTS.
(a) RANKING. The shares of a series of MuniPreferred shall rank on a parity
with each other, with shares of any other series of MuniPreferred and with
shares of any other series of Preferred Stock as to the distribution of assets
upon dissolution, liquidation or winding up of the affairs of the Fund.
(b) DISTRIBUTIONS UPON LIQUIDATION. Upon the dissolution, liquidation or
winding up of the affairs of the Fund, whether voluntary or involuntary, the
Holders of shares of MuniPreferred then outstanding shall be entitled to receive
and to be paid out of the assets of the Fund available for distribution to its
shareholders, before any payment or distribution shall be made on the Common
Stock or on any other class of stock of the Fund ranking junior to the
MuniPreferred upon dissolution, liquidation or winding up, an amount equal to
the Liquidation Preference with respect to such shares plus an amount equal to
all dividends thereon (whether or not earned or declared) accumulated but unpaid
to (but not including) the date of final distribution in same-day funds,
together with any payments required to be made pursuant to Section 3 of this
Part I in connection with the liquidation of the Fund. After the payment to the
Holders of the shares of MuniPreferred of the full preferential amounts provided
for in this paragraph (b), the Holders of MuniPreferred as such shall have no
right or claim to any of the remaining assets of the Fund.
(c) PRO RATA DISTRIBUTIONS. In the event the assets of the Fund available
for distribution to the Holders of shares of MuniPreferred upon any dissolution,
liquidation, or winding up of the affairs of the Fund, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which such
Holders are entitled pursuant to paragraph (b) of this Section 12, no such
distribution shall be made on account of any shares of any other class or series
of Preferred Stock ranking on a parity with the shares of MuniPreferred with
respect to the distribution of assets upon such dissolution, liquidation or
winding up unless proportionate distributive amounts shall be paid on account of
the shares of MuniPreferred, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up.
(d) RIGHTS OF JUNIOR STOCK. Subject to the rights of the holders of shares
of any series or class or classes of stock ranking on a parity with the shares
of MuniPreferred with respect to the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Fund, after payment shall have
been made in full to the Holders of "the shares of MuniPreferred as provided in
paragraph (b) of this Section 12, but not prior thereto, any other series or
class or classes of stock ranking junior to the shares of MuniPreferred
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with respect to the distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Fund shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the Holders of the shares of
MuniPreferred shall not be entitled to share therein.
(e) CERTAIN EVENTS NOT CONSTITUTING LIQUIDATION. Neither the sale of all or
substantially all the property or business of the Fund, nor the merger or
consolidation of the Fund into or with any other corporation nor the merger or
consolidation of any other corporation into or with the Fund shall be a
dissolution, liquidation or winding up, whether voluntary or involuntary, for
the purposes of this Section 12.
13. MISCELLANEOUS.
(a) AMENDMENT OF APPENDIX A TO ADDITIONAL SERIES. Subject to the provisions
of paragraph (c) of Section 1.0 of this Part I, the Board of Directors may, by
resolution duly adopted, without shareholder approval (except as otherwise
provided by this Statement or required by applicable law), amend Appendix A
hereto to add additional series of MuniPreferred (and terms relating thereto) to
the series of MuniPreferred theretofore described thereon, and each such
additional series shall be governed by the terms of this Statement as if such
series had been described on Appendix A hereto on the date hereof.
(b) APPENDIX A INCORPORATED BY REFERENCE. Appendix A hereto is incorporated
in and made a part of this Statement by reference thereto.
(c) NO FRACTIONAL SHARES. No fractional shares of MuniPreferred shall be
issued.
(d) STATUS OF SHARES OF REDEEMED, EXCHANGED OR OTHERWISE ACQUIRED BY THE
FUND. Shares of MuniPreferred which are redeemed, exchanged or otherwise
acquired by the Fund shall return to the status of authorized and unissued
shares of Preferred Stock without designation as to series. Upon the redemption,
exchange or other acquisition by the Fund of all outstanding shares of a series
of MuniPreferred, all provisions of the Articles relating to such series
(including, without limitation, all provisions of this Statement relating to
such series) shall cease to be of further effect and shall cease to be part of
the Articles. Upon the occurrence of any such event, the Board of Directors
shall have the power, pursuant to Minnesota Statutes Section 302A.135,
Subdivision 5 or any successor provision and without shareholder action, to
cause restated articles of incorporation of the Fund or other appropriate
documents to be prepared and filed with the Secretary of State of the State of
Minnesota which reflect such removal from the Articles of all such provisions
relating to such series or, if appropriate, the cancellation of this Statement,
or both.
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(e) BOARD MAY RESOLVE AMBIGUITIES. To the extent permitted by applicable
law, the Board of Directors may interpret or adjust the provisions of this
Statement to resolve any inconsistency or ambiguity or to remedy any formal
defect, and may amend this statement with respect to any series of MuniPreferred
prior to the issuance of shares of such series.
(f) HEADINGS NOT DETERMINATIVE. The headings contained in this Statement
are for convenience of reference only and shall not affect the meaning or
interpretation of this Statement.
(g) NOTICES. All notices or communications, unless otherwise specified in
the By-Laws of the Fund or this Statement, shall be sufficiently given if in
writing and delivered in person or mailed by first-class mail, postage prepaid.
PART II
1. ORDERS. (a) Prior to the Submission Deadline on each Auction Date for
shares of a series of MuniPreferred:
(i) each Beneficial Owner of shares of such series may submit to its
Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such series held by
such Beneficial Owner which such Beneficial Owner desires to continue
to hold without regard to the Applicable Rate for shares of such series
for the next succeeding Rate Period of such shares;
(B) the number of Outstanding shares, if any, of such series held by
such Beneficial Owner which such Beneficial Owner offers to sell if the
Applicable Rate for shares of such series for the next succeeding Rate
Period of shares of such series shall be less than the rate per annum
specified by such Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such series held by
such Beneficial Owner which such Beneficial Owner offers to sell
without regard to the Applicable Rate for shares of such series for the
next succeeding Rate Period of shares of such series;
and
(ii) one or more Broker-Dealers, using lists of Potential Beneficial
Owners, shall in good faith for the purpose of conducting a competitive
Auction in a commercially reasonable manner, contact Potential Beneficial
Owners (by telephone or otherwise), including Persons that are not
Beneficial Owners, on such lists to determine the number of shares, if any,
of such series which each such Potential Beneficial Owner offers to
purchase if the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series shall not be less than the
rate per annum specified by such Potential Beneficial Owner.
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For the purposes hereof, the communication by a Beneficial Owner or Potential
Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction Agent,
of information referred to in clause (i)(A), (i)(B), (i)(C) or (ii) of this
paragraph (a) is hereinafter referred to as an "Order" and collectively as
"Orders" and each Beneficial Owner and each Potential Beneficial Owner placing
an Order with a Broker-Dealer, and such Broker-Dealer placing an Order with the
Auction Agent, is hereinafter referred to as a "Bidder" and collectively as
"Bidders"; an Order containing the information referred to in clause (i)(A) of
this paragraph (a) is hereinafter referred to as a "Hold Order" and
collectively as "Hold Orders"; an Order containing the information referred to
in clause (i)(B) or (ii) of this paragraph (a) is hereinafter referred to as a
"Bid" and collectively as "Bids"; and an Order containing the information
referred to in clause (i)(C) of this paragraph (a) is hereinafter referred to as
a "Sell Order" and collectively as "Sell Orders."
(b)(i) A Bid by a Beneficial Owner or an Existing Holder of shares of a
series of MuniPreferred subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in such
Bid if the Applicable Rate for shares of such series determined on such
Auction Date shall be less than the rate specified therein;
(B) such number or a lesser number of Outstanding shares of such series
to be determined as set forth in clause (iv) of paragraph (a) of Section 4
of this Part II if the Applicable Rate for shares of such series determined
on such Auction Date shall be equal to the rate specified therein; or
(C) the number of Outstanding shares of such series specified in such
Bid if the rate specified therein shall be higher than the Maximum Rate for
shares of such series, or such number or a lesser number of Outstanding
shares of such series to be determined as set forth in clause (iii) of
paragraph (b) of Section 4 of this Part II if the rate specified therein
shall be higher than the Maximum Rate for shares of such series and
Sufficient Clearing Bids for shares of such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of shares of
a series of MuniPreferred subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in such
Sell Order; or
(B) such number or a lesser number of Outstanding shares of such series
as set forth in clause (iii) of paragraph (b) of Section 4 of this Part II
if Sufficient Clearing Bids for shares of such series do not exist;
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PROVIDED, HOWEVER, that a Broker-Dealer that is an Existing Holder with respect
to shares of a series of MuniPreferred shall not be liable to any Person for
failing to sell such shares pursuant to a Sell Order described in the proviso to
paragraph (c) of Section 2 of this Part II if such shares were transferred by
the Beneficial Owner thereof without compliance by such Beneficial Owner or its
transferee Broker-Dealer (or other transferee person, if permitted by the Fund)
with the provisions of Section 7 of this Part II.
(iii) A Bid by a Potential Beneficial Holder or a Potential Holder of
shares of a series of MuniPreferred subject to an Auction on any Auction Date
shall constitute an irrevocable offer to purchase:
(A) the number of Outstanding shares of such series specified in such
Bid if the Applicable Rate for shares of such series determined on such
Auction Date shall be higher than the rate specified therein; or
(B) such number or a lesser number of Outstanding shares of such
series as set forth in clause (v) of paragraph (a) of Section 4 of this
Part II if the Applicable Rate for shares of such series determined on such
Auction Date shall be equal to the rate specified therein.
(c) No Order for any number of shares of MuniPreferred other than whole
shares shall be valid.
2. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT. (a) Each
Broker-Dealer shall submit in writing to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders for shares of MuniPreferred
of a series subject to an Auction on such Auction Date obtained by such
Broker-Dealer, designating itself (unless otherwise permitted by the Fund) as an
Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
shares subject to Orders submitted to it by Potential Beneficial Owners, and
shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Fund);
(ii) the aggregate number of shares of such series that are the
subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of shares
of such series:
(A) the number of shares, if any, of such series subject to any Hold
Order of such Existing Holder;
(B) the number of shares, if any, of such series subject to any Bid of
such Existing Holder and the rate specified in such Bid; and
(C) the number of shares, if any, of such series subject to any Sell
Order of such Existing Holder; and
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(iv) to the extent such Bidder is a Potential Holder of shares of such
series, the rate and number of shares of such series specified in such
Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent shall round such rate up to
the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding shares of
MuniPreferred of a series held by any Existing Holder is not submitted to the
Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a
Hold Order to have been submitted by or on behalf of such Existing Holder
covering the number of Outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent; PROVIDED
HOWEVER, that if an Order or Orders covering all of the Outstanding shares of
such series held by any Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline for an Auction relating to a Special Rate
Period consisting of more than 28 Rate Period Days, the Auction Agent shall deem
a Sell Order to have been submitted by or on behalf of such Existing Holder
covering the number of outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the Auction
Agent covering in the aggregate more than the number of Outstanding shares of
MuniPreferred of a series subject to an Auction held by such Existing Holder,
such Orders shall be considered valid in the following order of priority:
(i) all Hold Orders for shares of such series shall be considered
valid, but only up to and including in the aggregate the number of
Outstanding shares of such series held by such Existing Holder, and if the
number of shares of such series subject to such Hold Orders exceeds the
number of Outstanding shares of such series held by such Existing Holder,
the number of shares subject to each such Hold Order shall be reduced pro
rata to cover the number of Outstanding shares of such series held by such
Existing Holder;
(ii) (A) any Bid for shares of such series shall be considered valid up
to and including the excess of the number of Outstanding shares of such
series held by such Existing Holder over the number of shares, of such
series subject to any Hold Orders referred to in clause (i) above;
(B) subject to subclause (A), if more than one Bid of an Existing
Holder for shares of such series is submitted to the Auction Agent
with the same rate and the number of Outstanding shares of such series
subject to such Bids is greater than such excess, such Bids shall be
considered valid up to and including the amount of such excess,
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and the number of shares of such series subject to each Bid with the
same rate shall be reduced pro rata to cover the number of shares of
such series equal to such excess;
(C) subject to subclauses (A) and (B), if more than one Bid of an
Existing Holder for shares of such series is submitted to the Auction
Agent with different rates, such Bids shall be considered valid in the
ascending order of their respective rates up to and including the
amount of such excess; and
(D) in any such event, the number, if any, of such Outstanding
shares of such series subject to any portion of Bids considered not
valid in whole or in part under this clause (ii) shall be treated as
the subject of a Bid for shares of such series by or on behalf of a
Potential Holder a. the rate therein specified; and
(iii) all Sell Orders for shares of such series shall be considered
valid up to and including the excess of the number of Outstanding shares of
such series held by such Existing Holder over the sum of shares of such
series subject to valid Hold Orders referred to in clause (i) above and
valid Bids referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of a series of
MuniPreferred is submitted to the Auction Agent by or on behalf of any Potential
Holder, each such Bid submitted shall be a separate Bid with the rate and number
of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to
the Submission Deadline on any Auction Date, shall be irrevocable.
3. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND
APPLICABLE RATE. (a) Not earlier than the Submission Deadline on each Auction
Date for shares of a series of MuniPreferred, the Auction Agent shall assemble
all valid Orders submitted or deemed submitted to it by the Broker-Dealers in
respect of shares of such series (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to individually as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order" and collectively as "Submitted Hold
Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders") and shall determine for such series:
(i) the excess of the number of Outstanding shares of such series over
the number of Outstanding shares of such series subject to Submitted Hold
Orders (such excess being hereinafter referred to as the "Available
MuniPreferred" of such series);
(ii) from the Submitted Orders for shares of such series whether:
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(A) the number of Outstanding shares of such series subject to
Submitted Bids of Potential Holders specifying one or more rates equal
to or lower than the Maximum Rate for shares of such series;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series subject to
Submitted Bids of Existing Holders specifying one or more rates higher
than the Maximum Rate for shares of such series; and
(C) the number of Outstanding shares of such series subject to
Submitted Sell Orders
(in the event such excess or such equality exists (other than because
the number of shares of such series in subclauses (B) and (C) above is zero
because all of the Outstanding shares of such series are subject to
Submitted Hold Orders), such Submitted Bids in subclause (A) above being
hereinafter referred to collectively as "Sufficient Clearing Bids" for
shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series exist, the
lowest rate specified in such Submitted Bids (the "Winning Bid Rate" for
shares of such series) which if:
(A)(1) each such Submitted Bid of Existing Holders specifying such
lowest rate and (11) all other such Submitted Bids of Existing Holders
specifying lower rates were rejected, thus entitling such Existing
Holders to continue to hold the shares of such series that are subject
to such Submitted Bids; and
(B)(1) each such Submitted Bid of Potential Holders specifying
such lowest rate and (11) all other such Submitted Bids of Potential
Holders specifying lower rates were accepted;
would result in such Existing Holders described in subclause (A) above
continuing to hold an aggregate number of Outstanding shares of such series
which, when added to the number of Outstanding shares of such series to be
purchased by such Potential Holders described in subclause (B) above, would
equal not less than the Available MuniPreferred of such series.
(b) Promptly after the Auction Agent has made the determinations pursuant
to paragraph (a) of this Section 3, the Auction Agent shall advise the Fund of
the Maximum Rate for shares of the series of MuniPreferred for which an Auction
is being held on the Auction Date and, based on such determination, the
Applicable Rate for shares of such series for the next succeeding Rate Period
thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series exist, that
the Applicable Rate for all shares of such series for the next succeeding
Rate
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Period thereof shall be equal to the Winning Bid Rate for shares of such
series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do not exist
(other than because all of the Outstanding shares of such series are
subject to Submitted Hold Orders), that the Applicable Rate for all shares
of such series for the next succeeding Rate Period thereof shall be equal
to the Maximum Rate for shares of such series; or
(iii) if all of the Outstanding shares of such series are subject to
Submitted Hold Orders, that the Applicable Rate for all shares of such
series for the next succeeding Rate Period thereof shall be as set
forth in Section 12 of APPENDIX A hereto.
4. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND
ALLOCATION OF SHARES. Existing Holders shall continue to hold the shares of
MuniPreferred that are subject to Submitted Hold Orders, and, based on the
determinations made pursuant to paragraph (a) of Section 3 of this Part 11, the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected by the
Auction Agent and the Auction Agent shall take such other action as set forth
below:
(a) If Sufficient Clearing Bids for shares of a series MuniPreferred have
been made, all Submitted Sell Orders with respect to shares of such series shall
be accepted and, subject to the provisions of paragraphs (d) and (e) of this
Section 4, Submitted Bids with respect to shares of such series shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids with respect to shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is higher than the Winning Bid Rate for shares of
such series shall be accepted, thus requiring each such Existing Holder to
sell the shares of MuniPreferred subject to such Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be rejected, thus entitling each such Existing Holder to
continue to hold the shares of MuniPreferred subject to such Submitted
Bids;
(iii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be accepted;
(iv) each Existing Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of such
series shall be rejected, thus entitling such Existing Holder to continue
to hold the shares of MuniPreferred subject to such Submitted Bid, unless
the number of Outstanding shares of MuniPreferred subject to all such
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Submitted Bids shall be greater than the number of shares of MuniPreferred
("remaining shares") in the excess of the Available MuniPreferred of such
series over the number of shares of MuniPreferred subject to Submitted Bids
described in clauses (ii) and (iii) of this paragraph (a), in which event
such Submitted Bid of such Existing Holder shall be rejected in part, and
such Existing Holder shall be entitled to continue to hold shares of
MuniPreferred subject to such Submitted Bid, but only in an amount equal to
the number of shares of MuniPreferred of such series obtained by
multiplying the number of remaining shares by a fraction, the numerator of
which shall be the number of Outstanding shares of MuniPreferred held by
such Existing Holder subject to such Submitted Bid and the denominator of
which shall be the aggregate number of Outstanding shares of MuniPreferred
subject to such Submitted Bids made by all such Existing Holders that
specified a rate equal to the Winning Bid Rate for shares of such series;
and
(v) each Potential Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of such
series shall be accepted but only in an amount equal to the number of
shares of such series obtained by multiplying the number of shares in the
excess of the Available MuniPreferred of such series over the number of
shares of MuniPreferred subject to Submitted Bids described in clauses (ii)
through (iv) of this paragraph (a) by a fraction, the numerator of which
shall be the number of Outstanding shares of MuniPreferred subject to such
Submitted Bid and the denominator of which shall be the aggregate number of
Outstanding shares of MuniPreferred subject to such Submitted Bids made by
all such Potential Holders that specified a rate equal to the Winning Bid
Rate for shares of such series.
(b) If Sufficient Clearing Bids for shares of a series of MuniPreferred
have not been made (other than because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), subject to the provisions of
paragraph (d) of this Section 4, Submitted Orders for shares of such series
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids for shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be rejected, thus entitling such Existing
Holders to continue to hold the shares of MuniPreferred subject to such
Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for shares of such series
specifying any rate that is higher than the Maximum Rate for shares of such
series and the Submitted Sell Orders for shares of such series of each
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Existing Holder shall be accepted, thus entitling each Existing Holder that
submitted or on whose behalf was submitted any such Submitted Bid or
Submitted Sell Order to sell the shares of such series subject to such
Submitted Bid or Submitted Sell Order, but in both cases only in an amount
equal to the number of shares of such series obtained by multiplying the
number of shares of such series subject to Submitted Bids described in
clause (ii) of this paragraph (b) by a fraction, the numerator of which
shall be the number of Outstanding shares of such series held by such
Existing Holder subject to such Submitted Bid or Submitted Sell Order and
the denominator of which shall be the aggregate number of Outstanding
shares of such series subject to all such Submitted Bids and Submitted Sell
Orders.
(c) If all of the Outstanding shares of a series of MuniPreferred are
subject to SubmItted Hold Orders, all Submitted Bids for shares of such series
shall be rejected.
(d) If, as a result of the procedures described in clause (iv) or (v) of
paragraph (a) or clause (iii) of paragraph (b) of this Section 4, any Existing
Holder would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of a series of
MuniPreferred on any Auction Date, the Auction Agent shall, in such manner as it
shall determine in its sole discretion, round up or down the number of shares of
MuniPreferred of such series to be purchased or sold by any Existing Holder or
Potential Holder on such Auction Date as a result of such procedures so that the
number of shares so purchased or sold by each Existing Holder or Potential
Holder on such Auction Date shall be whole shares of MuniPreferred.
(e) If, as a result of the procedures described in clause (v) of paragraph
(a) of this Section 4, any Potential Holder would be entitled or required to
purchase less than a whole share of a series of MuniPreferred on any Auction
Date, the Auction Agent shall, in such manner as it shall determine in its sole
discretion, allocate shares of MuniPreferred of such series for purchase among
Potential Holders so that only whole shares of MuniPreferred of such series are
purchased on such Auction Date as a result of such procedures by any Potential
Holder, even if such allocation results in one or more Potential Holders not
purchasing shares of MuniPreferred of such series on such Auction Date.
(f) Based on the results of each Auction for shares of a series of
MuniPreferred, the Auction Agent shall determine the aggregate number of shares
of such series to be purchased and the aggregate number of shares of such series
to be sold by Potential Holders and Existing Holders and, with respect to each
Potential Holder and Existing Holder, to the extent that such aggregate number
of shares to be purchased and such aggregate number of
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<PAGE> 164
shares to be sold differ, determine to which other Potential Holder(s) or
Existing Holder(s) they shall deliver, or from which other Potential Holder(s)
or Existing Holder(s) they shall receive, as the case may be, shares of
MuniPreferred of such series.
5. NOTIFICATION OF ALLOCATIONS. Whenever the Fund intends to include any
net capital gains or other income taxable for Federal income tax purposes in any
dividend on shares of MuniPreferred, the Fund shall, in the case of a Minimum
Rate Period or a Special Rate Period of 28 Rate Period Days or fewer, and may,
in the case of any other Special Rate Period, notify the Auction Agent of the
amount to be so included not later than the Dividend Payment Date next preceding
the Auction Date on which the Applicable Rate for such dividend is to be
established. Whenever the Auction Agent receives such notice from the Fund, it
will be required in turn to notify each Broker-Dealer, who, on or prior to such
Auction Date, in accordance with its Broker-Dealer Agreement, will be required
to notify its Beneficial Owners and Potential Beneficial Owners of shares of
MuniPreferred believed by it to be interested in submitting an Order in the
Auction to be held on such Auction Date.
6. AUCTION AGENT. For so long as any shares of MuniPreferred are
outstanding, the Auction Agent, duly appointed by the Fund to so act, shall be
in each case a commercial bank, trust company or other financial institution
independent of the Fund and its affiliates (which however, may engage or have
engaged in business transactions with the Fund or its affiliates) and at no time
shall the Fund or any of its affiliates act as the Auction Agent in connection
with the Auction Procedures. If the Auction Agent resigns or for any reason its
appointment is terminated during any period that any shares of MuniPreferred are
outstanding, the Board of Directors shall use its best efforts promptly
thereafter to appoint another qualified commercial bank, trust company or
financial institution to act as the Auction Agent.
7. TRANSFER OF SHARES OF MUNIPREFERRED. Unless otherwise permitted by the
Fund, a Beneficial Owner or an Existing Holder may sell, transfer or otherwise
dispose of shares of MuniPreferred only in whole shares and only pursuant to a
Bid or Sell Order placed with the Auction Agent in accordance with the
procedures described in this Part 11 or to a Broker-Dealer; PROVIDED, HOWEVER,
that (a) a sale, transfer or other disposition of shares of MuniPreferred from a
customer of a Broker-Dealer who is listed on the records of that Broker-Dealer
as the holder of such shares to that Broker-Dealer or another customer of that
Broker-Dealer shall not be deemed to be a sale, transfer or other disposition
for purposes of this Section 7 if such Broker-Dealer remains the Existing Holder
of the shares so sold, transferred or disposed of immediately after such sale,
transfer or disposition and (b) in the case of all transfers other than pursuant
to Auctions, the Broker-Dealer (or other Person, if permitted by the Fund) to
whom such transfer is made shall advise the Auction Agent of such transfer.
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8. GLOBAL CERTIFICATE. Prior to the commencement of a Voting Period, (i)
all of the shares of a series of MuniPreferred outstanding from time to time
shall be represented by one global certificate registered in the name of the
Securities Depository or its nominee and (ii) no registration of transfer of
shares of a series of MuniPreferred shall be made on the books of the Fund to
any Person other than the Securities Depository or its nominee. The foregoing
restriction on registration of transfer shall be conspicuously noted on the face
or back of the certificates of MuniPreferred in such a manner as to comply with
the requirements of Minnesota Statute Section 302A.429, Subd. 2, and Section
8-204 of the Uniform Commercial Code as in effect in the State of Minnesota, or
any successor provisions.
IN WITNESS WHEREOF, NUVEEN MUNICIPAL MARKET OPPORTUNITY FUND, INC., has
caused these presents to be signed in its name and on its behalf by its Vice
President on May , 1999.
NUVEEN MUNICIPAL MARKET
OPPORTUNITY FUND, INC.
By /s/ Gifford R. Zimmerman
------------------------------
Gifford R. Zimmerman
Vice President and Secretary
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<PAGE> 166
NUVEEN MUNICIPAL MARKET
OPPORTUNITY FUND, INC.
APPENDIX A
SECTION 1. DESIGNATION AS TO SERIES.
SERIES W: A series of 10,000 shares of Preferred Stock, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Stock, Series W." Each share of Series M
MuniPreferred shall be issued on May , 1999; have an Applicable Rate for its
Initial Rate Period equal to % per annum; have an initial Dividend Payment
Date of May , 1999; and have such other preferences, limitations and relative
voting rights, in addition to those required by applicable law or set forth in
the Articles applicable to Preferred Stock of the Fund, as set forth in Part I
and Part 11 of this Statement. The Series W MuniPreferred shall constitute a
separate series of Preferred Stock of the Fund, and each share of Series W
MuniPreferred shall be identical except as provided in Section 11 of Part I of
this Statement.
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SECTION 2. NUMBER OF AUTHORIZED SHARES PER SERIES.
The number of authorized shares constituting Series W MuniPreferred is
10,000.
SECTION 3. EXCEPTIONS TO CERTAIN DEFINITIONS.
Notwithstanding the definitions contained under the heading "Definitions"
in this Statement, the following terms shall have the following meanings for
purposes of this Statement:
Not applicable.
SECTION 4. CERTAIN DEFINITIONS.
For purposes of this Statement, the following terms shall have the
following meanings (with terms defined in the singular having comparable
meanings when used in the plural and vice versa), unless the context otherwise
requires:
"GROSS-UP PAYMENT" means payment to a Holder of shares of MuniPreferred
of an amount which, when taken together with the aggregate amount of
Taxable Allocations made to such Holder to which such Gross-up Payment
relates, would cause such Holder's dividends in dollars (after Federal
income tax consequences) from the aggregate of such Taxable Allocations and
the related Gross-up Payment to be equal to the dollar amount of the
dividends which would have been received by such Holder if the amount of
such aggregate Taxable Allocations would have been excludable from the
gross income of such Holder. Such Gross-up Payment shall be calculated (i)
without consideration being given to the time value of money; (ii) assuming
that no Holder of shares of MuniPreferred is subject to the Federal
alternative minimum tax with respect to dividends received from the Fund;
and (iii) assuming that each Taxable Allocation and each Gross-up Payment
(except to the extent such Gross-up Payment is designated as an
exempt-interest dividend under Section 852(b)(5) of the Code or successor
provisions) would be taxable in the hands of each Holder of shares of
MuniPreferred at the maximum marginal regular Federal individual income tax
rate applicable to ordinary income or net capital gains, as applicable,
or the maximum marginal regular Federal corporate income tax rate
applicable to ordinary income or net capital gains, as applicable,
whichever is greater, in effect at the time such Gross-up Payment is made.
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"MOODY'S DISCOUNT FACTOR" shall mean, for purposes of determining the
Discounted Value of any Moody's Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest Exposure Period set forth
opposite such rating that is the same length as or is longer than the Moody's
Exposure Period, in accordance with the table set forth below:
RATING CATEGORY
----------------------------------------------------------
EXPOSURE PERIOD Aaa* Aa* A* Baa* OTHER** (V)MIG-1*** SP-1+***
--------------- ---- --- -- ---- ------- ----------- --------
7 weeks ..........151% 159% 168% 202% 229% 136% 148%
8 weeks or less
but greater
than seven
weeks ............154 164 173 205 235 137 149
9 weeks or less
but greater
than eight
weeks ............158 169 179 209 242 138 150
------------
*Moody's rating.
**Municipal Obligations not rated by Moody's but rated BBB by S&P.
***Municipal Obligations rated MIG-1 or VMIG-1 or, if not rated by Moody's,
rated SP-1+ by S&P, which do not mature or have a demand feature at par
exercisable in 30 days and which do not have a long-term rating.
Notwithstanding the foregoing, (i) the Moody's Discount Factor for
short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated at least MIG-1, VMIG-1 or P-1 by Moody's and mature or
have a demand feature at par exercisable in 30 days or less or 125% as long as
such Municipal Obligations are rated at least A-l+/AA or SP-1+/AA by S&P and
mature or have a demand feature at par exercisable in 30 days or less and (ii)
no Moody's Discount Factor will be applied to cash or to Receivables for
Municipal Obligations Sold.
"MOODY'S ELIGIBLE ASSET" shall mean cash, Receivables for Municipal
Obligations Sold or a Municipal Obligation that (i) pays interest in cash, (ii)
is publicly rated Baa or higher by Moody's or, if not rated by Moody's but rated
by S&P, is rated at least BBB by S&P (PROVIDED, HOWEVER, that for purposes of
determining the Moody's Discount Factor applicable to any such S&P-rated
Municipal Obligation, such Municipal Obligation (excluding any short-term
Municipal Obligation) shall be deemed to have a Moody's rating which is one full
rating category lower than its S&P rating), (iii) does not have its Moody's
rating suspended by Moody's, and (iv) is part of an issue of Municipal
Obligations of at least $10,000,000. Municipal Obligations issued by any one
issuer and rated BBB by S&P may comprise no more than 4% of total Moody's
Eligible Assets; such BBB-
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rated Municipal Obligations, if any, together with any Municipal Obligations
issued by the same issuer and rated Baa by Moody's or A by S&P, may comprise no
more than 6% of total Moody's Eligible Assets; such BBB, Baa and A-rated
Municipal Obligations, if any, together with any Municipal Obligations issued by
the same issuer and rated A by Moody's or AA by S&P, may comprise no more than
10% of total Moody's Eligible Assets; and such BBB, Baa, A and AA-rated
Municipal Obligations, if any, together with any Municipal Obligations issued by
the same issuer and rated Aa by Moody's or AAA by S&P, may comprise no more than
20% of total Moody's Eligible Assets. For purposes of the foregoing sentence,
any Municipal Obligation backed by the guaranty, letter of credit or insurance
issued by a third party shall be deemed to be issued by such third party if the
issuance of such third party credit is the sole determinant of the rating on
such Municipal Obligation. Municipal Obligations issued by issuers located
within a single state or territory and rated BBB by S&P may comprise no more
than 12% of total Moody's Eligible Assets: such BBB-rated Municipal Obligations,
if any, together with any Municipal Obligations issued by issuers located within
the same state or territory and rated Baa by Moody's or A by S&P, may comprise
no more than 20% of total Moody's Eligible Assets; such BBB, Baa and A-rated
Municipal Obligations, if any, together with any Municipal Obligations issued by
issuers located within the same state or territory and rated A by Moody's or AA
by S&P, may comprise no more than 40% of total Moody's Eligible Assets; and such
BBB, Baa, A and AA-rated Municipal Obligations, if any, together with any
Municipal Obligations issued by issuers located within the same state or
territory and rated Aa by Moody's or AAA by S&P, may comprise no more than 60%
of total Moody's Eligible Assets. For purposes of applying the foregoing
requirements, a Municipal Obligation shall be deemed to be rated BBB by S&P if
rated BBB-, BBB or BBB+ by S&P, Moody's Eligible Assets shall be calculated
without including cash, and Municipal Obligations rated MIG-1, VMIG-l or P-1 or,
if not rated by Moody's, rated A-1+/AA or SP-1+/AA by S&P, shall be considered
to have a long-term rating of A. When the Fund sells a Municipal Obligation and
agrees to repurchase such Municipal Obligation at a future date, such Municipal
Obligation shall be valued at its Discounted Value for purposes of determining
Moody's Eligible Assets, and the amount of the repurchase price of such
Municipal Obligation shall be included as a liability for purposes of
calculating the MuniPreferred Basic Maintenance Amount. When the Fund purchases
a Moody's Eligible Asset and agrees to sell it at a future date, such Eligible
Asset shall be valued at the amount of cash to be received by the Fund upon such
future date, provided that the counterparty to the transaction has a long-term
debt rating of at least A2 from Moody's and the transaction has a term of no
more than 30 days, otherwise such Eligible Asset shall be valued at the
Discounted Value of such Eligible Asset.
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<PAGE> 170
Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset to the extent it is (i) subject to any material lien, mortgage,
pledge, security interest or security agreement of any kind (collectively,
"Liens"), except for (a) Liens which are being contested in good faith by
appropriate proceedings and which Moody's has indicated to the Fund will not
affect the status of such asset as a Moody's Eligible Asset, (b) Liens for taxes
that are not then due and payable or that can be paid thereafter without
penalty, (c) Liens to secure payment for services rendered or cash advanced to
the Fund by Nuveen Advisory Corp., United States Trust Company of New York or
the Auction Agent and (d) Liens by virtue of any repurchase agreement; or (ii)
deposited irrevocably for the payment of any liabilities for purposes of
determining the MuniPreferred Basic Maintenance Amount.
"RATE MULTIPLE," for shares of a series of MuniPreferred on any Auction
Date for shares of such series, shall mean the percentage, determined as set
forth below, based on the prevailing rating of shares of such series in effect
at the close of business on the Business Day next preceding such Auction Date:
PREVAILING RATING PERCENTAGE
----------------- ----------
"aa3"/AA- or higher ................................110%
"a3"/A- . ..........................................125%
"baa3"/BBB- ........................................150%
"ba3"/BB- ..........................................200%
Below "ba3"/BB- . ..................................250%
PROVIDED HOWEVER, that in the event the Fund has notified the Auction Agent of
its intent to allocate income taxable for Federal income tax purposes to shares
of such series prior to the Auction establishing the Applicable Rate for shares
of such series, the applicable percentage in the foregoing table shall be
divided by the quantity 1 minus the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income, whichever is
greater.
For purposes of this definition, the "prevailing rating" of shares of a
series of MuniPreferred shall be (i) "aa3"/AA- or higher if such shares have a
rating of "aa3" or better by Moody's and AA- or better by S&P or the equivalent
of such ratings by such agencies or a substitute rating agency or substitute
rating agencies selected as provided below, (ii) if not "aa3"/AA- or higher,
then "a3"/A- if such shares have a rating of "a3" or better by Moody's and A- or
better by S&P or the equivalent of such ratings by such agencies or a substitute
rating agency or substitute rating agencies selected as provided below, (iii) if
not "aa3"/AA- or higher or "a3"/A-, then "baa3"/BBB- if such shares have a
rating of "baa3" or better by Moody's and BBB- or better by S&P or the
equivalent of such
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<PAGE> 171
ratings by such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, (iv) if not "aa3"/AA- or higher, "a3"/A- or
"baa3"/BBB-, then "ba3"/BB- if such shares have a rating of "baa3" or better by
Moody's and BB- or better by S&P or the equivalent of such ratings by such
agencies or a substitute rating agency or substitute rating agencies selected as
provided below, and (v) if not "aa3"/AA- or higher, "a3"/A-, "baa3"/BBB-, or
"ba3"/BB-, then Below "ba3"/BB-; PROVIDED, HOWEVER, that if such shares are
rated by only one rating agency, the prevailing rating will be determined
without reference to the rating of any other rating agency. The Fund shall take
all reasonable action necessary to enable either S&P or Moody's to provide a
rating for shares of MuniPreferred. If neither S&P nor Moody's shall make such a
rating available, the party set forth in Section 7 of APPENDIX A or its
successor shall select at least one nationally recognized statistical rating
organization (as that term is used in the rules and regulations of the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended from time to time) to act as a substitute rating agency in respect of
shares of the series of MuniPreferred set forth opposite such party's name in
Section 7 of APPENDIX A and the Fund shall take all reasonable action to enable
such rating agency to provide a rating for such shares.
"S&P DISCOUNT FACTOR" shall mean, for purposes of determining the
Discounted Value of any S&P Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest Exposure Period set forth
opposite such rating that is the same length as or is longer than the S&P
Exposure Period, in accordance with the table set forth below:
RATING CATEGORY
----------------------------------
EXPOSURE PERIOD AAA* AA* A* BBB*
--------------- ---- --- -- ----
40 Business Days ..................... 190% 195% 210% 250%
22 Business Days ..................... 170 175 190 230
10 Business Days ..................... 155 160 175 215
7 Business Days ...................... 150 155 170 210
3 Business Days ...................... 130 135 150 190
-------------
* S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
Municipal Obligations will be 115%, so long as such Municipal Obligations are
rated A-1+ or SP-l+ by S&P and mature or have a demand feature exercisable
within 30 days or less, or 125% if such Municipal Obligations are not rated by
S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's; PROVIDED, HOWEVER, that any
such Moody's-rated short-term Municipal Obligations which have demand features
exercisable within 30 days or less must be backed by a letter of credit,
liquidity facility or guarantee from a bank or other financial institution with
a short-term rating of at least A-l+ from S&P; and FURTHER PROVIDED that such
Moody's-rated short-
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term Municipal Obligations may comprise. no more than 50% of short-term
Municipal Obligations that qualify as S&P Eligible Assets and (ii) no S&P
Discount Factor will be applied to cash or to Receivables for Municipal
Obligations Sold. For purposes of the foregoing, Anticipation Notes rated SP-l+
or, if not rated by S&P, rated MIG-1 or VMIG-1 by Moody's, which do not mature
or have a demand feature at par exercisable in 30 days and which do not have a
long-term rating, shall be considered to be short-term Municipal Obligations.
"S&P ELIGIBLE ASSET" shall mean cash (excluding any cash irrevocably
deposited by the Fund for the payment of any liabilities within the meaning of
MuniPreferred Basic Maintenance Amount), Receivables for Municipal Obligations
Sold or a Municipal Obligation owned by the Fund that (i) is interest bearing
and pays interest at least semi-annually; (ii) is payable with respect to
principal and interest in U.S. Dollars; (iii) is publicly rated BBB or higher by
S&P or, if not rated by S&P but rated by Moody's, is rated at least A by Moody's
(PROVIDED, HOWEVER, that such Moody's-rated Municipal Obligations will be
included in S&P Eligible Assets only to the extent the Market Value of such
Municipal Obligations does not exceed 50% of the aggregate Market Value of S&P
Eligible Assets; and FURTHER PROVIDED that, for purposes of determining the S&P
Discount Factor applicable to any such Moody's-rated Municipal Obligation, such
Municipal Obligation will be deemed to have an S&P rating which is one full
rating category lower than its Moody's rating); (iv) is not part of a private
placement of Municipal Obligations; and (v) is part of an issue of Municipal
Obligations with an original issue size of at least $20 million or, if of an
issue with an original issue size below $20 million (but in no event below $10
million), is issued by an issuer with a total of at least $50 million of
securities outstanding. Solely for purposes of this definition, the term
"Municipal Obligation" means any obligation the interest on which is exempt from
regular Federal income taxation and which is issued by any of the fifty United
States, the District of Columbia or any of the territories of the United States,
their subdivisions, counties, cities, towns villages, school districts and
agencies (including authorities and special districts created by the states),
and federally sponsored agencies such as local housing authorities.
Notwithstanding the foregoing limitations:
(1) Municipal Obligations (excluding Escrowed Bonds) of any one issuer or
guarantor (excluding bond insurers) shall be considered S&P Eligible Assets
only to the extent the Market Value of such Municipal Obligations does not
exceed 10% of the aggregate Market Value of S&P Eligible Assets, provided
that 2% is added to the applicable S&P Discount Factor for every 1% by
which the Market Value of such Municipal Obligations exceeds 5% of the
aggregate Market Value of S&P Eligible Assets;
(2) Municipal Obligations guaranteed or insured by any one bond insurer
shall be considered S&P Eligible Assets only to the extent the
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Market Value of such Municipal Obligations does not exceed 25% of the
aggregate Market Value of S&P Eligible Assets; and
(3) Long-term Municipal Obligations (excluding Escrowed Bonds) issued
by issuers in any one state or territory shall be considered S&P
Eligible Assets only to the extent the Market Value of such Municipal
Obligations does not exceed 20% of the aggregate Market Value of S&P
Eligible Assets.
For purposes of determining as of any Valuation Date whether the Fund
has S&P Eligible Assets with an aggregate Discounted Value at least equal
to the MuniPreferred Basic Maintenance Amount, the Fund shall include as a
liability in the calculation of the MuniPreferred Basic Maintenance Amount
an amount calculated semi-annually equal to 150% of the estimated cost of
obtaining Permanent Insurance with respect to S&P Eligible Assets that are
(i) covered by Portfolio Insurance policies which provide the Fund with
the option to obtain such Permanent Insurance and (ii) discounted by an
S&P Discount Factor determined by reference to the insurance claims-paying
ability rating of the issuer of such Portfolio Insurance policy.
"Secondary Market Insurance" shall mean "Secondary Market Insurance"
as defined in the Fund's Registration Statement.
SECTION 5. INITIAL RATE PERIOD.
The Initial Rate Period for shares of Series W MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
May , 1990.
SECTION 6. DATE FOR PURPOSES OF PARAGRAPH (yyy) CONTAINED UNDER THE HEADING
"DEFINITIONS" IN THIS STATEMENT.
May 31, 1999.
SECTION 7. PARTY NAMED FOR PURPOSES OF THE DEFINITION OF "RATE MULTIPLE" IN
THIS STATEMENT.
PARTY: SERIES OF MUNIPREFERRED:
Salomon Smith Barney Inc. Series W
SECTION 8. ADDITIONAL DEFINITIONS.
Not applicable.
SECTION 9. DIVIDEND PAYMENT DATES.
Except as otherwise provided in paragraph (d) of Section 2 of Part I of
this Statement, dividends shall be payable on shares of:
Series W MuniPreferred on Thursday, May , 1999, and thereafter on each
Thursday;
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<PAGE> 174
SECTION 10. AMOUNT FOR PURPOSES OF SUBPARAGRAPH (c)(i) OF SECTION 5 OF PART I OF
THIS STATEMENT.
$300,000,000.
SECTION II. REDEMPTION PROVISIONS APPLICABLE TO INITIAL RATE PERIODS.
Not applicable.
Section 12. APPLICABLE RATE FOR PURPOSES OF SUBPARAGRAPH (b)(iii) OF SECTION 3
OF PART II OF THIS STATEMENT.
For purpose of subparagraph (b)(iii) of Section 3 of Part II of this
Statement, the Applicable Rate for shares of such series for the next succeeding
Rate Period of shares of such series shall be equal to the lesser of the Kenny
Index (if such Rate Period consists of fewer than 183 Rate Period Days) or the
product of (A) (I) the "AA" Composite Commercial Paper Rate on such Auction Date
for such Rate Period, if such Rate Period consists of fewer than 183 Rate Period
Days; (II) the Treasury Bill Rate on such Auction Date for such Rate Period, if
such Rate Period consists of more than 182 but fewer than 365 Rate Period Days;
or (III) the Treasury Note Rate on such Auction Date for such Rate Period, if
such Rate Period is more than 364 Rate Period Days (the rate described in the
foregoing clause (A)(I), (II) or (III), as applicable, being referred to herein
as the "Benchmark Rate") and (B) 1 minus the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income,
whichever is greater; PROVIDED, HOWEVER, that if the Fund has notified the
Auction Agent of its intent to allocate to shares of such series in such Rate
Period any net capital gains or other income taxable for Federal income tax
purposes ("Taxable Income"), the Applicable Rate for shares of such series for
such Rate Period will be (i) if the Taxable Yield Rate (as defined below) is
greater than the Benchmark Rate, then the Benchmark Rate, or (ii) if the Taxable
Yield Rate is less than or equal to the Benchmark Rate, then the rate equal to
the sum of (x) the lesser of the Kenny Index (if such Rate Period consists of
fewer than 183 Rate Period Days) or the product of the Benchmark Rate multiplied
by the factor set forth in the preceding clause (B) and (y) the product of the
maximum marginal regular Federal individual income tax rate applicable to
ordinary income or the maximum marginal regular Federal corporate income tax
applicable to ordinary income,
B-A-9
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whichever is greater, multiplied by the Taxable Yield Rate. For purposes of the
foregoing, Taxable Yield Rate means the rate determined by (a)-dividing the
amount of Taxable Income available for distribution per such share of
MuniPreferred by the number of days in the Dividend Period in respect of which
such Taxable Income is contemplated to be distributed, (b) multiplying the
amount determined in (a) above by 365 (in the case of a Dividend Period of 7
Rate Period Days) or 360 (in the case of any other Dividend Period), and (c)
dividing the amount determined in (b) above by $25,000.
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<PAGE> 176
NUVEEN MUNICIPAL MARKET OPPORTUNITY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
May ______, 1999
<PAGE> 177
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 nine years ended October 31, 1998
PART I
Portfolio of Investments, October 31, 1998 (audited)
Statement of Net Assets, October 31, 1998 (audited)
Statement of Operations for the year ended October 31, 1998 (audited)
Statement of Changes in Net Assets for the two years ended October 31,
1998 (audited)
(2) EXHIBITS
The exhibits to this Registration Statement are listed in the Exhibit Index
located elsewhere herein.
ITEM 25: MARKETING ARRANGEMENTS
See Sections 2(a) and 3(i) of the Purchase Agreement filed as an Exhibit
herein.
ITEM 26: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission fees $ 22,240
Printing and engraving expenses 70,000
Legal fees 75,000
Accounting expenses 5,000
Rating Agency fees 15,000
Blue Sky filing fees and expenses 10,000
Miscellaneous expenses 5,000
--------
Total* $202,240
</TABLE>
C-I
<PAGE> 178
[*Estimated]
ITEM 27: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 28: NUMBER OF HOLDERS OF SECURITIES
At March 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
Common Stock, $.01 par value................................ 32,211
----------
Preferred Stock, $.01 par value............................. 26
----------
</TABLE>
ITEM 29: INDEMNIFICATION
Article EIGHTH of the Registrant's Articles of Incorporation provides as
follows:
EIGHTH: To the maximum extent permitted by the Minnesota Business
Corporation Act, as from time to time amended, the Corporation shall indemnify
its currently acting and its former directors, officers, employees and agents,
and those persons who, at the request of the Corporation, serve or have served
another corporation, partnership, joint venture, trust or other enterprise in
one or more such capacities. The indemnification provided for herein shall not
be deemed exclusive of any other rights to which those seeking indemnification
may otherwise be entitled.
Expenses (including attorneys' fees) incurred in defending a civil or
criminal action, suit or proceeding (including costs connected with the
preparation of a settlement) may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding, if authorized by the Board
of Directors in the specific case, upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay that amount of the
advance which exceeds the amount which it is ultimately determined that he is
entitled to receive from the Corporation by reason of indemnification as
authorized herein; provided, however, that prior to making any such advance at
least one of the following conditions shall have been met: (1) the indemnitee
shall provide a security for his undertaking, (2) the Corporation shall be
insured against losses arising by reason of any lawful advances, or (3) a
majority of a quorum of the disinterested, non-party directors of the
Corporation, or an independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts, that there is reason to
believe that the indemnitee ultimately will be found entitled to
indemnification.
C-II
<PAGE> 179
Nothing in these Articles of Incorporation or in the By-Laws shall be
deemed to protect or provide indemnification to any director or officer of the
Corporation against any liability to the Corporation or to its security holders
to which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office ("disabling conduct"), and the Corporation shall not
indemnify any of its officers or directors against any liability to the
Corporation or to its security holders unless a determination shall have been
made in the manner provided hereafter that such liability has not arisen from
such officer's or director's disabling conduct. A determination that an officer
or director is entitled to indemnification shall have been properly made if it
is based upon (1) a final decision on the merits by a court or other body before
whom the proceeding was brought that the indemnitee was not liable by reason of
disabling conduct or, (2) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the indemnitee was not
liable by reason of disabling conduct, by (a) the vote of a majority of a quorum
of directors who are neither "interested persons" of the Corporation as defined
in the Investment Company Act of 1940 nor parties to the proceeding, or (b) an
independent legal counsel in a written opinion.
The directors and officers of the Registrant are covered by Investment
Trust Errors and Omission policies in the aggregate amount of $40,000,000 (with
a maximum deductible of $500,000) against liability and expenses of claims of
wrongful acts arising out of their position with the Registrant, except for
matters which involve willful acts, bad faith, gross negligence and willful
disregard of duty (i.e., where the insured did not act in good faith for a
purpose he or she reasonably believed to be in the best interest of the
Registrant or where he or she had reasonable cause to believe this conduct was
unlawful).
Section 7 of the Underwriting Agreement filed as Exhibit h to this
Registration Statement provides for each of the parties thereto, including the
Registrant and the Underwriters, to indemnify the others, their directors,
certain of their officers and directors and persons who control them against
certain liabilities in connection with the offering described herein, including
liabilities under the Federal securities laws.
ITEM 30: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Nuveen Advisory Corp. serves as investment adviser to the following
open-end management type investment companies: Nuveen Flagship Multistate Trust
I, Nuveen Flagship Multistate Trust II, Nuveen Flagship Multistate Trust III,
Nuveen Flagship Multistate Trust IV, Nuveen Flagship Municipal Trust, Nuveen
Taxable Funds Inc., Nuveen California Tax-Free Fund, Inc., Nuveen Tax-Free Money
Market Fund, Inc., Nuveen Tax-Exempt Money Market Fund, Inc., and Nuveen
Tax-Free Reserves, Inc. It also serves as investment adviser to the following
closed-end management type investment companies: Nuveen Municipal Value Fund,
Inc., Nuveen California Municipal Value Fund, Inc., Nuveen New York Municipal
Value Fund, Inc., Nuveen Municipal Income Fund, Inc., Nuveen Premium Income
Municipal Fund, Inc.,
C-III
<PAGE> 180
Nuveen Performance Plus Municipal Fund, Inc., Nuveen California Performance Plus
Municipal Fund, Inc., Nuveen New York Performance Plus Municipal Fund, Inc.,
Nuveen Municipal Advantage Fund, Inc., Nuveen Municipal Market Opportunity Fund,
Inc., Nuveen California Municipal Market Opportunity Fund, Inc., Nuveen
Investment Quality Municipal Fund, Inc., Nuveen California Investment Quality
Municipal Fund, Inc., Nuveen New York Investment Quality Municipal Fund, Inc.,
Nuveen Insured Quality Municipal Fund, Inc., Nuveen Florida Investment Quality
Municipal Fund, Nuveen New Jersey Investment Quality Municipal Fund, Inc.,
Nuveen Pennsylvania Investment Quality Municipal Fund, Nuveen Select Quality
Municipal Fund, Inc., Nuveen California Select Quality Municipal Fund, Inc.,
Nuveen New York Select Quality Municipal Fund, Inc., Nuveen Quality Income
Municipal Fund, Inc., Nuveen Insured Municipal Opportunity Fund, Inc., Nuveen
Florida Quality Income Municipal Fund, Nuveen Michigan Quality Income Municipal
Fund, Inc., Nuveen Ohio Quality Income Municipal Fund, Inc., Nuveen Texas
Quality Income Municipal Fund, Nuveen California Quality Income Municipal Fund,
Inc., Nuveen New York Quality Income Municipal Fund, Inc., Nuveen Premier
Municipal Income Fund, Inc., Nuveen Premier Insured Municipal Income Fund, Inc.,
Nuveen Premium Income Municipal Fund 2, Inc., Nuveen Insured California Premium
Income Municipal Fund, Inc., Nuveen Insured New York Premium Income Municipal
Fund, Inc., Nuveen Select Maturities Municipal Fund, Nuveen Arizona Premium
Income Municipal Fund, Inc., Nuveen Insured Florida Premium Income Municipal
Fund, Nuveen Michigan Premium Income Municipal Fund, Inc., Nuveen New Jersey
Premium Income Municipal Fund, Inc., Nuveen Premium Income Municipal Fund 4,
Inc., Nuveen Insured California Premium Income Municipal Fund 2, Inc., Nuveen
Pennsylvania Premium Income Municipal Fund 2, Nuveen Maryland Premium Income
Municipal Fund, Nuveen Massachusetts Premium Income Municipal Fund, Nuveen
Virginia Premium Income Municipal Fund, Nuveen Washington Premium Income
Municipal Fund, Nuveen Connecticut Premium Income Municipal Fund, Nuveen Georgia
Premium Income Municipal Fund, Nuveen Missouri Premium Income Municipal Fund,
Nuveen North Carolina Premium Income Municipal Fund, Nuveen California Premium
Income Municipal Fund, and Nuveen Insured Premium Income Municipal Fund 2.
Nuveen Advisory Corp. has no other clients or business at the present time. The
principal business address for all of these investment companies is 333 West
Wacker Drive, Chicago, Illinois 60606.
ITEM 31: LOCATION OF ACCOUNTS AND RECORDS
Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, Illinois 60606,
maintains Articles of Incorporation, By-Laws, minutes of directors and
shareholders meetings, and contracts of the Registrant and all advisory material
of the investment adviser.
The Chase Manhattan Bank, 4 New York Plaza, New York, New York 10004,
maintains all general and subsidiary ledgers, journals, trial balances, records
of all portfolio purchases and sales, and all other required records not
maintained by Nuveen Advisory Corp. It also maintains all the required records
in its capacity as transfer, dividend paying, and shareholder service agent for
shares of the Registrant's Common Stock. Bankers Trust Company, 4 Albany Street,
New
C-IV
<PAGE> 181
York, New York 10006, maintains all required records in its capacity as transfer
agent, registrar, dividend disbursing agent and redemption agent for the
Registrant's MuniPreferred shares.
ITEM 32: MANAGEMENT SERVICES
Not applicable.
ITEM 33: UNDERTAKINGS
(1) Registrant undertakes to suspend the offering of its shares until it amends
its prospectus if (1) subsequent to the effective date of its Registration
Statement, the net asset value declines more than 10 percent from its net asset
value as of the effective date of the Registration Statement, or (2) the net
asset value increases to an amount greater than its net proceeds as stated in
the prospectus.
(2) Not applicable
(3) Not applicable
(4) Not applicable
(5) Registrant undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as a part of a
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 497(h) under the Securities Act of
1933 shall be deemed to be a part of this Registration Statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering thereof.
(6) Registrant undertakes to send by first class mail or other means designed to
ensure equally prompt delivery, within two business days of receipt of a written
or oral request, any Statement of Additional Information.
(7) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding (is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
C-V
<PAGE> 182
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago, and State of Illinois, on the
3rd day of May, 1999.
NUVEEN MUNICIPAL MARKET OPPORTUNITY FUND, INC.
/s/ GIFFORD R. ZIMMERMAN
--------------------------------------
Gifford R. Zimmerman, Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STEPHEN D. FOY Vice President and May 3, 1999
- ----------------------------------------- Controller (Principal
Stephen D. Foy Financial and Accounting
Officer)
Timothy R. Schwertfeger* Executive Officer
Robert P. Bremner* Director
Lawrence H. Brown* Director
Anne E. Impellizzeri* Director
Peter R. Sawers* Director
William J. Schneider* Director
Judith M. Stockdale* Director
</TABLE>
By
/s/ GIFFORD R. ZIMMERMAN
-----------------------
Gifford R. Zimmerman
Attorney-in-Fact
May 3, 1999
- ----------------
* An original power of attorney authorizing, among others, Timothy R.
Schwertfeger, Gifford R. Zimmerman, Larry W. Martin, and each of them, to
execute this Registration Statement, and Amendments thereto, for each of the
officers and directors of Registrant on whose behalf this Registration Statement
is filed, have been executed and are filed herewith.
C-VI
<PAGE> 183
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
- ------- ------------
a. Articles of Incorporation of Registrant, as amended, including the
Statement Establishing and Fixing the Rights and Preferences of
Registrant's Municipal Auction Rate Cumulative Preferred Stock....
b. By-Laws of Registrant ............................................
c. Not applicable....................................................
d.1 Basic Terms of Auction Agency Agreement, including form of request and
acceptance letter related thereto ....................
d.2 Basic Terms 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 of MuniPreferred ...................................
e. Dividend Reinvestment Plan .......................................
f. Not applicable....................................................
g.1 Investment Management Agreement ..................................
g.2 Renewal of Investment Management Agreement .......................
h. Form of Underwriting Agreement ...................................
i. Deferred Compensation Plan for Non-Employee Directors ............
j.1 Exchange-Traded Fund Custody Agreement ...........................
j.2 Fund Accounting Agreement ........................................
j.3 Letter of Succession to Agreements ...............................
k. Not applicable....................................................
l. Opinion and consent of Morgan, Lewis & Bockius LLP................
m. Not applicable....................................................
n. Consent of Ernst & Young..........................................
o. Not applicable....................................................
p. Not applicable....................................................
q. Not applicable....................................................
r. Financial Data Schedule ..........................................
s. Powers of Attorney ...............................................
All Exhibits, with the exception of Exhibits a and n, are incorporated by
reference to the relevant exhibit number of the Registration Statement on Form
N-2 (Registration Nos. 333-77365 and 811-06040), which was filed April 29, 1999.
Exhibit n is included in this filing.
C-VII
<PAGE> 1
EXHIBIT 99.a
ARTICLES OF INCORPORATION
OF
NUVEEN MUNICIPAL MARKET OPPORTUNITY FUND, INC.
* * *
FIRST: The name and address of the incorporator are as follows:
Name Address
---- -------
Gifford R. Zimmerman 333 West Wacker Drive
Chicago, Illinois 60606
SECOND: The name of the Corporation is: Nuveen Municipal Market
Opportunity Fund, Inc. (the "Corporation").
THIRD: The purposes for which the Corporation is formed and the business
to be carried on and promoted by it are as follows:
To hold, invest, and reinvest its funds, and in connection therewith to
hold part or all of its funds in cash, and to purchase or otherwise sell,
assign, negotiate, transfer, exchange or otherwise dispose of or turn to
account or realize upon securities and other negotiable or non-negotiable
instruments, obligations and evidences of indebtedness created or issued by any
persons, associations, corporations, syndicates, combinations, organizations,
governments or subdivisions thereof, and generally deal in any such securities
and other negotiable or non-negotiable instruments, obligations and evidences
of indebtedness; and to exercise, as owner or holder of any, securities or
other instruments, all rights, powers, and privileges in respect thereof and to
do any and all acts and things for the preservation, protection and improvement
of any and all such securities or other instruments and, in general, to conduct
the business of a closed-end investment company as that term is defined in the
Act of Congress entitled the Investment Company Act of 1940, as amended;
To issue and sell shares or its own capital stock from time to time on
such terms and conditions, for such purposes and for such amount or kind of
consideration (including without limitation thereto, securities) now or
hereafter permitted by the laws of the State of Minnesota and by these Articles
of Incorporation as its Board of Directors may determine; and
To engage in any lawful act or activity for which corporations may be
organized under the Minnesota Business Corporation Act.
The enumeration herewith or the objects and purposes of the Corporation
shall be construed as powers as well as objects and purposes and shall not be
deemed to exclude by inference any powers, objects or purposes which the
Corporation is empowered to exercise, whether expressly by
<PAGE> 2
force of the laws or the State of Minnesota now or hereafter in effect, or
implied by the reasonable construction of such laws.
FOURTH: The address of the registered office of the Corporation in the
state of Minnesota is 33 South Sixth Street, Multifoods Tower, Minneapolis,
Minnesota 55402. The name of its resident agent at such address is The
Prentice-Hall Corporation System, Inc.
FIFTH: The total number of shares of stock which the Corporation is
authorized to issue is Two Hundred and One Million (201,000,000), consisting of
One Million (1,000,000) shares of preferred stock, par value $.01 per share and
of the aggregate par value of Ten Thousand Dollars ($10,000) (the "Preferred
Stock") and Two Hundred Million (200,000,000) shares of common stock, par value
$.01 per share and of the aggregate par value of Two Million Dollars
($2,000,000) (the "Common Stock"). There shall be no cumulative voting. The
designations and powers, preferences and rights, and the qualifications,
limitations and restrictions thereof, of each of the classes of stock of the
Corporation are as follows:
(a) Preferred Stock. The Preferred Stock shall be issued from time to
time in one or more series with such distinctive serial designations and
(i) may have such voting powers, full or limited; (ii) may be subject to
redemption at such time or times and at such price or prices; (iii) may be
entitled to receive dividends (which may be cumulative or noncumulative)
at such rate or rates, on such conditions, and at such times, and payable
in preference to, or in such relation to, the dividends payable on any
other class or classes of stock; (iv) may have such rights upon the
dissolution of, or upon any distribution of the assets of, the
Corporation; (v) may be made convertible into, or exchangeable for, shares
of any other class or classes or of any other series of the same or any
other class or classes of stock of the Corporation, at such price or
prices or at such rates of exchange and with such adjustments; and (vi)
shall have such other relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, all as shall
hereafter be stated and expressed in the resolution or resolutions
providing for the issue of such Preferred Stock from time to time adopted
by the Board of Directors pursuant to authority so to do which is hereby
expressly vested in the Board.
(b) Common Stock.
<PAGE> 3
(i) Subject to the rights of the holders of the Preferred Stock of
the corporation, in the event or the liquidation or dissolution of the
Corporation, the holders of the Common Stock shall be entitled to receive
pro rata the net distributable assets of the Corporation.
(ii) The holders of shares of the Common Stock shall not, as such
holders, have any right to acquire, purchase or subscribe for any shares
of Common Stock or securities of the Corporation which it may hereafter
issue or sell (whether out of the number of shares authorized by these
Articles of Incorporation, or out of any shares acquired by it after the
issuance thereof, or otherwise), other than such right, if any, as the
board of Directors of the Corporation in its discretion may determine.
(iii) Subject to the rights of the holders of the Preferred Stock of
the Corporation, dividends, when, as and if declared by the Board of
Directors, shall be shared equally by the holders of Common Stock on a
share for share basis. The Board of Directors may direct that any
dividends so declared and distributed shall be paid in cash to the
holder, or, alternatively, may direct that any such dividends be
reinvested in full and fractional shares of the Corporation if such
holder elects to have them reinvested.
(iv) If any shares of Common Stock shall have been purchased or
otherwise reacquired by the Corporation in accordance with law, all
shares so purchased or otherwise reacquired shall be retired
automatically, and such retired shares shall have the status of
authorized but unissued shares of Common Stock and the number of
authorized shares of Common Stock of the Corporation shall not be reduced
by the number of any shares retired.
(v) Shares of Common Stock shall be issued from time to time either
for cash or for such other considerations (which may be in any one or
more instances a certain specified consideration or certain specified
considerations) as the Board of Directors, from time to time, may deem
advisable, in the manner and to the extent now or hereafter permitted by
the laws of the State of Minnesota and the Investment Company Act.
(vi) The Corporation may issue shares of its Common Stock in
fractional denominations to the same extent as its whole shares, and
shares in fractional denominations shall be shares of Common Stock having
proportionately to the respective fractions represented thereby all the
rights of whole shares, including, without limitation, the right to
-3-
<PAGE> 4
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 certificate representing fractional shares.
SIXTH: (a) The initial number of directors of the Corporation shall be
seven. The By-Laws of the Corporation may fix the number of directors at a
number greater or less than seven and may authorize the Board of Directors, by
the vote of the majority of the entire Board of Directors, to increase or
decrease the number of directors fixed by these Articles of Incorporation or by
the By-Laws within limits specified in the By-laws.
(b) The names of the persons who will serve as the initial directors
of the Corporation are as follows: Royce A. Hoyle, Jr., Donald E. Sveen,
Richard J. Franke, Robert G. Sether, Margaret K. Rosenheim, Frank P.
Wendt and John E. O'Toole.
(c) Any vacancy occurring in the Board of Directors may be filled by
a majority of the directors in office. A new directorship resulting from
an increase in the number of directors shall be construed to be a
vacancy. Any director elected to fill a vacancy shall have the same
remaining term as that of his predecessor, if any, or such term as the
Board may determine.
(d) A director may be removed from office only for "Cause" (as
hereinafter defined) and only by action of at least sixty-six and
two-thirds percent (66 2/3%) of the outstanding shares of the class or
classes of capital stock that elected such director. "Cause" shall
require willful misconduct, dishonesty, fraud or a felony conviction.
(e) 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 SIXTH may not be amended, altered or repealed in
any respect, nor may any provision inconsistent with this Article SIXTH
be adopted, unless such action is approved by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of Common Stock and outstanding shares of Preferred
Stock. In the event the holders of shares of Common Stock or the holders
of shares of Preferred Stock, as the case may be, are required by law to
approve such an action by a class vote of such holders, such action must
-4-
<PAGE> 5
be approved by the holders of at least sixty-six and two-thirds percent
(66-2/3%) of such holders or such lower percentage as may be required by
law.
SEVENTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and shareholders.
(a) All corporate powers of the Corporation shall be exercised by
the Board of Directors except as otherwise provided by law; provided,
subject to the provisions of paragraph (c) of this Article SEVENTH, the
Board of Directors may delegate the management of the assets of the
Corporation and such other functions as it may deem reasonable and proper
to an Investment Adviser, as such term is hereinbelow defined, pursuant
to a written contract. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board, designate one or
more committees, each committee to consist of two or more of the
directors of the Corporation, which, to the extent provided in said
resolution or resolutions or in the By-Laws of the Corporation, shall
have and may exercise the powers of the Board or Directors in the
management of the business and affairs of the Corporation, and may have
power to authorize the seal of the Corporation to be affixed to all
papers which may require it.
(b) A contract or other transaction between the Corporation and any
of its directors or between the Corporation and an organization in which
any of its directors is a director, officer, or legal representative or
has a material financial interest is not void or voidable because the
director or directors or other organizations are parties or because the
director or directors am present at the meeting of shareholders or the
board or a committee at which the contract or transaction is authorized,
approved or ratified; if: (i) the contract or transaction was, and the
person asserting the validity of the contract or transaction sustains the
burden of establishing that the contract or transaction was, fair and
reasonable as to the Corporation at the time it was authorized, approved,
or ratified; (ii) the material facts as to the contract or transaction
and as to the directors or directors' interest are fully disclosed or
known to the shareholders and the contract or transaction is approved in
good faith by the holders of a majority of the outstanding shares, but
shares owned by the interested director
-5-
<PAGE> 6
or directors shall not be counted in determining the presence of a
quorum and shall not be voted; or (iii) the material facts as to the
contract or transaction and as to the director's or, directors' interest
are fully disclosed or known to the board or a committee, and the board or
committee authorizes, approves, or ratifies the contract or transaction in
good faith by a majority of the board or committee, but the interested
director or directors shall not be counted in determining the presence of
a quorum and shall not vote.
(c) The Corporation may enter into a written contract with one or more
persons (which term shall include any firm, corporation, trust or
association), hereinafter referred to as the "Investment Adviser", to act
as investment adviser to the Corporation and as such to perform such
functions as the Board of Directors may deem reasonable and proper,
including, without limitation, investment advisory, management, research,
valuation of assets, clerical and administrative functions. Any such
contract shall be subject to the approval of those persons required by the
Investment Company Act of 1940 to approve such contract, and shall be
terminable at any time upon not more than 60 days' notice by resolution of
the Board of Directors or by vote of a majority of the outstanding shares
of Common Stock.
Subject to the provisions or paragraph (b) of this Article SEVENTH,
any such contract may be made with any firm or corporation in which any
director or directors of the Corporation may be interested. The
compensation of the Investment Adviser may be based upon a percentage of
the value of the net assets of the Corporation, a percentage of the
income or gross realized or unrealized gain of the Corporation, or a
combination thereof, or otherwise, as may be provided in such contract.
Upon the termination of any contract with Nuveen Advisory Corp., or
any corporation affiliated with John Nuveen & Co. Incorporated, acting as
Investment Adviser, the Board of Directors is hereby authorized to
promptly change the name of the Corporation to a name which does not
include "Nuveen" or any approximation or abbreviation thereof.
(d) The Board of Directors shall have authority to appoint and enter
into a written contract or contracts with an underwriter or distributor
or distributors as agent or agents for the sale of shares of the
Corporation and to pay such underwriter, distributor or distributors
-6-
<PAGE> 7
and agent or agents such amounts as the Board of Directors may in its
discretion deem reasonable and proper. Subject to the provisions of
paragraph (b) of this Article SEVENTH, any such contract may be made with
any firm or corporation, including, without limitation, the Investment
Adviser, or any firm or corporation in which any director or directors of
the Corporation or the Investment Adviser may be interested.
(e) The Board of Directors is hereby empowered to authorize the
issuance from time to time of any class or series of class of shares of
Common Stock or Preferred Stock, whether now or hereafter authorized, for
such consideration as the Board of Directors may deem advisable, subject
to such limitations and restrictions as may be set forth in these
Articles of Incorporation or in the By-Laws of the Corporation, or in the
laws of the State of Minnesota.
(f) The Board of Directors shall have the power to make, alter,
amend or repeal the By-Laws of the Corporation, and to adopt any new
By-Laws, except to the extent that the By-Laws may otherwise provide;
provided, however, that any such By-laws may be altered, amended or
repealed, or new By-Laws may be adopted, by the shareholders of the
corporation.
(g) The Board of Directors shall have power from time to time to set
apart out of any funds of the Corporation available for dividends a
reserve or reserves for any proper purpose, and to abolish any such
reserve.
(h) Any determination made by or pursuant to the direction of the
Board of Directors in good faith and consistent with the provisions of
these Articles of Incorporation as to any of the following matters shall
be final and conclusive and shall be binding upon the Corporation and
every holder at any time of shares of its capital stock, namely: the
amount of the assets, obligations, liabilities and expense of the
Corporation; the amount of the net income of the Corporation from
dividends and interest for any period and the amount of assets at any
time legally available for the payment of dividends or distributions; the
amount, purpose, time of creation, increase or decrease, alteration or
cancellation of any reserves or charges and the propriety thereof
(whether or not any obligation or liability for which such reserves or
charges were created shall have been paid or discharged); the market
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<PAGE> 8
value, or any quoted price to be applied in determining the market value,
of any security owned or held by the Corporation; the fair value of any
security for which quoted prices are not readily available, or of any
other asset owned or held by the Corporation; the number of shares of the
Corporation issued or issuable; the net asset value per share; any matter
relating to the acquisition, holding and depositing of securities and
other assets by the Corporation; any question as to whether any
transaction constitutes a purchase of securities on margin, a short sale
of securities, or an underwriting of the sale of, or participation in any
underwriting or selling group in connection with the public distribution
of, any securities, and any matter relating to the issue, sale,
repurchase, and/or other acquisition or disposition of shares of capital
stock of the Corporation. No provision of these Articles of
Incorporation shall be effective to (i) require a waiver of compliance
with any provision of the Securities Act of 1933, as amended, or the
Investment Company Act of 1940, as amended, or of any valid rule,
regulation or order of the Commission thereunder, or (ii) protect or
purport to protect any director or officer of the Corporation against any
liability to the Corporation or to its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office.
EIGHTH: To the maximum extent permitted by the Minnesota Business
Corporation Act, as from time to time amended, the Corporation shall indemnify
its currently acting and its former directors, officers, employees and agents,
and those persons who, at the request of the Corporation serve or have served
another corporation, partnership, joint venture, trust or other enterprise in
one or more such capacities. The indemnification provided for herein shall not
be deemed exclusive of any other rights to which those seeking indemnification
may otherwise be entitled.
Expenses (including attorneys' fees) incurred in defending a civil or
criminal action, suit or proceeding (including costs connected with the
preparation of a settlement) may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding, if authorized by the
Board of Directors in the specific case, upon receipt of an undertaking by or
on behalf of the director, officer, employee or agent to repay that amount of
the advance which exceeds the amount which it is ultimately determined that he
is entitled to receive from the Corporation by reason of
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<PAGE> 9
indemnification as authorized herein; provided, however, that prior to making
any such advance at least one of the following conditions shall have been
met: (1) the indemnitee shall provide a security for his undertaking, (2) the
Corporation shall be insured against losses arising by reason of any lawful
advances, or (3) a majority of a quorum of the disinterested, non-party
directors of the Corporation, or an independent legal counsel in a written
opinion, shall determine, based on a review of readily available facts, that
there is reason to believe that the indemnitee ultimately will be found
entitled to indemnification.
Nothing in these Articles of Incorporation or in the By-Laws shall be
deemed to protect or provide indemnification to any director or officer of the
Corporation against any liability to the Corporation or to its security holders
to which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office ("disabling conduct"), and the Corporation shall not
indemnify any of its officers or directors against any liability to the
Corporation or to its security holders unless a determination shall have been
made in the manner provided hereafter that such liability has not arisen from
such officer's or director's disabling conduct. A determination that an
officer or director is entitled to indemnification shall have been properly
made if it is based upon (1) a final decision on the merits by a court or other
body before whom the proceeding was brought that the indemnitee was not liable
by reason of disabling conduct or, (2) in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that the indemnitee
was not liable by reason of disabling conduct, by (a) the vote of a majority of
a quorum of directors who are neither "interested persons" of the Corporation
as defined in the Investment Company Act of 1940 nor parties to the proceeding,
or (b) an independent legal counsel in a written opinion.
NINTH: The existence of the Corporation shall be perpetual.
TENTH: Any action which requires shareholder approval and which is
required or permitted to be taken by the board of directors may be taken by
written action signed by all of the directors. Any action, other than an
action requiring shareholder approval, required or permitted to be taken by the
board of directors may be taken by written action signed by that number of
directors that would be required to take the same action at a meeting of the
board at which all directors were present.
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<PAGE> 10
ELEVENTH: (a) Notwithstanding any other provision of these Articles of
Incorporation, an affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the outstanding Common Stock and outstanding
Preferred Stock, voting as a single class, shall be required to approve, adopt
or authorize (i) a conversion of the Corporation from a closed-end investment
company to an open-end investment company, (ii) a merger or consolidation of
the corporation with any other corporation or a reorganization or
recapitalization, (iii) a sale, lease or transfer of all or substantially all
of the assets of the Corporation (other than in the regular course of the
corporation's investment activities), or (iv) a liquidation or dissolution of
the corporation, unless such action has previously been approved, adopted or
authorized by the affirmative vote of two-thirds of the total number of
directors fixed in accordance with the By-Laws, in which case the affirmative
vote of the holders of at least a majority of the outstanding Common Stock and
outstanding Preferred Stock, voting as a single class, shall be required.
Except as may otherwise be required by law, in the case of the conversion of
the Corporation from a closed-end investment company to an open-end investment
company, or in the case of any of the foregoing transactions constituting a
plan of reorganization (as such term is used in the Investment Company Act of
1940, as amended) which adversely affects the holders of shares of Preferred
Stock, approval, adoption or authorization of the action in question will also
require the affirmative vote of the holders of sixty-six and two-thirds percent
(66-2/3%) of the shares of Preferred Stock voting as a separate class;
provided, however, that such separate class vote shall be a majority vote if
the action in question has previously been approved, adopted or authorized by
the affirmative vote of two-thirds of the total number of directors fixed in
accordance with the By-Laws.
(b) 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 ELEVENTH may not be amended; altered or repealed in any respect, nor
may any provision inconsistent with this Article ELEVENTH be adopted, unless
such action is approved by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the outstanding shares of Common
Stock and outstanding shares of Preferred Stock. In the event the holders of
shares of Common Stock or the holders of shares of Preferred Stock, as the case
may be, are required by law to approve such an action by a class vote of such
holders, such action must be approved by the holders of at least sixty-
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<PAGE> 11
six and two-thirds percent (66-2/3%) of such holders or such lower percentage
as may be required by law.
TWELFTH: No person who was or is a director of the Corporation shall be
personally liable to the Corporation or its shareholders for monetary damages
for any breach of fiduciary duty as a director except for liability (a) for any
breach of the director's duty of loyalty to the Corporation or its
shareholders, (b) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (c) under Section
302A.559 or 80A.23 of the Minnesota Business Corporation Act or (d) for any
transaction for which the director derived an improper personal benefit.
THIRTEENTH: (a) The Corporation reserves the right to amend, alter,
change or repeal any provision contained in these Articles of Incorporation, in
the manner now or hereafter prescribed by statute, and any contract rights
conferred upon the shareholders are granted subject to this reservation.
(b) Not withstanding the foregoing, the provisions set forth in Articles
SIXTH and ELEVENTH may not be amended, altered or repealed in any respect, nor
may any provision inconsistent with any of such Articles be adopted unless such
amendment, alteration, repeal or inconsistent provision is approved as
specified in each such respective Article.
IN WITNESS WHEREOF, I have signed these Articles this 19th day of January,
1990.
/s/ Gifford R. Zimmerman
------------------------
Incorporator
Gifford R. Zimmerman
/s/ [signature]
------------------------
Witness
[signature]
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<PAGE> 12
NUVEEN MUNICIPAL MARKET
OPPORTUNITY FUND, INC.
Statement Establishing and Fixing the Rights and Preferences of Municipal
Auction Rate Cumulative Preferred Stock ("MuniPreferred(R)"),
Series W
Nuveen Municipal Market Opportunity Fund, Inc., a Minnesota
corporation (the "Corporation"), hereby certifies to the Secretary of State of
Minnesota as follows:
First: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by its amended and restated articles of incorporation, the
Board of Directors has, by resolution duly adopted on December 18, 1998,
authorized the issuance of a series of its authorized Preferred Stock
designated as its Municipal Auction Rate Cumulative Preferred Stock, Series W2.
Second: The rights and preferences of the shares of such series of
stock are as follows:
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<PAGE> 13
NUVEEN MUNICIPAL MARKET OPPORTUNITY FUND, INC., a Minnesota corporation
(the "Fund"), certifies to the Secretary of State of the State of Minnesota
that:
FIRST: Pursuant to authority expressly vested in the Board of Directors of
the Fund by Article FIFTH of the Fund's Articles of Incorporation, as amended
(which, as hereafter restated or amended from time to time are, together with
this Statement, herein called the "Articles"), the Board of Directors has, by
resolution, authorized the issuance of shares of the Fund's authorized Preferred
Stock, par value $.01 per share, liquidation preference $25,000 per share,
having such designation or designations as to series as is set forth in Section
1 of APPENDIX A hereto and such number of shares per such series as is set forth
in Section 2 of APPENDIX A hereto.
SECOND: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the shares
of each series of MuniPreferred described in Section I of APPENDIX A hereto are
as follows (each such series being referred to herein as a series of
MuniPreferred, and shares of all such series being referred to herein
individually as a share of MuniPreferred and collectively as shares of
MuniPreferred):
DEFINITIONS
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN SECTION 3 of APPENDIX A
HERETO, as used in Parts I and II of this Statement, the following terms shall
have the following meanings (with terms defined in the singular having
comparable meanings when used in the plural and vice versa), unless the context
otherwise requires:
(a) "AA" COMPOSITE COMMERCIAL PAPER RATE," on any date for any Rate Period
of shares of a series of MuniPreferred, shall mean (i) (A) in the case of any
Minimum Rate Period or any Special Rate Period of fewer than 49 Rate Period
Days, the interest equivalent of the 30-day rate; PROVIDED, HOWEVER, that if
such Rate Period is a Minimum Rate Period and the "AA" Composite Commercial
Paper Rate is being used to determine the Applicable Rate for shares of such
series when all of the Outstanding shares of such series are subject to
Submitted Hold Orders, then the interest equivalent of the seven day rate, and
(B) in the case of any Special Rate Period of (1) 49 or more but fewer than 70
Rate Period Days, the interest equivalent of the 60-day rate; (2) 70 or more but
fewer than 85 Rate Period Days, the arithmetic average of the interest
equivalent of the 60-day and 90-day rates; (3) 85 or more but fewer than 99 Rate
Period Days, the interest equivalent of the 90-day rate; (4) 99 or more but
fewer than 120 Rate Period Days, the arithmetic average of the interest
equivalent of the 90-day and 120-day rates; (5) 120 or more but fewer than 141
Rate Period Days, the interest equivalent of the 120-day rate; (6) 141 or more
but fewer than 162 Rate Period Days, the arithmetic average of the 120-day and
180-day rates; and (7) 162 or more but fewer than ) 183 Rate
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<PAGE> 14
Period Days, the interest equivalent of the 180-day rate, in each case on
commercial paper placed on behalf of issuers whose corporate bonds are rated
"AA" by S&P or the equivalent of such rating by S&P or another rating
agency, as made available on a discount basis or otherwise by the Federal
Reserve Bank of New York for the Business Day next preceding such date; or (ii)
in the event that the Federal Reserve Bank of New York does not make available
any such rate, then the arithmetic average of such rates, as quoted on a
discount basis or otherwise, by the Commercial Paper Dealers to the Auction
Agent for the close of business on the Business Day next preceding such date. If
any Commercial Paper Dealer does not quote a rate required to determine the
"AA" Composite Commercial Paper Rate, the "AA" Composite Commercial Paper Rate
shall be determined on the basis of the quotation or quotations furnished by the
remaining Commercial Paper Dealer or Commercial Paper Dealers and any
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the Fund to provide such rate or rates not being supplied by any
Commercial Paper Dealer or Commercial Paper Dealers, as the case may be, or, if
the Fund does not select any such Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers, by the remaining Commercial Paper Dealer or
Commercial Paper Dealers. For purposes of this definition, the "interest
equivalent" of a rate stated on a discount basis (a "discount rate") for
commercial paper of a given days' maturity shall be equal to the quotient
(rounded upwards to the next higher one-thousandth (.001) of 1%) of (A) the
discount rate divided by (B) the difference between (x) 1.00 and (y) a fraction
the numerator of which shall be the product of the discount rate times the
number of days in which such commercial paper matures and the denominator of
which shall be 360.
(b) "ACCOUNTANT'S CONFIRMATION" shall have the meaning specified in
paragraph (c) of Section 7 of Part I of this Statement.
(c) "AFFILIATE" shall mean, for purposes of the definition of
"Outstanding," any Person known to the Auction Agent to be controlled by, in
control of or under common control with the Fund; PROVIDED, HOWEVER, that no
Broker-Dealer controlled by, in control of or under common control with the Fund
shall be deemed to be an Affiliate nor shall any corporation or any Person
controlled by, in control of or under common control with such corporation one
of the directors, trustees or executive officers of which is a director of the
Fund be deemed to be an Affiliate solely because such director, trustee or
executive officer is also a director of the Fund.
(d) "AGENT MEMBER" shall mean a member of or participant in the Securities
Depository that will act on behalf of a Bidder.
(e) "ANTICIPATION NOTES" shall mean Tax Anticipation Notes (TANs), Revenue
Anticipation Notes (RANs), Tax and Revenue Anticipation Notes (TRANs), Grant
Anticipation Notes (GANs) that are rated by S&P and Bond Anticipation Notes
(BANs) that are rated by S&P.
3
<PAGE> 15
(f) "APPLICABLE RATE" shall have the meaning specified in subparagraph
(e)(i) of Section 2 of Part I of this Statement.
(g) "ARTICLES" shall have the meaning specified on the first page of this
Statement.
(h) "AUCTION" shall mean each periodic implementation of the Auction
Procedures.
(i) "AUCTION AGENCY AGREEMENT" shall mean the agreement between the Fund
and the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction Procedures for purposes of determining the Applicable
Rate for shares of a series of MuniPreferred so long as the Applicable Rate for
shares of such series is to be based on the results of an Auction.
(j) "AUCTION AGENT" shall mean the entity appointed as such by a resolution
of the Board of Directors in accordance with Section 6 of Part II of this
Statement.
(k) "AUCTION DATE," with respect to any Rate Period, shall mean the
Business Day next preceding the first day of such Rate Period.
(l) "AUCTION PROCEDURES" shall mean the procedures for conducting Auctions
set forth in Part II of this Statement.
(m) "AVAILABLE MUNIPREFERRED" shall have the meaning specified in paragraph
(a) of Section 3 of Part II of this Statement.
(n) "BENCHMARK RATE" shall have the meaning specified in Section 12 of
APPENDIX A hereto.
(o) "BENEFICIAL OWNER," with respect to shares of a series of
MuniPreferred, means a customer of a Broker-Dealer who is listed on the records
of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of
shares of such series.
(p) "BID" and "BIDS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement.
(q) "BIDDER" and "BIDDERS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement; PROVIDED, HOWEVER, that
neither the Fund nor any affiliate thereof shall be permitted to be a Bidder in
an Auction, except that any Broker-Dealer that is an affiliate of the Fund may
be a Bidder in an Auction, but only if the Orders placed by such Broker-Dealer
are not for its own account.
(r) "BOARD OF DIRECTORS" shall mean the Board of Directors of the Fund or
any duly authorized committee thereof.
(s) "BROKER-DEALER" shall mean any broker-dealer, commercial bank or other
entity permitted by law to perform the functions required of a Broker-
4
<PAGE> 16
Dealer in Part II of this Statement, that is a member of, or a participant in,
the Securities Depository or is an affiliate of such member or participant, has
been selected by the Fund and has entered into a Broker-Dealer Agreement that
remains effective.
(t) "BROKER-DEALER AGREEMENT" shall mean an agreement among the Fund, the
Auction Agent and a Broker-Dealer pursuant to which such Broker Dealer agrees to
follow the procedures specified in Part II of this Statement.
(u) "BUSINESS DAY" shall mean a day on which the New York Stock Exchange is
open for trading and which is neither a Saturday, Sunday nor any other day on
which banks in The City of New York, New York, are authorized by law to close.
(v) "Code" means the Internal Revenue Code of 1986, as amended.
(w) "COMMERCIAL PAPER DEALERS" shall mean Lehman Commercial Paper
Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated or, in lieu of any thereof, their respective affiliates or
successors, if such entity is a commercial paper dealer.
(x) "COMMON STOCK" shall mean the common stock, par value $.01 per share,
of the Fund.
(y) "Cure Date" shall mean the MuniPreferred Basic Maintenance Cure Date or
the 1940 Act Cure Date, as the case may be.
(z) "DATE OF ORIGINAL ISSUE," with respect to shares of a series of
MuniPreferred, shall mean the date on which the Fund initially issued such
shares.
(aa) "DEPOSIT SECURITIES" shall mean cash and Municipal Obligations rated
at least A-1+ or SP-1+ by S&P, except that, for purposes of subparagraph (a)(v)
of Section 11 of Part I of this Statement, such Municipal Obligations shall be
considered "Deposit Securities" only if they are also rated P-1, MIG-1 or VMIG-1
by Moody's.
(bb) "DISCOUNTED VALUE," as of any Valuation Date, shall mean, (i) with
respect to an S&P Eligible Asset, the quotient of the Market Value thereof
divided by the applicable S&P Discount Factor and (ii)(a) with respect to a
Moody's Eligible Asset that is not currently callable as of such Valuation Date
at the option of the issuer thereof, the quotient of the Market Value thereof
divided by the applicable Moody's Discount Factor, or (b) with respect to a
Moody's Eligible Asset that is currently callable as of such Valuation Date at
the option of the issuer thereof, the quotient of (1) the lesser of the Market
Value or call price thereof, including any call premium, divided by (2) the
applicable Moody's Discount Factor.
(cc) (reserved)
5
<PAGE> 17
(dd) (reserved)
(ee) "DIVIDEND PAYMENT DATE," with respect to shares of a series of
MuniPreferred, shall mean any date on which dividends are payable on shares of
such series pursuant to the provisions of paragraph (d) of Section 2 of Part I
of this Statement.
(ff) "DIVIDEND PERIOD," with respect to shares of a series of
MuniPreferred, shall mean the period from and including the Date of Original
Issue of shares of such series to but excluding the initial Dividend Payment
Date for shares of such series and any period thereafter from and including one
Dividend Payment Date for shares of such series to but excluding the next
succeeding Dividend Payment Date for shares of such series.
(gg) "EXISTING HOLDER," with respect to shares of a series of
MuniPreferred, shall mean a Broker-Dealer (or any such other Person as may be
permitted by the Fund) that is listed on the records of the Auction Agent as a
holder of shares of such series.
(hh) "FAILURE TO DEPOSIT," with respect to shares of a series of
MuniPreferred, shall mean a failure by the Fund to pay to the Auction Agent, not
later than 12:00 noon, New York City time, (A) on the Business Day next
preceding any Dividend Payment Date for shares of such series, in funds
available on such Dividend Payment Date in The City of New York, Now York, the
full amount of any dividend (whether or not earned or declared) to be paid on
such Dividend Payment Date on any share of such series or (B) on the Business
Day next preceding any redemption date in funds available on such redemption
date for shares of such series in The City of New York, New York, the Redemption
Price to be paid on such redemption date for any share of such series after
notice of redemption is mailed pursuant to paragraph (c) of Section 11 of Part I
of this Statement; PROVIDED, HOWEVER, that the foregoing clause (B) shall not
apply to the Fund's failure to pay the Redemption Price in respect of shares of
MuniPreferred when the related Notice of Redemption provides that redemption of
such shares is subject to one or more conditions precedent and any such
condition precedent shall not have been satisfied at the time or times and in
the manner specified in such Notice of Redemption.
(ii) "FEDERAL TAX RATE INCREASE" shall have the meaning specified in the
definition of "Moody's Volatility Factor."
6
<PAGE> 18
(jj) "FUND" shall mean the entity named on the first page of this
Statement, which is the issuer of the shares of MuniPreferred.
(kk) "GROSS-UP PAYMENT" shall have the meaning specified in Section 4 of
APPENDIX A hereto.
(ll) "Holder," with respect to shares of a series of MuniPreferred, shall
mean the registered holder of such shares as the same appears on the stock books
of the Fund.
(mm) "HOLD ORDER" and "HOLD ORDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(nn) "INDEPENDENT ACCOUNTANT" shall mean a nationally recognized
accountant, or firm of accountants, that is with respect to the Fund an
independent public accountant or firm of independent public accountants under
the Securities Act of 1933, as amended from time to time.
(oo) "INITIAL RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall have the meaning specified with respect to shares of such
series in Section 5 of APPENDIX A hereto.
(pp) "INTEREST EQUIVALENT" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security,
(qq) "Issue Type Category," if defined in Section 4 of Appendix A hereto,
shall have the meaning specified in that section.
(rr) "KENNY INDEX" shall have the meaning specified in the definition of
"Taxable Equivalent of the Short-Term Municipal Bond Rate."
(ss) "Late Charge" shall have the meaning specified in subparagraph
(e)(1)(B) of Section 2 of Part I of this Statement.
(tt) "LIQUIDATION PREFERENCE," with respect to a given number of shares of
MuniPreferred, means $25,000 times that number.
(uu) "MARKET VALUE" of any asset of the Fund shall mean the market value
thereof determined by the pricing service designated from time to time by the
Board of Directors. Market Value of any asset shall include any interest accrued
thereon. The pricing service, values portfolio securities at the mean between
the quoted bid and asked price or the yield equivalent when quotations are
readily available. Securities for which quotations are not readily available are
valued at fair value as determined by the pricing service using methods which
include consideration of: yields or prices of municipal bonds of comparable
quality, type of issue, coupon, maturity and rating; indications as to value
from dealers; and general market conditions. The pricing service may employ
electronic data processing techniques or a matrix system, or both, to determine
valuations.
7
<PAGE> 19
(vv) "MAXIMUM POTENTIAL GROSS-UP PAYMENT LIABILITY," as of any Valuation
Date, shall mean the aggregate amount of Gross-up Payments that would be due if
the Fund were to make Taxable Allocations, with respect to any taxable year,
estimated based upon dividends paid and the amount of undistributed realized net
capital gains and other taxable income earned by the Fund, as of the end of the
calendar month immediately preceding such Valuation Date, and assuming such
Gross-up Payments are fully taxable.
(ww) "MAXIMUM RATE," for shares of a series of MuniPreferred on any Auction
Date for shares of such series, shall mean:
(i) in the case of any Auction Date which is not the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Fund pursuant to Section 4 of Part I of this Statement,
the product of (A) the Reference Rate on such Auction Date for the next
Rate Period of shares of such series and (B) the Rate Multiple on such
Auction Date, unless shares of such series have or had a Special Rate
Period (other than a Special Rate Period of 28 Rate Period Days or fewer)
and an Auction at which Sufficient Clearing Bids existed has not yet
occurred for a Minimum Rate Period of shares of such series after such
Special Rate Period, in which case the higher of:
(A) the dividend rate on shares of such series for the then-ending Rate
Period; and
(B) the product of (1) the higher of (x) the Reference Rate on such
Auction Date for a Rate Period equal in length to the then-ending Rate
Period of shares of such series, if such then-ending Rate-Period was
364 Rate Period Days or fewer, or the Treasury Note Rate on such
Auction Date for a Rate Period equal in length to the then-ending Rate
Period of shares of such series, if such then-ending Rate Period was
more than 364 Rate Period Days, and (y) the Reference Rate on such
Auction Date for a Rate Period equal in length to such Special Rate
Period of shares of such series, if such Special Rate Period was 364
Rate Period Days or fewer, or the Treasury Note Rate on such Auction
Date for a Rate Period equal in length to such Special Rate Period, if
such Special Rate Period was more than 364 Rate Period Days and (2) the
Rate Multiple on such Auction Date; or
(ii) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Fund pursuant to Section 4 of Part I of this Statement,
the product of (A) the highest of (1) the Reference Rate on such Auction
Date for a Rate Period equal in length to the then-ending Rate Period of
shares of such series, if such then-ending Rate Period was 364 Rate Period
Days or fewer, or the Treasury Note Rate on such Auction Date for a Rate
Period equal in length to the then-ending Rate Period of shares of
8
<PAGE> 20
such series, if such then-ending Rate Period was more than 364 Rate Period
Days, (2) the Reference Rate on such Auction Date for the Special Rate
Period for which the Auction is being held if such Special Rate Period is
364 Rate Period Days or fewer or the Treasury Note Rate on such Auction
Date for the Special Rate Period for which the Auction is being held if
such Special Rate Period is more than 364 Rate Period Days, and (3) the
Reference Rate on such Auction Date for Minimum Rate Periods and (B) the
Rate Multiple on such Auction Date.
(xx) (reserved)
(yy) "MINIMUM RATE PERIOD" shall mean any Rate Period consisting of 7 Rate
Period Days.
(zz) "Moody's" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors.
(aaa) "MOODY'S DISCOUNT FACTOR" shall have the meaning specified in Section
4 of APPENDIX A hereto.
(bbb) "MOODY'S ELIGIBLE ASSET" shall have the meaning specified in Section
4 of APPENDIX A hereto.
(ccc) "MOODY'S EXPOSURE PERIOD" shall mean the period commencing on a given
Valuation Date and ending 56 days thereafter.
(ddd) "MOODY'S VOLATILITY FACTOR" shall mean, as of any Valuation Date, (i)
in the case of any Minimum Rate Period, any Special Rate Period of 28 Rate
Period Days or fewer, or any Special Rate Period of 57 Rate Period Days or more,
a multiplicative factor equal to 275%, except as otherwise provided in the last
sentence of this definition; (ii) in the case of any Special Rate Period of more
than 28 but fewer than 36 Rate Period Days, a multiplicative factor equal to
203%; (iii) in the case of any Special Rate Period of more than 35 but fewer
than 43 Rate Period Days, a multiplicative factor equal to 217%; (iv) in the
case of any Special Rate Period of more than 42 but fewer than 50 Rate Period
Days, a multiplicative factor equal to 226%; and (v) in the case of any Special
Rate Period of more than 49 but fewer than 57 Rate Period Days, a multiplicative
factor equal to 235%. If as a result of the enactment of changes to the Code,
the greater of the maximum marginal Federal individual income tax rate
applicable to ordinary income and the maximum marginal Federal corporate income
tax rate applicable to ordinary income will increase, such increase being
rounded up to the next five percentage points (the "Federal Tax Rate Increase"),
until the effective date of such increase, the Moody's Volatility Factor in the
case of any Rate Period described in (i) above in this definition instead shall
be determined by reference to the following table:
9
<PAGE> 21
FEDERAL
TAX RATE VOLATILITY
INCREASE FACTOR
-------- ------
5% 295%
10% 317%
15% 341%
20% 369%
25% 400%
30% 436%
35% 477%
40% 525%
(eee) "MUNIPREFERRED" shall have the meaning set forth on the first page of
this Statement.
(fff) "MUNIPREFERRED BASIC MAINTENANCE AMOUNT," as of any Valuation Date,
shall mean the dollar amount equal to the sum of (i)(A) the product of the
number of shares of MuniPreferred outstanding on such date multiplied by $25,000
(plus the product of the number of shares of any other series of Preferred Stock
outstanding on such date multiplied by the liquidation preference of such
shares), plus any redemption premium applicable to shares of MuniPreferred (or
other Preferred Stock) then subject to redemption; (B) the aggregate amount of
dividends that will have accumulated at the respective Applicable Rates (whether
or not earned or declared) to (but not including) the first respective Dividend
Payment Dates for shares of MuniPreferred outstanding that follow such Valuation
Date (plus the aggregate amount of dividends, whether or not earned or declared,
that will have accumulated in respect of other outstanding shares of Preferred
Stock to, but not including, the first respective dividend payment dates for
such other shares that follow such Valuation Date); (C) the aggregate amount of
dividends that would accumulate on shares of each series of MuniPreferred
outstanding from such first respective Dividend Payment Date therefor through
the 56th day after such Valuation Date, at the Maximum Rate (calculated as if
such Valuation Date were the Auction Date for the Rate Period commencing on such
Dividend Payment Date) for a Minimum Rate Period of shares of such series to
commence on such Dividend Payment Date, assuming, solely for purposes of the
foregoing, that if on such Valuation Date the Fund shall have delivered a Notice
of Special Rate Period to the Auction Agent pursuant to Section 4(d)(i) of this
Part I with respect to shares of such series, such Maximum Rate shall be the
higher of (a) the Maximum Rate for the Special Rate Period of shares of such
series to commence on such Dividend Payment Date and (b) the Maximum Rate for a
Minimum Rate Period of shares of such series to commence on such Dividend
Payment Date, multiplied by the Volatility Factor applicable to a Minimum Rate
Period, or, in the event the Fund shall have delivered a Notice of Special Rate
Period to the Auction Agent pursuant to
10
<PAGE> 22
Section 4(d)(i) of this Part I with respect to shares of such series designating
a Special Rate Period consisting of 56 Rate Period Days or more, the Volatility
Factor applicable to a Special Rate Period of that length (plus the aggregate
amount of dividends that would accumulate at the maximum dividend rate or rates
on any other shares of Preferred Stock outstanding from such respective dividend
payment dates through the 56th day after such Valuation Date, as established by
or pursuant to the respective statements establishing and fixing the rights and
preferences of such other shares of Preferred Stock) (except that (1) if such
Valuation Date occurs at a time when a Failure to Deposit (or, in the case of
shares of Preferred Stock other than MuniPreferred, a failure similar to a
Failure to Deposit) has occurred that has not been cured, the dividend for
purposes of calculation would accumulate at the current dividend rate then
applicable to the shares in respect of which such failure has occurred and (2)
for those days during the period described in this subparagraph (C) in respect
of which the Applicable Rate in effect immediately prior to such Dividend
Payment Date will remain in effect (or, in the case of shares of Preferred Stock
other than MuniPreferred, in respect of which the dividend rate or rates in
effect immediately prior to such respective dividend payment dates will remain
in effect), the dividend for purposes of calculation would accumulate at such
Applicable Rate (or other rate or rates, as the case may be) in respect of those
days); (D) the amount of anticipated expenses of the Fund for the 90 days
subsequent to such Valuation Date; (E) the amount of the Fund's Maximum
Potential Gross-up Payment Liability in respect of shares of MuniPreferred (and
similar amounts payable in respect of other shares of Preferred Stock pursuant
to provisions similar to those contained in Section 3 of Part I of this
Statement) as of such Valuation Date; and (F) any current liabilities as of such
Valuation Date to the extent not reflected in any of (i)(A) through (i)(E)
(including, without limitation, any payables for Municipal Obligations purchased
as of such Valuation Date and any liabilities incurred for the purpose of
clearing securities transactions ) less (ii) the value (i.e., for purposes of
current Moody's guidelines, the face value of cash, short-term Municipal
Obligations rated MIG-1, VMIG-1 or P-1, and short-term securities that are the
direct obligation of the U.S. government, provided in each case that such
securities mature on or prior to the date upon which any of (i)(A), through
(i)(F) become payable, otherwise the Moody's Discounted Value) of any of the
Fund's assets irrevocably deposited by the Fund for the payment of any of (i)(A)
through (i)(F).
(ggg) "MUNIPREFERRED BASIC MAINTENANCE CURE DATE," with respect to the
failure by the Fund to satisfy the MuniPreferred Basic Maintenance Amount (as
required by paragraph (a) of Section 7 of Part I of this Statement) as of a
given Valuation Date, shall mean the seventh Business Day following such
Valuation Date.
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<PAGE> 23
(hhh) "MUNIPREFERRED BASIC MAINTENANCE REPORT" shall mean a report signed
by the President, Treasurer or any Senior Vice President or Vice President of
the Fund which sets forth, as of the related Valuation Date, the assets of the
Fund, the Market Value and the Discounted Value thereof (seriatim and in
aggregate), and the MuniPreferred Basic Maintenance Amount.
(iii) "MUNICIPAL OBLIGATIONS" shall mean "Municipal Obligations" as defined
in the Fund's registration statement on Form N-2 on file with the Securities and
Exchange Commission, as such registration statement may be amended from time to
time (the "Registration Statement").
(jjj) "1940 ACT" shall mean the Investment Company Act of 1940, as amended
from time to time.
(kkk) "1940 ACT CURE DATE," with respect to the failure by the Fund to
maintain the 1940 Act MuniPreferred Asset Coverage (as required by Section 6 of
Part I of this Statement) as of the last Business Day of each month, shall mean
the last Business Day of the following month.
(lll) "1940 ACT MUNIPREFERRED ASSET COVERAGE" shall mean asset coverage, as
defined in Section 18(h) of the 1940 Act, of at least 200% with respect to all
outstanding senior securities of the Fund which are stock, including all
outstanding shares of MuniPreferred (or such other asset coverage as may in the
future be specified in or under the 1940 Act as the minimum asset coverage for
senior securities which are stock of a closed-end investment company as a
condition of declaring dividends on its common stock).
(mmm) "NOTICE OF REDEMPTION" shall mean any notice with respect to the
redemption of shares of MuniPreferred pursuant to paragraph (c) of Section 11 of
Part I of this Statement.
(nnn) "NOTICE OF SPECIAL RATE PERIOD" shall mean any notice with respect to
a Special Rate Period of shares of MuniPreferred pursuant to subparagraph (d)(i)
of Section 4 of Part I of this Statement.
(ooo) "ORDER" and "ORDERS" shall have the respective meanings specified in
paragraph (a) of Section I of Part 11 of this Statement.
(ppp) "ORIGINAL ISSUE INSURANCE," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.
(qqq) "OTHER ISSUES," if defined in Section 4 of Appendix A hereto, shall
have the meaning specified in that section.
(rrr) "OUTSTANDING" shall mean, as of any Auction Date with respect to
shares of a series of MuniPreferred, the number of shares of such series
theretofore issued by the Fund except, without duplication, (i) any shares of
such series theretofore cancelled or delivered to the Auction Agent for
cancellation or redeemed by the Fund, (ii) any shares of such series as to which
the Fund or any Affiliate thereof shall be an Existing Holder and (iii) any
shares of such
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<PAGE> 24
series represented by any certificate in lieu of which a new certificate has
been executed and delivered by the Fund.
(sss) "PERMANENT INSURANCE," if defined in Section 4 of APPENDIX A hereto,
shall have the meaning specified in that section.
(ttt) "PERSON" shall mean and include an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
(uuu) "PORTFOLIO INSURANCE," if defined in Section 4 of APPENDIX A hereto,
shall have the meaning specified in that section.
(vvv) "POTENTIAL BENEFICIAL OWNER," with respect to shares of a series of
MuniPreferred, shall mean a customer of a Broker-Dealer that is not a Beneficial
Owner of shares of such series but that wishes to purchase shares of such
series, or that is a Beneficial Owner of shares of such series that wishes to
purchase additional shares of such series.
(www) "POTENTIAL HOLDER," with respect to shares of a series of
MuniPreferred, shall mean a Broker-Dealer (or any such other person as may be
permitted by the Fund) that is not an Existing Holder of shares of such series
or that is an Existing Holder of shares of such series that wishes to become the
Existing Holder of additional shares of such series.
(xxx) "PREFERRED STOCK" shall mean the preferred stock of the Fund, and
includes the shares of MuniPreferred.
(yyy) "QUARTERLY VALUATION DATE" shall mean the last Business Day of each
February, May, August and November of each year, commencing on the date set
forth in Section 6 of APPENDIX A hereto.
(zzz) "RATE MULTIPLE" shall have the meaning specified in Section 4 of
APPENDIX A hereto.
(aaaa) "RATE PERIOD," with respect to shares of a series of MuniPreferred,
shall mean the Initial Rate Period of shares of such series and any Subsequent
Rate Period, including any Special Rate Period, of shares of such series.
(bbbb) "RATE PERIOD DAYS," for any Rate Period or Dividend Period, means
the number of days that would constitute such Rate Period or Dividend Period but
for the application of paragraph (d) of Section 2 of Part I of this Statement or
paragraph (b) of Section 4 of Part I of this Statement.
(cccc) "RECEIVABLES FOR MUNICIPAL OBLIGATIONS SOLD" shall mean (A) for
purposes of calculation of Moody's Eligible Assets as of any Valuation Date, no
more than the aggregate of the following: (i) the book value of receivables for
Municipal Obligations sold as of or prior to such Valuation Date if such
receivables are due within five business days of such Valuation Date, and if
the trades which generated such receivables are (x) settled through clearing
house firms with respect to which the Fund has received prior written
authorization
13
<PAGE> 25
from Moody's or (y) with counterparties having a Moody's long-term debt rating
of at least Baa3; and (ii) the Moody's Discounted Value of Municipal Obligations
sold as of or prior to such Valuation Date which generated receivables, if such
receivables are due within five business days of such Valuation Date but do not
comply with either of the conditions specified in (i) above, and (B) for
purposes of calculation of S&P Eligible Assets as of any Valuation Date, the
book value of receivables for Municipal Obligations sold as of or prior to such
Valuation Date if such receivables are due within five business days of such
Valuation Date.
(dddd) "REDEMPTION PRICE" shall mean the applicable redemption price
specified in paragraph (a) or (b) of Section 11 of Part I of this Statement.
(eeee) "REFERENCE RATE" shall mean (i) the higher of the Taxable Equivalent
of the Short-Term Municipal Bond Rate and the "AA" Composite Commercial Paper
Rate in the case of Minimum Rate Periods and Special Rate Periods of 28 Rate
Period Days or fewer; (ii) the "AA" Composite Commercial Paper Rate in the case
of Special Rate Periods of more than 28 Rate Period Days but fewer than 183 Rate
Period Days; and (iii) the Treasury Bill Rate in the case of Special Rate
Periods of more than 182 Rate Period Days but fewer than 365 Rate Period Days.
(ffff) "REGISTRATION STATEMENT" has the meaning specified in the definition
of "Municipal Obligations."
(gggg) "S&P" shall mean Standard & Poor's Corporation, a New York
corporation, and its successors.
(hhhh) "S&P DISCOUNT FACTOR" shall have the meaning specified in Section 4
of APPENDIX A hereto.
(iiii) "S&P ELIGIBLE ASSET" shall have the meaning specified in Section 4
of APPENDIX A hereto.
(jjjj) "S&P EXPOSURE PERIOD" shall mean the maximum period of time
following a Valuation Date that the Fund has under this Statement to cure any
failure to maintain, as of such Valuation Date, the Discounted Value for its
portfolio at least equal to the MuniPreferred Basic Maintenance Amount (as
described in paragraph (a) of Section 7 of Part E of this Statement).
(kkkk) "S&P VOLATILITY FACTOR" shall mean, as of any Valuation Date, a
multiplicative factor equal to (i) 305% in the case of any Minimum Rate Period
or any Special Rate Period of 28 Rate Period Days or fewer; (ii) 268% in the
case of any Special Rate Period of more than 28 Rate Period Days but fewer than
183 Rate Period Days; and (iii) 204% in the case of any Special Rate Period of
more than 182 Rate Period Days.
(llll) "SECONDARY MARKET INSURANCE," if defined in Section 4 of APPENDIX A
hereto, shall have the meaning specified in that section.
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<PAGE> 26
(mmmm) "SECURITIES DEPOSITORY" shall mean The Depository Trust Company and
its successors and assigns or any other securities depository selected by the
Fund which agrees to follow the procedures required to be followed by such
securities depository in connection with shares of MuniPreferred.
(nnnn) "SELL ORDER" AND "SELL ORDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(oooo) "SPECIAL RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall have the meaning specified in paragraph (a) of Section 4 of
Part I of this Statement.
(pppp) "SPECIAL REDEMPTION PROVISIONS" shall have the meaning specified in
subparagraph (a)(i) of Section 11 of Part I of this Statement.
(qqqq) "SUBMISSION DEADLINE" shall mean 1:30 P.M., New York City time, on
any Auction Date or such other time on any Auction Date by which Broker-Dealers
are required to submit Orders to the Auction Agent as specified by the Auction
Agent from time to time.
(rrrr) "SUBMITTED BID" AND "SUBMITTED BIDS" shall have the respective
meanings specified in paragraph (a) of Section 3 of Part 11 of this Statement.
(ssss) "SUBMITTED HOLD ORDER" AND "SUBMITTED HOLD ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part 11 of this
Statement.
(tttt) "SUBMITTED ORDER" AND "SUBMITTED ORDERS" shall have the respective
meanings specified in paragraph (a) of Section 3 of Part 11 of this Statement.
(uuuu) "SUBMITTED SELL ORDER" AND "SUBMITTED SELL ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part 11 of this
Statement.
(vvvv) "SUBSEQUENT RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall mean the period from and including the first day following
the Initial Rate Period of shares of such series to but excluding the next
Dividend Payment Date for shares of such series and any period thereafter from
and including one Dividend Payment Date for shares of such series to but
excluding the next succeeding Dividend Payment Date for shares, of such series;
PROVIDED, HOWEVER, that if any Subsequent Rate Period is also a Special Rate
Period, such term shall mean the period commencing on the first day of such
Special Rate Period and ending on the last day of the last Dividend Period
thereof.
(wwww) "SUBSTITUTE COMMERCIAL PAPER DEALER" shall mean The First Boston
Company or Morgan Stanley & Co. Incorporated or their respective
15
<PAGE> 27
affiliates or successors, if such entity is a commercial paper dealer; PROVIDED,
HOWEVER, that none of such entities shall be a Commercial Paper Dealer.
(xxxx) "SUBSTITUTE U.S. GOVERNMENT SECURITIES DEALER" shall mean The First
Boston Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated or their
respective affiliates or successors, if such entity is a U.S. Government
securities dealer; PROVIDED, HOWEVER, that none of such entities shall be a U.S.
Government Securities Dealer.
(yyyy) "SUFFICIENT CLEARING BIDS" shall have the meaning specified in
paragraph (a) of Section 3 of Part 11 of this Statement.
(zzzz) "TAXABLE ALLOCATION" shall have the meaning specified in Section 3
of Part I of this Statement.
(aaaaa) "TAXABLE INCOME" shall have the meaning specified in Section 12 OF
APPENDIX A hereto.
(bbbbb) "TAXABLE EQUIVALENT OF THE SHORT-TERM MUNICIPAL BOND RATE," on any
date for any Minimum Rate Period or Special Rate Period of 28 Rate Period Days
or fewer, shall mean 90% of the quotient of (A) the per annum rate expressed on
an interest equivalent basis equal to the Kenny S&P 30 day High Grade Index or
any successor index (the "Kenny Index") (PROVIDED, HOWEVER, that any such
successor index must be approved by Moody's (if Moody's is then rating the
shares of MuniPreferred) and S&P (if S&P is then rating the shares of
MuniPreferred)), made available for the Business Day immediately preceding such
date but in any event not later than 8:30 A.M,, New York City time, on such date
by Kenny S&P Evaluation Services or any successor thereto, based upon 30-day
yield evaluations at par of short-term bonds the interest on which is excludable
for regular Federal income, tax purposes under the Code of "high grade"
component issuers selected by Kenny S&P Evaluation Services or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds, but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57(a)(5) of the Code, or successor provisions, for purposes of the
"alternative minimum tax," divided by (B) 1.00 minus the maximum marginal
regular Federal individual income tax rate applicable to ordinary income or the
maximum marginal regular Federal corporate income tax rate applicable to
ordinary income (in each case expressed as a decimal), whichever is greater:
PROVIDED, HOWEVER, that if the Kenny Index is not made so available by 8:30
A.M., New York City time, on such date by Kenny S&P Evaluation Services or any
successor, the Taxable Equivalent of the Short-Term. Municipal Bond Rate shall
mean the quotient of (A) the per annum rate expressed on an interest equivalent
basis equal to the most recent Kenny Index so made available for any preceding
Business Day, divided by (B) 1.00 minus the maximum marginal regular Federal
individual
16
<PAGE> 28
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income (in each case
expressed as a decimal), whichever is greater.
(ccccc) "TREASURY BILL" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of 364 days or less.
(ddddd) "TREASURY BILL RATE," on any date for any Rate Period, shall mean
(i) the bond equivalent yield, calculated in accordance with prevailing industry
convention, of the rate on the most recently auctioned Treasury Bill with a
remaining maturity closest to the length of such Rate Period, as quoted in The
Wall Street Journal on such date for the Business Day next preceding such date;
or (ii) in the event that any such rate is not published in The Wall Street
Journal, then the bond equivalent yield, calculated in accordance with
prevailing industry convention, as calculated by reference to the arithmetic
average of the bid price quotations of the most recently auctioned Treasury Bill
with a remaining maturity closest to the length of such Rate Period, as
determined by bid price quotations as of the close of business on the Business
Day immediately preceding such date obtained from the U.S. Government Securities
Dealers to the Auction Agent.
(eeeee) "TREASURY NOTE" shall mean a direct obligation of the U,S.
Government having a maturity at the time of issuance of five years or less but
more than 364 days.
(fffff) "TREASURY NOTE RATE," on any date for any Rate Period, shall mean
(i) the yield on the most recently auctioned Treasury Note with a remaining
maturity closest to the length of such Rate Period, as quoted in The Wall Street
Journal on such date for the Business Day next preceding such date; or (ii) in
the event that any such rate is not published in The Wall Street Journal, then
the yield as calculated by reference to the arithmetic average of the bid price
quotations of the most recently auctioned Treasury Note with a remaining
maturity closest to the length of such Rate Period, as determined by bid price
quotations as of the close of business on the Business Day immediately preceding
such date obtained from the U.S. Government Securities Dealers to the Auction
Agent. If any U.S. Government Securities Dealer does not quote a rate required
to determine the Treasury Bill Rate or the Treasury Note Rate, the Treasury Bill
Rate or the Treasury Note Rate shall be determined on the basis of the quotation
or quotations furnished by the remaining U.S. Government Securities Dealer or
U.S. Government Securities Dealers and any Substitute U.S. Government Securities
Dealers selected by the Fund to provide such rate or rates not being supplied by
any U.S. Government Securities Dealer or U.S. Government Securities Dealers, as
the case may be, or, if the Fund does not select any such Substitute U.S.
Government Securities Dealer or Substitute U.S. Government Securities Dealers,
by the remaining U.S. Government Securities Dealer or U.S. Government Securities
Dealers.
17
<PAGE> 29
(ggggg) "U.S. GOVERNMENT SECURITIES DEALER" shall mean Lehman Government
Securities Incorporated, Goldman, Sachs & Co., Salomon Brothers Inc and Morgan
Guaranty Trust Company of New York or their respective affiliates or successors,
if such entity is a U.S. Government securities dealer.
(hhhhh) "VALUATION DATE" shall mean, for purposes of determining whether
the Fund is maintaining the MuniPreferred Basic Maintenance Amount, each
Business Day,
(iiiii) "VOLATILITY FACTOR" shall mean, as of any Valuation Date, the
greater of the Moody's Volatility Factor and the S&P Volatility Factor.
(jjjjj) "VOTING PERIOD" shall have the meaning specified in paragraph (b)
of Section 5 of Part I of this Statement.
(kkkkk) "WINNING BID RATE" shall have the meaning specified in paragraph
(a) of Section 3 of Part II of this Statement.
Any additional definitions specifically set forth in Section 8 OF APPENDIX
A hereto shall be incorporated herein and made part hereof by reference thereto.
PART I
1. NUMBER OF AUTHORIZED SHARES.
The number of authorized shares constituting a series of MuniPreferred
shall be as set forth with respect to such series in Section 2 of APPENDIX A
hereto.
2. DIVIDENDS.
(a) RANKING. The shares of a series of MuniPreferred shall rank on a parity
with each other, with shares of any other series of MuniPreferred and with
shares of any other series of Preferred Stock as to the payment of dividends by
the Fund.
(b) CUMULATIVE CASH DIVIDENDS. The Holders of shares of MuniPreferred of
any series shall be entitled to receive, when, as and if declared by the Board
of Directors, out of funds legally available therefor, cumulative cash dividends
at the Applicable Rate for shares of such series, determined as set forth in
paragraph (e) of this Section 2, and no more (except to the extent set forth in
Section 3 of this Part I), payable on the Dividend Payment Dates with respect to
shares of such series determined pursuant to paragraph (d) of this Section 2.
Holders of shares of MuniPreferred shall not be entitled to any dividend,
whether payable in cash, property or stock, in excess of full cumulative
dividends, as herein provided, on shares of MuniPreferred. No interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on shares of MuniPreferred which may be in arrears, and,
except to the extent set forth in subparagraph (e)(i) of this Section 2, no
additional sum of money shall be payable in respect of any such arrearage.
18
<PAGE> 30
(c) DIVIDENDS CUMULATIVE FROM DATE OF ORIGINAL ISSUE. Dividends on shares
of MuniPreferred of any series shall accumulate at the Applicable Rate for
shares of such series from the Date of Original Issue thereof.
(d) DIVIDEND PAYMENT DATES AND ADJUSTMENT THEREOF. The Dividend Payment
Dates with respect to shares of a series of MuniPreferred shall be as set forth
with respect to shares of such series in Section 9 of APPENDIX A hereto;
PROVIDED, HOWEVER, that:
(i) (A) in the case of a series of MuniPreferred designated as "Series F
MuniPreferred" or "Series M MuniPreferred" in Section 1 of APPENDIX A
hereto, if the Monday or Tuesday, as the case may be, on which dividends
would otherwise be payable on shares of such series is not a Business Day,
then such dividends shall be payable on such shares on the first Business
Day that falls after such Monday or Tuesday, as the case may be, and (B) in
the case of a series of MuniPreferred designated as "Series T
MuniPreferred," "Series W MuniPreferred" or "Series TH MuniPreferred" in
Section 1 of APPENDIX A hereto, if the Wednesday, Thursday or Friday, as
the case may be, on which dividends would otherwise be payable on shares of
such series is not a Business Day, then such dividends shall be payable on
such shares on the first Business Day that falls prior to such Wednesday,
Thursday or Friday, as the case may be; and
(ii) notwithstanding Section 9 of APPENDIX A hereto, the Fund in its
discretion may establish the Dividend Payment Dates in respect of any
Special Rate Period of shares of a series of MuniPreferred consisting of
more than 28 Rate Period Days; PROVIDED, HOWEVER, that such dates shall be
set forth in the Notice of Special Rate Period relating to such Special
Rate Period, as delivered to the Auction Agent, which Notice of Special
Rate Period shall be filed with the Secretary of the Fund; and further
provided that (1) any such Dividend Payment Date shall be a Business Day
and (2) the last Dividend Payment Date in respect of such Special Rate
Period shall be the Business Day immediately following the last day
thereof, as such last day is determined in accordance with paragraph (b) of
Section 4 of this Part 1.
(e) DIVIDEND RATES AND CALCULATION OF DIVIDENDS. (i) DIVIDEND RATES. The
dividend rate on shares of MuniPreferred of any series during the period from
and after the Date of Original Issue of shares of such series to and including
the last day of the Initial Rate Period of shares of such series shall be equal
to the rate per annum set forth with respect to shares of such series under
"Designation" in Section I of APPENDIX A hereto. For each Subsequent Rate Period
of shares of such series thereafter, the dividend rate on shares of such series
shall be equal to the rate per annum that results from an Auction for shares of
such series on the Auction Date next preceding such Subsequent Rate Period;
PROVIDED, HOWEVER, that if:
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<PAGE> 31
(A) an Auction for any such Subsequent Rate Period is not hold for any
reason other than as described below, the dividend rate on shares of such series
for such Subsequent Rate Period will be the Maximum Rate for shares of such
series on the Auction Date therefor;
(B) any Failure to Deposit shall have occurred with respect to shares of
such series during any Rate Period thereof (other than any Special Rate Period
consisting of more than 364 Rate Period Days or any Rate Period succeeding any
Special Rate Period consisting of more than 364 Rate Period Days during which a
Failure to Deposit occurred that has not been cured), but, prior to 12:00 Noon,
New York City time, on the third Business Day next succeeding the date on which
such Failure to Deposit occurred, such Failure to Deposit shall have been cured
in accordance with paragraph (f) of this Section 2 and the Fund shall have paid
to the Auction Agent a late charge ("Late Charge") equal to the sum of (1) if
such Failure to Deposit consisted of the failure timely to pay to the Auction
Agent the full amount of dividends with respect to any Dividend Period of the
shares of such series, an amount computed by multiplying (x) 200% of the
Reference Rate for the Rate Period during which such Failure to Deposit occurs
on the Dividend Payment Date for such Dividend Period by (y) a fraction, the
numerator of which shall be the number of days for which such Failure to Deposit
has not been cured in accordance with paragraph (Q of this Section 2 (including
the day such Failure to Deposit occurs and excluding the day such Failure to
Deposit is cured) and the denominator of which shall be 360, and applying the
rate obtained against the aggregate Liquidation Preference of the outstanding
shares of such series and (2) if such Failure to Deposit consisted of the
failure timely to pay to the Auction Agent the Redemption Price of the shares,
if any, of such series for which Notice of Redemption has been mailed by the
Fund pursuant to paragraph (c) of Section 11 of this Part 1, an amount computed
by multiplying (x) 200% of the Reference Rate for the Rate Period during which
such Failure to Deposit occurs on the redemption date by (y) a fraction, the
numerator of which shall be the number of days for which such Failure to Deposit
is not cured in accordance with paragraph (f) of this Section 2 (including the
day such Failure to Deposit occurs and excluding the day such Failure to Deposit
is cured) and the denominator of which shall be 360, and applying the rate
obtained against the aggregate Liquidation Preference of the outstanding shares
of such series to be redeemed, no Auction will be held in respect of shares of
such series for the Subsequent Rate Period thereof and the dividend rate for
shares of such series for such Subsequent Rate Period will be the Maximum Rate
for shares of such series on the Auction Date for such Subsequent Rate Period;
(C) any Failure to Deposit shall have occurred with respect to shares of
such series during any Rate Period thereof (other than any Special Rate
20
<PAGE> 32
Period consisting of more than 364 Rate Period Days or any Rate Period
succeeding any Special Rate Period consisting of more than 364 Rate Period Days
during which a Failure to Deposit occurred that has not been cured), and, prior
to 12:00 Noon, New York City time, on the third Business Day next succeeding the
date on which such Failure to Deposit occurred, such Failure to Deposit shall
not have been cured in accordance with paragraph (f) of this Section 2 or the
Fund shall not have paid the applicable Late Charge to the Auction Agent, no
Auction will be held in respect of shares of such series for the first
Subsequent Rate Period thereof thereafter (or for any Rate Period thereof
thereafter to and including the Rate Period during which (1) such Failure to
Deposit is cured in accordance with paragraph (f) of this Section 2 and (2) the
Fund pays the applicable Late Charge to the Auction Agent (the condition set
forth in this clause (2) to apply only in the event Moody's is rating such
shares at the time the Fund cures such Failure to Deposit), in each case no
later than 12:00 Noon, New York City time, on the fourth Business Day prior to
the end of such Rate Period), and the dividend rate for shares of such series
for each such Subsequent Rate Period shall be a rate per annum equal to the
Maximum Rate for shares of such series on the Auction Date for such Subsequent
Rate Period (but with the prevailing rating for shares of such series, for
purposes of determining such Maximum Rate, being deemed to be "Below
'ba3'/BB-"); or
(D) any Failure to Deposit shall have occurred with respect to shares of
such series during a Special Rate Period thereof consisting of more than 364
Rate Period Days, or during any Rate Period thereof succeeding any Special Rate
Period consisting of more than 364 Rate Period Days during which a Failure to
Deposit occurred that has not been cured, and, prior to 12:00 Noon, New York
City time, on the fourth Business Day preceding the Auction Date for the Rate
Period subsequent to such Rate Period, such Failure to Deposit shall not have
been cured in accordance with paragraph (f) of this Section 2 or, in the event
Moody's is then rating such shares, the Fund shall not have paid the applicable
Late Charge to the Auction Agent (such Late Charge, for purposes of this
subparagraph (D), to be calculated by using, as the Reference Rate, the
Reference Rate applicable to a Rate Period (x) consisting of more than 182 Rate
Period Days but fewer than 365 Rate Period Days and (y) commencing on the date
on which the Rate Period during which Failure to Deposit occurs commenced), no
Auction will be held in respect of shares of such series for such Subsequent
Rate Period (or for any Rate Period thereof thereafter to and including the
Rate Period during which (1) such Failure to Deposit is cured in accordance with
paragraph (f) of this Section 2 and (2) the Fund pays the applicable Late Charge
to the Auction Agent (the condition set forth in this clause (2) to apply only
in the event Moody's is rating such shares at the time the Fund cures such
Failure to Deposit), in each case no later than 12:00 Noon, New York City
time, on the fourth
21
<PAGE> 33
Business Day prior to the end of such Rate Period), and the dividend rate
for shares of such series for each such Subsequent Rate Period shall be a
rate per annum equal to the Maximum Rate for shares of such series on the
Auction Date for such Subsequent Rate Period (but with the prevailing
rating for shares of such series, for purposes of determining such Maximum
Rate, being deemed to be "Below 'ba3'/BB-") (the rate per, annum at which
dividends are payable on shares of a series of MuniPreferred for any Rate
Period thereof being herein referred to as the "Applicable Rate" for shares
of such series).
(ii) CALCULATION OF DIVIDENDS. The amount of dividends per share payable on
shares of a series of MuniPreferred on any date on which dividends shall be
payable on shares of such series shall be computed by multiplying the Applicable
Rate for shares of such series in effect for such Dividend Period or Dividend
Periods or part thereof for which dividends have not been paid by a fraction,
the numerator of which shall be the number of days in such Dividend Period or
Dividend Periods or part thereof and the denominator of which shall be 365 if
such Dividend Period consists of 7 Rate Period Days and 360 for all other
Dividend Periods, and applying the rate obtained against $25,000.
(f) CURING A FAILURE TO DEPOSIT. A Failure to Deposit with respect to
shares of a series of MuniPreferred shall have been cured (if such Failure to
Deposit is not solely due to the willful failure of the Fund to make the
required payment to the Auction Agent) with respect to any Rate Period of shares
of such series if, within the respective time periods described in subparagraph
(e)(i) of this Section 2, the Fund shall have paid to the Auction Agent (A) all
accumulated and unpaid dividends on shares of such series and (B) without
duplication, the Redemption Price for shares, if any, of such series for which
Notice of Redemption has been mailed by the Fund pursuant to paragraph (c) of
Section II of Part I of this Statement; provided however, that the foregoing
clause (B) shall not apply to the Fund's failure to pay the Redemption Price in
respect of shares of MuniPreferred when the related Redemption Notice provides
that redemption of such shares is subject to one or more conditions precedent
and any such condition precedent shall not have been satisfied at the time or
times and in the manner specified in such Notice of Redemption.
(g) DIVIDEND PAYMENTS BY FUND TO AUCTION AGENT. The Fund shall pay to the
Auction Agent, not later than 12:00 Noon, New York City time, on the Business
Day next preceding each Dividend Payment Date for shares of a series of
MuniPreferred, an aggregate amount of funds available on the next Business Day
in The City of New York, New York, equal to the dividends to be paid to all
Holders of shares of such series on such Dividend Payment Date.
(h) AUCTION AGENT AS TRUSTEE OF DIVIDEND PAYMENTS BY FUND. All moneys paid
to the Auction Agent for the payment of dividends (or for the
22
<PAGE> 34
payment of any Late Charge) shall be held in trust for the payment of such
dividends (and any such Late Charge) by the Auction Agent for the benefit of the
Holders specified in paragraph (i) of this Section 2. Any moneys paid to the
Auction Agent in accordance with the foregoing but not applied by the Auction
Agent to the payment of dividends (and any such Late Charge) will, to the extent
permitted by law, be repaid to the Fund at the end of 90 days from the date on
which such moneys were so to have been applied.
(i) DIVIDENDS PAID TO HOLDERS. Each dividend on shares of MuniPreferred
shall be paid on the Dividend Payment Date therefor to the Holders thereof as
their names appear on the stock books of the Fund on the Business Day next
preceding such Dividend Payment Date.
(j) DIVIDENDS CREDITED AGAINST EARLIEST ACCUMULATED BUT UNPAID DIVIDENDS.
Any dividend payment made on shares of MuniPreferred shall first be credited
against the earliest accumulated but unpaid dividends due with respect to such
shares. Dividends in arrears for any past Dividend Period may be declared and
paid at any time, without reference to any regular Dividend Payment Date, to the
Holders as their names appear on the stock books of the Fund on such date, not
exceeding 15 days preceding the payment date thereof, as may be fixed by the
Board of Directors.
(k) DIVIDENDS DESIGNATED AS EXEMPT-INTEREST DIVIDENDS. Dividends on shares
of MuniPreferred shall be designated as exempt-interest dividends up to the
amount of tax-exempt income of the Fund, to the extent permitted by, and for
purposes of, Section 852 of the Code.
3. GROSS-UP PAYMENTS.
Holders of shares of MuniPreferred shall be entitled to receive, when, as
and if declared by the Board of Directors, out of funds legally available
therefor, dividends in an amount equal to the aggregate Gross-up Payments as
follows:
(a) MINIMUM RATE PERIODS AND SPECIAL RATE PERIODS OF 28 RATE PERIOD
DAYS OR FEWER. If, in the case of any Minimum Rate Period or any Special
Rate Period of 28 Rate Period Days or fewer, the Fund allocates any net
capital gains or other income taxable for Federal income tax purposes to a
dividend paid on shares of MuniPreferred without having given advance
notice thereof to the Auction Agent as provided in Section 5 of Part II of
this Statement (such allocation being referred to herein as a "Taxable
Allocation") solely by reason of "the fact that such allocation is made
retroactively as a result of the redemption of all or a portion of the
outstanding shares of MuniPreferred or the liquidation of the Fund, the
Fund shall, prior to the end of the calendar year in which such dividend
was paid, provide notice thereof to the Auction Agent and direct the Fund's
dividend disbursing agent to send such notice with a Gross-up Payment to
each Holder of such shares that was entitled to such dividend
23
<PAGE> 35
payment during such calendar year at such Holder's address as the same
appears or last appeared on the stock books of the Fund.
(b) SPECIAL RATE PERIODS OF MORE THAN 28 RATE PERIOD DAYS. If, in the
case of any Special Rate Period of more than 28 Rate Period Days, the Fund
makes a Taxable Allocation to a dividend paid on shares of MuniPreferred,
the Fund shall, prior to the end of the calendar year in which such
dividend was paid, provide notice thereof to the Auction Agent and direct
the Fund's dividend disbursing agent to send such notice with a Gross-up
Payment to each Holder of shares that was entitled to such dividend payment
during such calendar year at such Holder's address as the same appears or
last appeared on the stock books of the Fund.
(c) NO GROSS-UP PAYMENTS IN THE EVENT OF A REALLOCATION. The Fund shall
no- be required to make Gross-up Payments with respect to any net capital
gains or other taxable income determined by the Internal Revenue Service to
be allocable in a manner different from that allocated by the Fund.
4. DESIGNATION OF SPECIAL RATE PERIODS.
(a) LENGTH OF AND PRECONDITIONS. FOR SPECIAL RATE PERIOD. The Fund, at its
option, may designate any succeeding Subsequent Rate Period of shares of a
series of MuniPreferred as a Special Rate Period consisting of a specified
number of Rate Period Days evenly divisible by seven and not more than 1,820,
subject to adjustment as provided in paragraph (b) of this Section 4. A
designation of a Special Rate Period shall be effective only if (A) notice
thereof shall have been given in accordance with paragraph (c) and subparagraph
(d)(i) of this Section 4, (B) an Auction for shares of such series shall have
been held on the Auction Date immediately preceding the first day of such
proposed Special Rate Period and Sufficient Clearing, Bids for shares of such
series shall have existed in such Auction, and (C) if any Notice of Redemption
shall have been mailed by the Fund pursuant to paragraph (c) of Section 11 of
this Part I with respect to any shares of such series, the Redemption Price with
respect to such shares shall have been deposited with the Auction Agent. In the
event the Fund wishes to designate any succeeding Subsequent Rate Period for
shares of a series of MuniPreferred as a Special Rate Period consisting of more
than 28 Rate Period Days, the Fund shall notify S&P (if S&P is then rating such
series) and Moody's (if Moody's is then rating such series) in advance of the
commencement of such Subsequent Rate Period that the Fund wishes to designate
such Subsequent Rate Period as a Special Rate Period and shall provide S&P (if
S&P is then rating such series) and Moody's (if Moody's is then rating such
series) with such documents as either may request.
(b) ADJUSTMENT OF LENGTH OF SPECIAL RATE PERIOD. In the event the Fund
wishes to designate a Subsequent Rate Period as a Special Rate Period, but the
day following what would otherwise be the last day of such Special
24
<PAGE> 36
Rate Period is not (a) a Tuesday that is a Business Day in the case of a series
of MuniPreferred designated as "Series M MuniPreferred" in Section I of APPENDIX
A hereto, (b) a Wednesday that is a Business Day in the case of a series of
MuniPreferred designated as "Series T MuniPreferred" in Section I of APPENDIX A
hereto, (c) a Thursday that is a Business Day in the case of a series of
MuniPreferred designated as "Series W MuniPreferred" in Section I OF APPENDIX A
hereto, (d) a Friday that is a Business Day in the case of a series of
MuniPreferred designated as "Series TH MuniPreferred" in Section I of APPENDIX A
hereto, (e) a Monday that is a Business Day in the case of a series of
MuniPreferred designated as "Series F MuniPreferred" in Section I of APPENDIX A
hereto, then the Fund shall designate such Subsequent Rate Period as a Special
Rate Period consisting of the period commencing on the first day following the
end of the immediately preceding Rate Period and ending (a) on the first Monday
that is followed by a Tuesday that is a Business Day preceding what would
otherwise be such last day, in the case of Series M MuniPreferred, (b) on the
first Tuesday that is followed by a Wednesday that is a Business Day preceding
what would otherwise be such last day, in the case of Series T MuniPreferred,
(c) on the first Wednesday that is followed by a Thursday that is a Business Day
preceding what would otherwise be such last day, in the case of Series W
MuniPreferred, (d) on the first Thursday that is followed by a Friday that is a
Business Day preceding what would otherwise be such last day, in the case of
Series TH MuniPreferred, and (e) on the first Sunday that is followed by a
Monday that is a Business Day preceding what would otherwise be such last day,
in the case of Series F MuniPreferred.
(C) NOTICE OF PROPOSED SPECIAL RATE PERIOD. If the Fund proposes to
designate any succeeding Subsequent Rate Period of shares of a series of
MuniPreferred as a Special Rate Period pursuant to paragraph (a) of this Section
4, not less than 20 (or such lesser number of days as may be agreed to from time
to time by the Auction Agent) nor more than 30 days prior to the date the Fund
proposes to designate as the first day of such Special Rate Period (which shall
be such day that would otherwise be the first day of a Minimum Rate Period),
notice shall be (i) published or caused to be published by the Fund in a
newspaper of general circulation to the financial community in The City of New
York, New York, which carries financial news, and (ii) mailed by the Fund by
first-class mail, postage prepaid, to the Holders of shares of such series. Each
such notice shall state (A) that the Fund may exercise its option to designate a
succeeding Subsequent Rate Period of shares of such series as a Special Rate
Period, specifying the first day thereof and (B) that the Fund will, by 11:00
A.M., New York City time, on the second Business Day next preceding such date
(or by such later time or date, or both, as may be agreed to by the Auction
Agent) notify the Auction Agent of either (x) its determination, subject to
certain conditions, to exercise such option, in which case the Fund shall
specify the Special Rate Period designated, or (y) its determination not to
exercise such option.
25
<PAGE> 37
(d) NOTICE OF SPECIAL RATE PERIOD. No later than 11:00 A.M., New York City
time, on the second Business Day next preceding the first day of any proposed
Special Rate Period of shares of a series of MuniPreferred as to which notice
has been given as set forth in paragraph (c) of this Section 4 (or such later
time or date, or both, as may be agreed to by the Auction Agent), the Fund shall
deliver to the Auction Agent either:
(i) a notice ("Notice of Special Rate Period") stating (A) that the
Fund has determined to designate the next succeeding Rate Period of shares
of such series as a Special Rate Period, specifying the same and the first
day thereof, (B) the Auction Date immediately prior to the first day of
such Special Rate Period, (C) that such Special Rate Period shall not
commence if (1) an Auction for shares of such series shall not be held on
such Auction Date for any reason or (2) an Auction for shares of such
series shall be held on such Auction Date but Sufficient Clearing Bids for
shares of such series shall not exist in such Auction, (D) the scheduled
Dividend Payment Dates for shares of such series during such Special Rate
Period and (E) the Special Redemption Provisions, if any, applicable to
shares of such series in respect of such Special Rate Period; such notice
to be accompanied by a MuniPreferred Basic Maintenance Report showing that,
as of the third Business Day next preceding such proposed Special Rate
Period, Moody's Eligible Assets (if Moody's is then rating such series) and
S&P Eligible Assets (if S&P is then rating such series) each have an
aggregate Discounted Value at least equal to the MuniPreferred Basic
Maintenance Amount as of such Business Day (assuming for purposes of the
foregoing calculation that (a) the Maximum Rate is the Maximum Rate on such
Business Day as if such Business Day were the Auction Date for the proposed
Special Rate Period, and (b) the Moody's Discount Factors applicable to
Moody's Eligible Assets are determined by reference to the first Exposure
Period longer than the Exposure Period then applicable to the Fund, as
described in the definition of Moody's Discount Factor herein); or
(ii) a notice stating that the Fund has determined not to exercise its
option to designate a Special Rate Period of shares of such series and that
the next succeeding Rate Period of shares of such series shall be a Minimum
Rate Period.
(e) FAILURE TO DELIVER NOTICE OF SPECIAL RATE PERIOD. If the Fund fails to
deliver either of the notices described in subparagraphs (d)(i) or (d)(ii) of
this Section 4 (and, in the case of the notice described in subparagraph (d)(i)
of this Section 4, a MuniPreferred Basic Maintenance Report to the effect set
forth in such subparagraph (if either Moody's or S&P is then rating the series
in question)) with respect to any designation of any proposed Special Rate
Period to the Auction Agent by 11:00 A.M., New York City time, oil the second
Business Day next preceding the first day of such proposed Special Rate Period
(or by such later time or date, or both, as may be agreed to by the
26
<PAGE> 38
Auction Agent), the Fund shall be deemed to have delivered a notice to the
Auction Agent with respect to such Special Rate Period to the effect set forth
in subparagraph (d)(ii) of this Section 4. In the event the Fund delivers to the
Auction Agent a notice described in subparagraph (d)(i) of this Section 4, it
shall file a copy of such notice with the Secretary of the Fund, and the
contents of such notice shall be binding on the Fund. In the event the Fund
delivers to the Auction Agent a notice described in subparagraph (d)(ii) of this
Section 4, the Fund will provide Moody's (if Moody's is then rating tile series
in question) and S&P (if S&P is then rating the series in question) a copy of
such notice.
5. VOTING RIGHTS.
(a) ONE VOTE PER SHARE OF MUNIPREFERRED Except as otherwise provided in the
Articles or as otherwise required by law, (;N each Holder of shares of
MuniPreferred shall be entitled to one vote for each share of MuniPreferred held
by such Holder on each matter submitted to a vote of shareholders of the Fund,
and (ii) the holders of outstanding shares of Preferred Stock, including each
share of MuniPreferred, and of shares of Common Stock shall vote together as a
single class; PROVIDED HOWEVER, that, at any meeting of the shareholders of the
Fund held for the election of directors, the holders of outstanding shares of
Preferred Stock, including MuniPreferred, represented in person or by proxy at
said meeting, shall be entitled, as a class, to the exclusion of the holders of
all other securities and classes of capital stock of the Fund, to elect two
directors of the Fund, each share of Preferred Stock, including each share of
MuniPreferred, entitling the holder thereof to one vote. Subject to paragraph
(b) of this Section 5, the holders of outstanding shares of Common Stock and
Preferred Stock, including MuniPreferred, voting together as a single class,
shall elect the balance of the directors.
(b) VOTING FOR ADDITIONAL DIRECTORS. (i) VOTING PERIOD. During any period
in which any one or more of the conditions described in subparagraphs (A) or (B)
of this subparagraph (b)(i) shall exist (such period being referred to herein as
a "Voting Period"), the number of directors constituting the Board of Directors
shall be automatically increased by the smallest number that, when added to the
two directors elected exclusively by the holders of shares of Preferred Stock,
including shares of MuniPreferred, would constitute a majority of the Board of
Directors as so increased by such smallest number; and the holders of shares of
Preferred Stock, including MuniPreferred, shall be entitled, voting as a class
on a one-vote-per-share basis (to the exclusion of the holders of all other
securities and classes of capital stock of the Fund), to elect such smallest
number of additional directors, together with the two directors that such
holders are in any event entitled to elect. A Voting Period shall commence:
(A) if at the close of business on any dividend payment date
accumulated dividends (whether or not earned or declared) on any
outstanding
27
<PAGE> 39
share of Preferred Stock, including MuniPreferred, equal to at least two
full years' dividends shall be due and unpaid and sufficient cash or
specified securities shall not have been deposited with the Auction Agent
for the payment of such accumulated dividends; or
(B) if at any time holders of shares of Preferred Stock are entitled
under the 1940 Act to elect a majority of the directors of the Fund.
Upon the termination of a Voting Period, the voting rights described irk this
subparagraph (b)(i) shall cease, subject always, however, to the revesting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this subparagraph (b)(i).
(ii) NOTICE OF SPECIAL MEETING. As soon as practicable after the accrual of
any right of the holders of shares of Preferred Stock to elect additional
directors as described in subparagraph (b)(i) of this Section 5, the Fund shall
notify the Auction Agent and the Auction Agent shall call a special meeting of
such holders, by mailing a notice of such special meeting to such holders, such
meeting to be held not less than 10 nor more than 20 days after the date of
mailing of such notice. If the Fund fails to send such notice to the Auction
Agent or if the Auction Agent does not call such a special meeting, it may be
called by any such holder on like notice. The record date for determining the
holders entitled to notice of and to vote at such special meeting shall be the
close of business on the fifth Business Day preceding the day on which such
notice is mailed. At any such special meeting and at each meeting of holders of
shares of Preferred Stock held during a Voting Period at which directors are to
be elected, such holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of capital stock of the Fund), shall
be entitled to elect the number of directors prescribed in subparagraph (b)(i)
of this Section 5 on a one-vote-per-share basis.
(iii) TERMS OF OFFICE OF EXISTING DIRECTORS. The terms of office of all
persons who are directors of the Fund at the time of a special meeting of
Holders and holders of other Preferred Stock to elect directors shall continue,
notwithstanding the election at such meeting by the Holders and such other
holders of the number of directors that they are entitled to elect, and the
persons so elected by the Holders and such other holders, together with the two
incumbent directors elected by the Holders and such other holders of Preferred
Stock and the remaining incumbent directors elected by the holders of the Common
Stock and Preferred Stock, shall constitute the duty elected directors of the
Fund.
(iv) TERMS OF OFFICE OF CERTAIN DIRECTORS TO TERMINATE UPON TERMINATION OF
VOTING PERIOD. Simultaneously with the termination of a Voting Period, the terms
of office of the additional directors elected by the Holders and holders of
other Preferred Stock pursuant to subparagraph (b)(i) of this Section 5 shall
terminate, the remaining directors shall constitute the directors of the Fund
and the voting rights of the Holders and such other holders to elect
28
<PAGE> 40
additional directors pursuant to subparagraph (b)(i) of this Section 5 shall
cease, subject to the provisions of the last sentence of subparagraph (b)(i) of
this Section 5.
(C) HOLDERS OF MUNIPREFERRED TO VOTE ON CERTAIN OTHER MATTERS. (i)
INCREASES IN CAPITALIZATION. So long as any shares of MuniPreferred are
outstanding, the Fund shall not, without the affirmative vote or consent of the
Holders of at least a majority of the shares of MuniPreferred outstanding at the
time, in person or by proxy, either in writing or at a meeting (voting
separately as one class): (a) authorize, create or issue any class or series of
stock ranking prior to or on a parity with shares of MuniPreferred with respect
to the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Fund, or increase the authorized
amount of any series of MuniPreferred (except that, notwithstanding the
foregoing, but subject to the provisions of paragraph (c) of Section 10 of this
Part 1, the Board of Directors, without the vote or consent of the Holders of
MuniPreferred, may from time to time authorize and create, and the Fund may from
time to time issue, classes or series of Preferred Stock ranking on a parity
with shares of MuniPreferred with respect to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Fund; PROVIDED, HOWEVER, that if Moody's or S&P is not then
rating the shares of MuniPreferred, the aggregate liquidation preference of all
Preferred Stock of the Fund outstanding after any such issuance, exclusive of
accumulated and unpaid dividends, may not exceed the amount set forth in Section
10 of APPENDIX A hereto) or (b) amend, alter or repeal the provisions of the
Articles, including this Statement, whether by merger, consolidation or
otherwise, so as to affect any preference, right or power of such shares of
MuniPreferred or the Holders thereof; PROVIDED HOWEVER, that (i) none of the
actions permitted by the exception to (a) above will be deemed to affect such
preferences, rights or powers and (ii) the authorization, creation and issuance
of classes or series of stock ranking junior to shares of MuniPreferred with
respect to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund, will be
deemed to affect such preferences, rights or powers only if Moody's or S&P is
then rating shares of MuniPreferred and such issuance would, at the time
thereof, cause the Fund not to satisfy the 1940 Act MuniPreferred Asset Coverage
or the MuniPreferred Basic Maintenance Amount. So long as any shares of
MuniPreferred are outstanding, the Fund shall not, without the affirmative vote
or consent of the Holders of at least 66 2/3% of the shares of MuniPreferred
outstanding at the time, in person or by proxy, either in writing or at a
meeting (voting separately as one class), file a voluntary application for
relief under Federal bankruptcy law or any similar application under state law
for so long as the Fund is solvent and does not foresee becoming insolvent. To
the extent that shares of MuniPreferred constitute a series of stock under
Minnesota law and to the extent the Holders of such shares are empowered under
the Minnesota Business Corporation Act to vote as a class on the actions set
29
<PAGE> 41
forth above in this subparagraph (c)(i), the Fund shall not approve any such
action without the affirmative vote or consent of the Holders of at least a
majority of the shares of MuniPreferred of such series outstanding at the time,
in person or by proxy, either in writing or at a meeting (voting separately as a
class).
(ii) 1940 ACT MATTERS. Unless a higher percentage is provided for in the
Articles, the affirmative vote of the holders of a majority of the outstanding
shares of Preferred Stock, including MuniPreferred, voting as a separate class,
shall be required to approve any plan of reorganization (as such term is used in
the 1940 Act) adversely affecting such shares or any action requiring a vote of
security holders of the Fund under Section 13(a) of the 1940 Act. In the event a
vote of Holders of MuniPreferred is required pursuant to the provisions of
Section 13(a) of the 1940 Act, the Fund shall, not later than ten Business Days
prior to the date on which such vote is to be taken, notify Moody's (if Moody's
is then rating the shares of MuniPreferred) and S&P (if S&P is then rating the
shares of MuniPreferred) that such vote is to be taken and the nature of the
action with respect to which such vote is to be taken. The Fund shall, not later
than ten Business Days after the date on which such vote is taken, notify
Moody's (if Moody's is then rating the shares of MuniPreferred) of the results
of such vote.
(d) BOARD MAY TAKE CERTAIN ACTIONS WITHOUT SHAREHOLDER APPROVAL
The Board of Directors, without the vote or consent of the shareholders of
the Fund, may from time to time amend, alter or repeal any or all of the
definitions of the terms listed below, or any provision of this Statement viewed
by Moody's or S&P as a predicate for any such definition, and any such
amendment, alteration or repeal will not be deemed to affect the preferences,
rights or powers of shares of MuniPreferred or the Holders thereof, PROVIDED,
HOWEVER, that the Board of Directors receives written confirmation from Moody's
(such confirmation being required to be obtained only in the event Moody's is
rating the shares of MuniPreferred and in no event being required to be obtained
in the case of the definitions of (x) Deposit Securities, Discounted Value,
Receivables for Municipal Obligations Sold, Issue Type Category and Other Issues
as such terms apply to S&P Eligible Assets, (y) Dividend Coverage Amount,
Dividend Coverage Assets, Minimum Liquidity Level, S&P Discount Factor, S&P
Eligible Asset, S&P Exposure Period and S&P Volatility Factor and (z) Valuation
Date as such term applies to the definitions of Dividend Coverage Amount,
Dividend Coverage Assets and Minimum Liquidity Level) and S&P (such
confirmation being required to be obtained only in the event S&P is rating the
shares of MuniPreferred and in no event being required to be obtained in the
case of the definitions of (x) Discounted Value, Receivables for Municipal
Obligations Sold, issue Type Category and Other Issues as such terms apply to
Moody's Eligible Assets, and (y) Moody's Discount Factor, Moody's Eligible
Asset, Moody's Exposure Period and Moody's Volatility Factor) that any such
amendment, alteration or
30
<PAGE> 42
repeat would not impair the ratings then assigned by Moody's or S&P, as the case
may be, to shares of MuniPreferred:
Deposit Securities Moody's Eligible Asset
Discounted Value Moody's Exposure Period
Moody's Volatility Factor
1940 Act Cure Date
Issue Type Category 1940 Act MuniPreferred Asset
Market Value Coverage
Maximum Potential Gross-up Other Issues
Payment Liability Quarterly Valuation Date
Receivables for Municipal
MuniPreferred Basic Maintenance Obligations Sold
Amount S&P Discount Factor
MuniPreferred Basic Maintenance S&P Eligible Asset
Cure Date S&P Exposure Period
MuniPreferred Basic Maintenance S&P Volatility Factor
Report Valuation Date
Moody's Discount Factor Volatility Factor
(e) VOTING RIGHTS SET FORTH HEREIN ARE SOLE VOTING RIGHTS. Unless
otherwise required by law, the Holders of shares of MuniPreferred shall not have
any relative rights or preferences or other special rights other than those
specifically set forth herein.
(f) NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING. The Holders of shares of
MuniPreferred shall have no preemptive rights or rights to cumulative voting.
(g) VOTING FOR DIRECTORS SOLE REMEDY FOR FUND'S FAILURE TO PAY DIVIDENDS.
In the event that the Fund fails to pay any dividends on the shares of
MuniPreferred, the exclusive remedy of the Holders shall be the right to vote
for directors pursuant to the provisions of this Section 5.
(H) HOLDERS ENTITLED TO VOTE. For purposes of determining any rights of the
Holders to vote on any matter, whether such right is created by this Statement,
by the other provisions of the Articles, by statute or otherwise, no Holder
shall be entitled to vote any share of MuniPreferred and no share of
MuniPreferred shall be deemed to be "outstanding" for the purpose of voting or
determining the number of shares required to constitute a quorum if, prior to or
concurrently with the time of determination of shares entitled to vote or shares
deemed outstanding for quorum purposes, as the case may be, the requisite Notice
of Redemption with respect to such shares shall have been mailed as provided in
paragraph (c) of Section 11 of this Part I and the Redemption Price for the
redemption of such shares shall have been deposited in trust with the Auction
Agent for that purpose. No share of MuniPreferred held by the Fund or any
affiliate of the Fund (except for shares held by a
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Broker-Dealer that is an affiliate of the Fund for the account of its customers)
shall have any voting rights or be deemed to be outstanding for voting or other
purposes.
6. 1940 ACT MUNIPREFERRED ASSET COVERAGE.
The Fund shall maintain, as of the last Business Day of each month in which
any share of MuniPreferred is outstanding, the 1940 Act MuniPreferred Asset
Coverage.
7. MUNIPREFERREDD BASIC MAINTENANCE AMOUNT.
(a) So long as shares of MuniPreferred are outstanding, the Fund shall
maintain, on each Valuation Date, and shall verify to its satisfaction that it
is maintaining on such Valuation Date, (i) S&P Eligible Assets having an
aggregate Discounted Value equal to or greater than the MuniPreferred Basic
Maintenance Amount (if S&P is then rating the shares of MuniPreferred) and (ii)
Moody's Eligible Assets having an aggregate Discounted Value equal to or greater
than the MuniPreferred Basic Maintenance Amount (if Moody's is then rating the
shares of MuniPreferred).
(b) On or before 5:00 P.M., New York City time, on the third Business Day
after a Valuation Date on which the Fund fails to satisfy the MuniPreferred
Basic Maintenance Amount, and on the third Business Day after the MuniPreferred
Basic Maintenance Cure Date with respect to such Valuation Date, the Fund shall
complete and deliver to S&P (if S&P is then rating the shares of MuniPreferred),
Moody's (if Moody's is then rating the shares of MuniPreferred) and the Auction
Agent (if either S&P or Moody's is then rating the shares of MuniPreferred) a
MuniPreferred Basic Maintenance Report as of the date of such failure,~or such
MuniPreferred Basic Maintenance Cure Date, as the case may be, which will be
deemed to have been delivered to the Auction Agent if the Auction Agent receives
a copy or telecopy, telex or other electronic transcription thereof and on the
same day the Fund mails to the Auction Agent for delivery on the next Business
Day the full MuniPreferred Basic Maintenance Report. The Fund shall also deliver
a MuniPreferred Basic Maintenance Report to (i) the Auction Agent (if either
Moody's or S&P is then rating the shares of MuniPreferred) as of (A) the
fifteenth day of each month (or, if such day is not a Business Day, the next
succeeding Business Day) and (B) the last Business Day of each month, (ii)
Moody's (if Moody's is then rating the shares of MuniPreferred) and S&P (if S&P
is then rating the shares of MuniPreferred) as of any Quarterly Valuation Date,
in each case on or before the third Business Day after such day, and (iii) S&P,
if and when requested for any Valuation Date, on or before the third Business
Day after such request. A failure by the Fund to deliver a MuniPreferred Basic
Maintenance Report pursuant to the preceding sentence shall be deemed to be
delivery of a MuniPreferred Basic Maintenance Report indicating the Discounted
Value for all assets of the Fund is less than the MuniPreferred Basic
Maintenance Amount, as of the relevant Valuation Date.
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<PAGE> 44
(c) Within ten Business Days after the date of delivery of a MuniPreferred
Basic Maintenance Report in accordance with paragraph (b) of this Section 7
relating to a Quarterly Valuation Date, the Fund shall cause the Independent
Accountant to confirm in writing to S&P (if S&P is then rating the shares of
MuniPreferred), Moody's (if Moody's is then rating the shares of MuniPreferred)
and the Auction Agent (if either S&P or Moody's is then rating the shares of
MuniPreferred) (i) the mathematical accuracy of the calculations reflected in
such Report (and in any other MuniPreferred Basic Maintenance Report, randomly
selected by the Independent Accountant, that was delivered by the Fund during
the quarter ending on such Quarterly Valuation Date) and (ii) that, in such
Report (and in such randomly selected Report), the Fund determined in accordance
with this Statement whether the Fund had, at such Quarterly Valuation Date (and
at the Valuation Date addressed in such randomly-selected Report), S&P Eligible
Assets (if S&P is then rating the shares of MuniPreferred) of an aggregate
Discounted Value at least equal to the MuniPreferred Basic Maintenance Amount
and Moody's Eligible Assets (if Moody's is then rating the shares of
MuniPreferred) of an aggregate Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount (such confirmation being herein called
the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery of a MuniPreferred
Basic Maintenance Report in accordance with paragraph (b) of this Section 7
relating to any Valuation Date on which the Fund failed to satisfy the
MuniPreferred Basic Maintenance Amount, and relating to the MuniPreferred Basic
Maintenance Cure Date with respect to such failure to satisfy the MuniPreferred
Basic Maintenance Amount, the Fund shall cause the Independent Accountant to
provide to S&P (if S&P is then rating the shares of MuniPreferred), Moody's (if
Moody's is then rating the shares of MuniPreferred) and the Auction Agent (if
either S&P or Moody's is then rating the shares of MuniPreferred) an
Accountant's Confirmation as to such MuniPreferred Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to paragraph (c) or
(d) of this Section 7 shows that an error was made in the MuniPreferred Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation was required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all S&P Eligible Assets (if S&P is then
rating the shares of MuniPreferred) or Moody's Eligible Assets (if Moody's is
then rating the shares of MuniPreferred), as the case may be, of the Fund was
determined by the Independent Accountant, the calculation or determination made
by such Independent Accountant shall be final and conclusive and shall be
binding on the Fund, and the Fund shall accordingly amend and deliver the
MuniPreferred Basic Maintenance Report to S&P (if S&P is then rating the shares
of MuniPreferred), Moody's (if Moody's is then rating the shares of
MuniPreferred) and the Auction Agent (if either S&P or
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<PAGE> 45
Moody's is then rating the shares of MuniPreferred) promptly following receipt
by the Fund of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business Day
after the Date of Original Issue of any shares of MuniPreferred, the Fund shall
complete and deliver to S&P (if S&P is then rating the shares of MuniPreferred)
and Moody's (if Moody's is then rating the shares of MuniPreferred) a
MuniPreferred Basic Maintenance Report as of the close of business on such Date
of Original Issue. Within five Business Days of such Date of Original Issue, the
Fund shall cause the Independent Accountant to confirm in writing to S&P (if S&P
is then rating the shares of MuniPreferred) (i) the mathematical accuracy of the
calculations reflected in such Report and (ii) that the Discounted Value of S&P
Eligible Assets reflected thereon equals or exceeds the MuniPreferred Basic
Maintenance Amount reflected thereon.
(g) On or before 5:00 p.m., New York City time, on the third Business Day
after either (i) the Fund shall have redeemed Common Stock or (ii) the ratio of
the Discounted Value of S&P Eligible Assets or the Discounted Value of Moody's
Eligible Assets to the MuniPreferred Basic Maintenance Amount is less than or
equal to 105%, the Fund shall complete and deliver to S&P (if S&P is then rating
the shares of MuniPreferred) or Moody's (if Moody's is then rating the shares of
MuniPreferred), as the case may be, a MuniPreferred Basic Maintenance Report as
of the date of either such event.
8. (reserved)
9. RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS.
(a) DIVIDENDS ON PREFERRED STOCK OTHER THAN MUNIPREFERRED. Except as set
forth in the next sentence, no dividends shall be declared or paid or set apart
for payment on the shares of any class or series of stock ranking, as to the
payment of dividends, on a parity with shares of MuniPreferred for any period
unless full cumulative dividends have been or contemporaneously are declared and
paid on the shares of each series of MuniPreferred through its most recent
Dividend Payment Date. When dividends are not paid in full upon the shares of
each series of MuniPreferred through its most recent Dividend Payment Date or
upon the shares of any other class or series of stock ranking on a parity as to
the payment of dividends with shares of MuniPreferred through their most recent
respective dividend payment dates, all dividends
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<PAGE> 46
declared upon shares of MuniPreferred and any other such class or series of
stock ranking on a parity as to the payment of dividends with shares of
MuniPreferred shall be declared pro rata so that the amount of dividends
declared per share on shares of MuniPreferred and such other class or series of
stock shall in all cases bear to each other the same ratio that accumulated
dividends per share on the shares of MuniPreferred and such other class or
series of stock bear to each other (for purposes of this sentence, the amount
of dividends declared per share of MuniPreferred shall be based on the
Applicable Rate for such share for the Dividend Periods during which dividends
were not paid in full).
(b) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO COMMON STOCK UNDER
THE 1940 ACT. The Board of Directors shall not declare any dividend (except a
dividend payable in shares of Common Stock), or declare any other distribution,
upon shares of Common Stock, or purchase shares of Common Stock, unless in
every such case the shares of Preferred Stock have, it the time of any such
declaration or purchase, an asset coverage (as defined in and determined
pursuant to the 1940 Act) of at least 200% (or such other asset coverage as may
in the future be specified in or under the 1940 Act as the minimum asset
coverage for senior securities which are stock of a closed-end investment
company as a condition of declaring dividends on its common stock) after
deducting the amount of such dividend, distribution or purchase price, as the
case may be.
(c) OTHER RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. For so long as
any share of MuniPreferred is outstanding, and except as set forth in paragraph
(a) of this Section 9 and paragraph (c) of Section 12 of this Part 1, (A) the
Fund shall not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or in
options, warrants or rights to subscribe for or purchase, Common Stock or other
stock, if any, ranking junior to the shares of MuniPreferred as to the payment
of dividends and the distribution of assets upon dissolution, liquidation or
winding up) in respect of the Common Stock or any other stock of the Fund
ranking junior to or on a parity with the shares of MuniPreferred as to the
payment of dividends or the distribution of assets upon dissolution, liquidation
or winding up, or call for redemption, redeem, purchase or otherwise acquire for
consideration any shares of Common Stock or any other such junior stock (except
by conversion into or exchange for stock of the Fund ranking junior to the
shares of MuniPreferred as to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up), or any such parity stock
(except by conversion into or exchange for stock of the Fund ranking junior to
or on a parity with MuniPreferred as to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up), unless (i)
full cumulative dividends on shares of each series of MuniPreferred through its
most recently ended Dividend Period shall have been paid or shall have been
declared and sufficient funds for the payment
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<PAGE> 47
thereof deposited with the Auction Agent and (ii) the Fund has redeemed the full
number of shares of MuniPreferred required to be redeemed by any provision for
mandatory redemption pertaining thereto, and (B) the Fund shall not declare, pay
or set apart for payment any dividend or other distribution (other than a
dividend or distribution paid in shares of, or in options, warrants or rights to
subscribe for or purchase, Common Stock or other stock, if any, ranking junior
to shares of MuniPreferred as to the payment of dividends and the distribution
of assets upon dissolution, liquidation or winding up) in respect of Common
Stock or any other stock of the Fund ranking junior to shares of MuniPreferred
as to the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up, or call for redemption, redeem, purchase or otherwise
acquire for consideration any shares of Common Stock or any other such junior
stock (except by conversion into or exchange for stock of the Fund ranking
junior to shares of MuniPreferred as to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up), unless
immediately after such transaction the Discounted Value of Moody's Eligible
Assets (if Moody's is then rating the shares of MuniPreferred) and S&P Eligible
Assets (if S&P is then rating the shares of MuniPreferred) would each at least
equal the MuniPreferred Basic Maintenance Amount.
10. RATING AGENCY RESTRICTIONS.
For so long as any shares of MuniPreferred are outstanding and Moody's or
S&P or both, are rating such shares, the Fund will not, unless it has received
written confirmation from Moody's or S&P, or both, as appropriate, that any such
action would not impair the ratings then assigned by such rating agency to such
shares, engage in any one or more of the following transactions:
(a) buy or sell futures or write put or call options;
(b) borrow money, except that the Fund may, without obtaining the
written confirmation described above, borrow money for the purpose of
clearing securities transactions if (i) the MuniPreferred Basic Maintenance
Amount would continue to be satisfied after giving effect to such borrowing
and (ii) such borrowing (A) is privately arranged with a bank or other
person and is evidenced by a promissory note or other evidence of
indebtedness that is not intended to be publicly distributed or (B) is for
"temporary purposes," is evidenced by a promissory note or other evidence
of indebtedness and is in an amount not exceeding 5 per centum of the
value of the total assets of the Fund at the time of the borrowing, for
purposes of the foregoing, "temporary purpose" means that the borrowing is
to be repaid within sixty days and is not to be extended or renewed;
(c) issue any class or series of stock ranking prior to or on a parity
with shares of MuniPreferred with respect to the payment of dividends or
the distribution of assets upon dissolution, liquidation or winding up of
the
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<PAGE> 48
Fund, or reissue any shares of MuniPreferred previously purchased or
redeemed by the Fund;
(d) engage in any short sales of securities;
(e) lend securities;
(f) merge or consolidate into or with any other corporation;
(g) change the pricing service (currently J.J. Kenny) referred to in
the definition of Market Value; or
(h) enter into reverse repurchase agreements.
11. REDEMPTION.
(a) OPTIONAL REDEMPTION. (i) Subject to the provisions of subparagraph (v)
of this paragraph (a), shares of MuniPreferred of any series may be redeemed, at
the option of the Fund, as a whole or from time to time in part, on the second
Business Day preceding any Dividend Payment Date for shares of such series, out
of funds legally available therefor, at a redemption price per share equal to
the sum of $25,000 plus an amount equal to accumulated but unpaid dividends
thereon (whether or not earned or declared) to (but not including) the date
fixed for redemption; PROVIDED, HOWEVER, that (1) shares of a series of
MuniPreferred may not be redeemed in part if after such partial redemption fewer
than 500 shares of such series remain outstanding; (2) unless otherwise provided
in Section 11 of APPENDIX A hereto, shares of a series of MuniPreferred are
redeemable by the Fund during the Initial Rate Period thereof only on the second
Business Day next preceding the last Dividend Payment Date for such Initial Rate
Period; and (3) subject to subparagraph (ii) of this paragraph (a), the Notice
of Special Rate Period relating to a Special Rate Period of shares of a series
of MuniPreferred, as delivered to the Auction Agent and filed with the Secretary
of the Fund, may provide that shares of such series shall not be redeemable
during the whole or any part of such Special Rate Period (except as provided in
subparagraph (iv) of this paragraph (a)) or shall be redeemable during the whole
or any part of such Special Rate Period only upon payment of such redemption
premium or premiums as shall be specified therein ("Special Redemption
Provisions").
(ii) A Notice of Special Rate Period relating to shares of a series of
MuniPreferred for a Special Rate Period thereof may contain Special Redemption
Provisions only if the Fund's Board of Directors, after consultation with the
Broker-Dealer or Broker-Dealers for such Special Rate Period of shares of such
series, determines that such Special Redemption Provisions are in the best
interest of the Fund.
(iii) If fewer than all of the outstanding shares of a series of
MuniPreferred are to be redeemed pursuant to subparagraph (i) of this paragraph
(a), the number of shares of such series to be redeemed shall be determined by
the Board of Directors, and such shares shall be redeemed pro rata from the
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<PAGE> 49
Holders of shares of such series in proportion to the number of shares of such
series held by such Holders.
(iv) Subject to the provisions of subparagraph (v) of this paragraph (a),
shares of any series of MuniPreferred may be redeemed, at the option of the
Fund, as a whole but not in part, out of funds legally available therefor, on
the first day following any Dividend Period thereof included in a Rate Period
consisting of more than 364 Rate Period Days if, on the date of determination of
the Applicable Rate for shares of such series for such Rate Period, such
Applicable Rate equalled or exceeded on such date of determination the Treasury
Note Rate for such Rate Period, at a redemption price per share equal to the sum
of $25,000 plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed for
redemption.
(v) The Fund may not on any date mail a Notice of Redemption pursuant to
paragraph (c) of this Section 11 in respect of a redemption contemplated to be
effected pursuant to this paragraph (a) unless on such date (a) the Fund has
available Deposit Securities with maturity or tender dates not later than the
day preceding the applicable redemption date and having a value not less than
the amount (including any applicable premium) due to Holders of shares of
MuniPreferred by reason of the redemption of such shares on such redemption date
and (b) the Discounted Value of Moody's Eligible Assets (if Moody's is then
rating the shares of MuniPreferred) and the Discounted Value of S&P Eligible
Assets (if S&P is then rating the shares of MuniPreferred) each at least equal
the MuniPreferred Basic Maintenance Amount, and would at least equal the
MuniPreferred Basic Maintenance Amount immediately subsequent to such redemption
if such redemption were to occur on such date. For purposes of determining in
clause (b) of the preceding sentence whether the Discounted Value of Moody's
Eligible Assets at least equals the MuniPreferred Basic Maintenance Amount, the
Moody's Discount Factors applicable to Moody's Eligible Assets shall be
determined by reference to the first Exposure Period longer than the Exposure
Period then applicable to the Fund, as described in the definition of Moody's
Discount Factor herein.
(B) MANDATORY REDEMPTION. The Fund shall redeem, at a redemption price
equal to $25,000 per share plus accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed by the
Board of Directors for redemption, certain of the shares of MuniPreferred, if
the Fund fails to have either Moody's Eligible Assets with a Discounted Value or
S&P Eligible Assets with a Discounted Value greater than or equal to the
MuniPreferred Basic Maintenance Amount or fails to maintain the 1940 Act
MuniPreferred Asset Coverage, in accordance with the requirements of the rating
agency or agencies then rating the shares of MuniPreferred, and such failure is
not cured on or before the MuniPreferred Basic Maintenance Cure Date or the 1940
Act Cure Date, as the case may be. The number of shares of MuniPreferred to be
redeemed shall be equal to the
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<PAGE> 50
lesser of (i) the minimum number of shares of MuniPreferred, together with all
shares of other Preferred Stock subject to redemption or retirement, the
redemption of which, if deemed to have occurred immediately prior to the opening
of business on the Cure Date, would have resulted in the Fund's having both
Moody's Eligible Assets with a Discounted Value and S&P Eligible Assets with a
Discounted Value greater than or equal to the MuniPreferred Basic Maintenance
Amount or maintaining the 1940 Act MuniPreferred Asset Coverage, as the case may
be, on such Cure Date (PROVIDED, HOWEVER, that if there is no such minimum
number of shares of MuniPreferred and shares of other Preferred Stock the
redemption or retirement of which would have had such result, all shares of
MuniPreferred and Preferred Stock then outstanding shall be redeemed), and (ii)
the maximum number of shares of MuniPreferred, together with all shares of other
Preferred Stock subject to redemption or retirement, that can be redeemed out of
funds expected to be legally available therefor. In determining the shares of
MuniPreferred required to be redeemed in accordance with the foregoing, the Fund
shall allocate the number required to be redeemed to satisfy the MuniPreferred
Basic Maintenance Amount or the 1940 Act MuniPreferred Asset Coverage, as the
case may be, pro rata among shares of MuniPreferred and other Preferred Stock
(and, then, pro rata among each series of MuniPreferred) subject to redemption
or retirement. The Fund shall effect such redemption on the date fixed by the
Fund therefor, which date shall not be earlier than 20 days nor later than 40
days after such Cure Date, except that if the Fund does not have funds legally
available for the redemption of all of the required number of shares of
MuniPreferred and shares of other Preferred Stock which are subject to
redemption or retirement or the Fund otherwise is unable to effect such
redemption on or prior to 40 days after such Cure Date, the Fund shall redeem
those shares of MuniPreferred and shares of other Preferred Stock which it was
unable to redeem on the earliest practicable date on which it is able to effect
such redemption. If fewer than all of the outstanding shares of a series of
MuniPreferred are to be redeemed pursuant to this paragraph (b), the number of
shares of such series to be redeemed shall be redeemed pro rata from the Holders
of shares of such series in proportion to the number of shares of such series
held by such Holders.
(C) NOTICE OF REDEMPTION. If the Fund shall determine or be required to
redeem shares of a series of MuniPreferred pursuant to paragraph (a) or (b) of
this Section 11, it shall mail a Notice of Redemption with respect to such
redemption by first class mail, postage prepaid, to each Holder of the shares of
such series to be redeemed, at such Holder's address as the same appears on the
stock books of the Fund on the record date established by the Board of
Directors. Such Notice of Redemption shall be so mailed not less than 20 nor
more than 45 days prior to the date fixed for redemption. Each such Notice of
Redemption shall state: (i) the redemption date; (ii) the number of shares of
MuniPreferred to be redeemed and the series thereof; (iii) the CUSIP number for
shares of such series; (iv) the Redemption Price; (v) the place or places
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<PAGE> 51
where the certificate(s) for such shares (properly endorsed or assigned for
transfer, if the Board of Directors shall so require and the Notice of
Redemption shall so state) are to be surrendered for payment of the Redemption
Price; (vi) that dividends on the shares to be redeemed will cease to accumulate
on such redemption date; and (vii) the provisions of this Section 11 under which
such redemption is made. If fewer than all shares of a series of MuniPreferred
held by any Holder are to be redeemed, the Notice of Redemption mailed to such
Holder shall also specify the number of shares of such series to be redeemed
from such Holder. The Fund may provide in any Notice of Redemption relating to a
redemption contemplated to be effected pursuant to paragraph (a) of this Section
11 that such redemption is subject to one or more conditions precedent and that
the Fund shall not be required to effect such redemption unless each such
condition shall have been satisfied at the time or time and in the manner
specified in such Notice of Redemption.
(d) No REDEMPTION UNDER CERTAIN CIRCUMSTANCES. Notwithstanding the
provisions of paragraphs (a) or (b) of this Section 11, if any dividends on
shares of a series of MuniPreferred (whether or not earned or declared) are in
arrears, no shares of such series shall be redeemed unless all outstanding
shares of such series are simultaneously redeemed, and the Fund shall not
purchase or otherwise acquire any shares of such series; PROVIDED, HOWEVER, that
the foregoing shall not prevent the purchase or acquisition of all outstanding
shares of such series pursuant to the successful completion of an otherwise
lawful purchase or exchange offer made on the same terms to, and accepted by,
Holders of all outstanding shares of such series.
(e) ABSENCE OF FUNDS AVAILABLE FOR REDEMPTION. To the extent that any
redemption for which Notice of Redemption has been mailed is not made by reason
of the absence of legally available funds therefor, such redemption shall be
made as soon as practicable to the extent such funds become available. Failure
to redeem shares of MuniPreferred shall be deemed to exist at any time after the
date specified for redemption in a Notice of Redemption when the Fund shall have
failed, for any reason whatsoever, to deposit in trust with the Auction Agent
the Redemption Price with respect to any shares for which such Notice of
Redemption has been mailed; PROVIDED, HOWEVER, that the foregoing shall not
apply in the case of the Fund's failure to deposit in trust with the Auction
Agent the Redemption Price with respect to any shares where (1) the Notice of
Redemption relating to such redemption provided that such redemption was subject
to one or more conditions precedent and (2) any such condition precedent shall
not have been satisfied at the time or times and in the manner specified in such
Notice of Redemption. Notwithstanding the fact that the Fund may not have
redeemed shares of MuniPreferred for which a Notice of Redemption has been
mailed, dividends may be declared and paid on shares of MuniPreferred and shall
include those shares of MuniPreferred for which a Notice of Redemption has
been mailed.
40
<PAGE> 52
(f) AUCTION AGENT AS TRUSTEE OF REDEMPTION PAYMENTS BY FUND. All moneys
paid to the Auction Agent for payment of the Redemption Price of shares of
MuniPreferred called for redemption shall be held in trust by the Auction Agent
for the benefit of Holders of shares so to be redeemed.
(g) SHARES FOR WHICH NOTICE OF REDEMPTION HAS BEEN GIVEN ARE NO LONGER
OUTSTANDING. Provided a Notice of Redemption has been mailed pursuant to
paragraph (c) of this Section 11, upon the deposit with the Auction Agent (on
the Business Day next preceding the date fixed for redemption thereby, in funds
available on the next Business Day in The City of New York, New York) of funds
sufficient to redeem the shares of MuniPreferred that are the subject of such
notice, dividends on such shares shall cease to accumulate and such shares shall
no longer be deemed to be outstanding for any purpose, and all rights of the
Holders of the shares so called for redemption shall cease and terminate, except
the right of such Holders to receive the Redemption Price, but without any
interest or other additional amount, except as provided in subparagraph (e)(i)
of Section 2 of this Part I and in Section 3 of this Part I. Upon surrender in
accordance with the Notice of Redemption of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Board of Directors
shall so require and the Notice of Redemption shall so state), the Redemption
Price shall be paid by the Auction Agent to the Holders of shares of
MuniPreferred subject to redemption. In the case that fewer than all of the
shares represented by any such certificate are redeemed, a new certificate shall
be issued, representing the unredeemed shares, without cost to the Holder
thereof. The Fund shall be entitled to receive from the Auction Agent, promptly
after the date fixed for redemption, any cash deposited with the Auction Agent
in excess of (i) the aggregate Redemption Price of the shares of MuniPreferred
called for redemption on such date and (ii) all other amounts to which Holders
of shares of MuniPreferred called for redemption may be entitled. Any funds so
deposited that are unclaimed at the end of 90 days from such redemption date
shall, to the extent permitted by law, be repaid to the Fund, after which time
the Holders of shares of MuniPreferred so called for redemption may look only to
the Fund for payment of the Redemption Price and all other amounts to which they
may be entitled. The Fund shall be entitled to receive, from time to time after
the date fixed for redemption, any interest on the funds so deposited.
(h) COMPLIANCE WITH APPLICABLE LAW. In effecting any redemption pursuant to
this Section 11, the Fund shall use its best efforts to comply with all
applicable conditions precedent to effecting such redemption under the 1940 Act
and Minnesota law, but shall effect no redemption except in accordance with the
1940 Act and Minnesota law.
(i) ONLY WHOLE SHARES OF MUNIPREFERRED MAY BE REDEEMED. In the case of any
redemption pursuant to this Section 11, only whole shares of MuniPreferred shall
be redeemed, and in the event that any provision of the
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Articles would require redemption of a fractional share, the Auction Agent shall
be authorized to round up so that only whole shares are redeemed.
12. LIQUIDATION RIGHTS.
(a) RANKING. The shares of a series of MuniPreferred shall rank on a parity
with each other, with shares of any other series of MuniPreferred and with
shares of any other series of Preferred Stock as to the distribution of assets
upon dissolution, liquidation or winding up of the affairs of the Fund.
(b) DISTRIBUTIONS UPON LIQUIDATION. Upon the dissolution, liquidation or
winding up of the affairs of the Fund, whether voluntary or involuntary, the
Holders of shares of MuniPreferred then outstanding shall be entitled to receive
and to be paid out of the assets of the Fund available for distribution to its
shareholders, before any payment or distribution shall be made on the Common
Stock or on any other class of stock of the Fund ranking junior to the
MuniPreferred upon dissolution, liquidation or winding up, an amount equal to
the Liquidation Preference with respect to such shares plus an amount equal to
all dividends thereon (whether or not earned or declared) accumulated but unpaid
to (but not including) the date of final distribution in same-day funds,
together with any payments required to be made pursuant to Section 3 of this
Part I in connection with the liquidation of the Fund. After the payment to the
Holders of the shares of MuniPreferred of the full preferential amounts provided
for in this paragraph (b), the Holders of MuniPreferred as such shall have no
right or claim to any of the remaining assets of the Fund.
(c) PRO RATA DISTRIBUTIONS. In the event the assets of the Fund available
for distribution to the Holders of shares of MuniPreferred upon any dissolution,
liquidation, or winding up of the affairs of the Fund, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which such
Holders are entitled pursuant to paragraph (b) of this Section 12, no such
distribution shall be made on account of any shares of any other class or series
of Preferred Stock ranking on a parity with the shares of MuniPreferred with
respect to the distribution of assets upon such dissolution, liquidation or
winding up unless proportionate distributive amounts shall be paid on account of
the shares of MuniPreferred, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up.
(d) RIGHTS OF JUNIOR STOCK. Subject to the rights of the holders of shares
of any series or class or classes of stock ranking on a parity with the shares
of MuniPreferred with respect to the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Fund, after payment shall have
been made in full to the Holders of "the shares of MuniPreferred as provided in
paragraph (b) of this Section 12, but not prior thereto, any other series or
class or classes of stock ranking junior to the shares of MuniPreferred
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with respect to the distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Fund shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the Holders of the shares of
MuniPreferred shall not be entitled to share therein.
(e) CERTAIN EVENTS NOT CONSTITUTING LIQUIDATION. Neither the sale of all or
substantially all the property or business of the Fund, nor the merger or
consolidation of the Fund into or with any other corporation nor the merger or
consolidation of any other corporation into or with the Fund shall be a
dissolution, liquidation or winding up, whether voluntary or involuntary, for
the purposes of this Section 12.
13. MISCELLANEOUS.
(a) AMENDMENT OF APPENDIX A TO ADDITIONAL SERIES. Subject to the provisions
of paragraph (c) of Section 1.0 of this Part I, the Board of Directors may, by
resolution duly adopted, without shareholder approval (except as otherwise
provided by this Statement or required by applicable law), amend Appendix A
hereto to add additional series of MuniPreferred (and terms relating thereto) to
the series of MuniPreferred theretofore described thereon, and each such
additional series shall be governed by the terms of this Statement as if such
series had been described on Appendix A hereto on the date hereof.
(b) APPENDIX A INCORPORATED BY REFERENCE. Appendix A hereto is incorporated
in and made a part of this Statement by reference thereto.
(c) NO FRACTIONAL SHARES. No fractional shares of MuniPreferred shall be
issued.
(d) STATUS OF SHARES OF REDEEMED, EXCHANGED OR OTHERWISE ACQUIRED BY THE
FUND. Shares of MuniPreferred which are redeemed, exchanged or otherwise
acquired by the Fund shall return to the status of authorized and unissued
shares of Preferred Stock without designation as to series. Upon the redemption,
exchange or other acquisition by the Fund of all outstanding shares of a series
of MuniPreferred, all provisions of the Articles relating to such series
(including, without limitation, all provisions of this Statement relating to
such series) shall cease to be of further effect and shall cease to be part of
the Articles. Upon the occurrence of any such event, the Board of Directors
shall have the power, pursuant to Minnesota Statutes Section 302A.135,
Subdivision 5 or any successor provision and without shareholder action, to
cause restated articles of incorporation of the Fund or other appropriate
documents to be prepared and filed with the Secretary of State of the State of
Minnesota which reflect such removal from the Articles of all such provisions
relating to such series or, if appropriate, the cancellation of this Statement,
or both.
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(e) BOARD MAY RESOLVE AMBIGUITIES. To the extent permitted by applicable
law, the Board of Directors may interpret or adjust the provisions of this
Statement to resolve any inconsistency or ambiguity or to remedy any formal
defect, and may amend this statement with respect to any series of MuniPreferred
prior to the issuance of shares of such series.
(f) HEADINGS NOT DETERMINATIVE. The headings contained in this Statement
are for convenience of reference only and shall not affect the meaning or
interpretation of this Statement.
(g) NOTICES. All notices or communications, unless otherwise specified in
the By-Laws of the Fund or this Statement, shall be sufficiently given if in
writing and delivered in person or mailed by first-class mail, postage prepaid.
PART II
1. ORDERS. (a) Prior to the Submission Deadline on each Auction Date for
shares of a series of MuniPreferred:
(i) each Beneficial Owner of shares of such series may submit to its
Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such series held by
such Beneficial Owner which such Beneficial Owner desires to continue
to hold without regard to the Applicable Rate for shares of such series
for the next succeeding Rate Period of such shares;
(B) the number of Outstanding shares, if any, of such series held by
such Beneficial Owner which such Beneficial Owner offers to sell if the
Applicable Rate for shares of such series for the next succeeding Rate
Period of shares of such series shall be less than the rate per annum
specified by such Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such series held by
such Beneficial Owner which such Beneficial Owner offers to sell
without regard to the Applicable Rate for shares of such series for the
next succeeding Rate Period of shares of such series;
and
(ii) one or more Broker-Dealers, using lists of Potential Beneficial
Owners, shall in good faith for the purpose of conducting a competitive
Auction in a commercially reasonable manner, contact Potential Beneficial
Owners (by telephone or otherwise), including Persons that are not
Beneficial Owners, on such lists to determine the number of shares, if any,
of such series which each such Potential Beneficial Owner offers to
purchase if the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series shall not be less than the
rate per annum specified by such Potential Beneficial Owner.
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For the purposes hereof, the communication by a Beneficial Owner or Potential
Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction Agent,
of information referred to in clause (i)(A), (i)(B), (i)(C) or (ii) of this
paragraph (a) is hereinafter referred to as an "Order" and collectively as
"Orders" and each Beneficial Owner and each Potential Beneficial Owner placing
an Order with a Broker-Dealer, and such Broker-Dealer placing an Order with the
Auction Agent, is hereinafter referred to as a "Bidder" and collectively as
"Bidders"; an Order containing the information referred to in clause (i)(A) of
this paragraph (a) is hereinafter referred to as a "Hold Order" and
collectively as "Hold Orders"; an Order containing the information referred to
in clause (i)(B) or (ii) of this paragraph (a) is hereinafter referred to as a
"Bid" and collectively as "Bids"; and an Order containing the information
referred to in clause (i)(C) of this paragraph (a) is hereinafter referred to as
a "Sell Order" and collectively as "Sell Orders."
(b)(i) A Bid by a Beneficial Owner or an Existing Holder of shares of a
series of MuniPreferred subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in such
Bid if the Applicable Rate for shares of such series determined on such
Auction Date shall be less than the rate specified therein;
(B) such number or a lesser number of Outstanding shares of such series
to be determined as set forth in clause (iv) of paragraph (a) of Section 4
of this Part II if the Applicable Rate for shares of such series determined
on such Auction Date shall be equal to the rate specified therein; or
(C) the number of Outstanding shares of such series specified in such
Bid if the rate specified therein shall be higher than the Maximum Rate for
shares of such series, or such number or a lesser number of Outstanding
shares of such series to be determined as set forth in clause (iii) of
paragraph (b) of Section 4 of this Part II if the rate specified therein
shall be higher than the Maximum Rate for shares of such series and
Sufficient Clearing Bids for shares of such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of shares of
a series of MuniPreferred subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in such
Sell Order; or
(B) such number or a lesser number of Outstanding shares of such series
as set forth in clause (iii) of paragraph (b) of Section 4 of this Part II
if Sufficient Clearing Bids for shares of such series do not exist;
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PROVIDED, HOWEVER, that a Broker-Dealer that is an Existing Holder with respect
to shares of a series of MuniPreferred shall not be liable to any Person for
failing to sell such shares pursuant to a Sell Order described in the proviso to
paragraph (c) of Section 2 of this Part II if such shares were transferred by
the Beneficial Owner thereof without compliance by such Beneficial Owner or its
transferee Broker-Dealer (or other transferee person, if permitted by the Fund)
with the provisions of Section 7 of this Part II.
(iii) A Bid by a Potential Beneficial Holder or a Potential Holder of
shares of a series of MuniPreferred subject to an Auction on any Auction Date
shall constitute an irrevocable offer to purchase:
(A) the number of Outstanding shares of such series specified in such
Bid if the Applicable Rate for shares of such series determined on such
Auction Date shall be higher than the rate specified therein; or
(B) such number or a lesser number of Outstanding shares of such
series as set forth in clause (v) of paragraph (a) of Section 4 of this
Part II if the Applicable Rate for shares of such series determined on such
Auction Date shall be equal to the rate specified therein.
(c) No Order for any number of shares of MuniPreferred other than whole
shares shall be valid.
2. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT. (a) Each
Broker-Dealer shall submit in writing to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders for shares of MuniPreferred
of a series subject to an Auction on such Auction Date obtained by such
Broker-Dealer, designating itself (unless otherwise permitted by the Fund) as an
Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
shares subject to Orders submitted to it by Potential Beneficial Owners, and
shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Fund);
(ii) the aggregate number of shares of such series that are the
subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of shares
of such series:
(A) the number of shares, if any, of such series subject to any Hold
Order of such Existing Holder;
(B) the number of shares, if any, of such series subject to any Bid of
such Existing Holder and the rate specified in such Bid; and
(C) the number of shares, if any, of such series subject to any Sell
Order of such Existing Holder; and
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(iv) to the extent such Bidder is a Potential Holder of shares of such
series, the rate and number of shares of such series specified in such
Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent shall round such rate up to
the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding shares of
MuniPreferred of a series held by any Existing Holder is not submitted to the
Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a
Hold Order to have been submitted by or on behalf of such Existing Holder
covering the number of Outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent; PROVIDED
HOWEVER, that if an Order or Orders covering all of the Outstanding shares of
such series held by any Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline for an Auction relating to a Special Rate
Period consisting of more than 28 Rate Period Days, the Auction Agent shall deem
a Sell Order to have been submitted by or on behalf of such Existing Holder
covering the number of outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the Auction
Agent covering in the aggregate more than the number of Outstanding shares of
MuniPreferred of a series subject to an Auction held by such Existing Holder,
such Orders shall be considered valid in the following order of priority:
(i) all Hold Orders for shares of such series shall be considered
valid, but only up to and including in the aggregate the number of
Outstanding shares of such series held by such Existing Holder, and if the
number of shares of such series subject to such Hold Orders exceeds the
number of Outstanding shares of such series held by such Existing Holder,
the number of shares subject to each such Hold Order shall be reduced pro
rata to cover the number of Outstanding shares of such series held by such
Existing Holder;
(ii) (A) any Bid for shares of such series shall be considered valid up
to and including the excess of the number of Outstanding shares of such
series held by such Existing Holder over the number of shares, of such
series subject to any Hold Orders referred to in clause (i) above;
(B) subject to subclause (A), if more than one Bid of an Existing
Holder for shares of such series is submitted to the Auction Agent
with the same rate and the number of Outstanding shares of such series
subject to such Bids is greater than such excess, such Bids shall be
considered valid up to and including the amount of such excess,
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and the number of shares of such series subject to each Bid with the
same rate shall be reduced pro rata to cover the number of shares of
such series equal to such excess;
(C) subject to subclauses (A) and (B), if more than one Bid of an
Existing Holder for shares of such series is submitted to the Auction
Agent with different rates, such Bids shall be considered valid in the
ascending order of their respective rates up to and including the
amount of such excess; and
(D) in any such event, the number, if any, of such Outstanding
shares of such series subject to any portion of Bids considered not
valid in whole or in part under this clause (ii) shall be treated as
the subject of a Bid for shares of such series by or on behalf of a
Potential Holder a. the rate therein specified; and
(iii) all Sell Orders for shares of such series shall be considered
valid up to and including the excess of the number of Outstanding shares of
such series held by such Existing Holder over the sum of shares of such
series subject to valid Hold Orders referred to in clause (i) above and
valid Bids referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of a series of
MuniPreferred is submitted to the Auction Agent by or on behalf of any Potential
Holder, each such Bid submitted shall be a separate Bid with the rate and number
of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to
the Submission Deadline on any Auction Date, shall be irrevocable.
3. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND
APPLICABLE RATE. (a) Not earlier than the Submission Deadline on each Auction
Date for shares of a series of MuniPreferred, the Auction Agent shall assemble
all valid Orders submitted or deemed submitted to it by the Broker-Dealers in
respect of shares of such series (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to individually as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order" and collectively as "Submitted Hold
Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders") and shall determine for such series:
(i) the excess of the number of Outstanding shares of such series over
the number of Outstanding shares of such series subject to Submitted Hold
Orders (such excess being hereinafter referred to as the "Available
MuniPreferred" of such series);
(ii) from the Submitted Orders for shares of such series whether:
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(A) the number of Outstanding shares of such series subject to
Submitted Bids of Potential Holders specifying one or more rates equal
to or lower than the Maximum Rate for shares of such series;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series subject to
Submitted Bids of Existing Holders specifying one or more rates higher
than the Maximum Rate for shares of such series; and
(C) the number of Outstanding shares of such series subject to
Submitted Sell Orders
(in the event such excess or such equality exists (other than because
the number of shares of such series in subclauses (B) and (C) above is zero
because all of the Outstanding shares of such series are subject to
Submitted Hold Orders), such Submitted Bids in subclause (A) above being
hereinafter referred to collectively as "Sufficient Clearing Bids" for
shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series exist, the
lowest rate specified in such Submitted Bids (the "Winning Bid Rate" for
shares of such series) which if:
(A)(1) each such Submitted Bid of Existing Holders specifying such
lowest rate and (11) all other such Submitted Bids of Existing Holders
specifying lower rates were rejected, thus entitling such Existing
Holders to continue to hold the shares of such series that are subject
to such Submitted Bids; and
(B)(1) each such Submitted Bid of Potential Holders specifying
such lowest rate and (11) all other such Submitted Bids of Potential
Holders specifying lower rates were accepted;
would result in such Existing Holders described in subclause (A) above
continuing to hold an aggregate number of Outstanding shares of such series
which, when added to the number of Outstanding shares of such series to be
purchased by such Potential Holders described in subclause (B) above, would
equal not less than the Available MuniPreferred of such series.
(b) Promptly after the Auction Agent has made the determinations pursuant
to paragraph (a) of this Section 3, the Auction Agent shall advise the Fund of
the Maximum Rate for shares of the series of MuniPreferred for which an Auction
is being held on the Auction Date and, based on such determination, the
Applicable Rate for shares of such series for the next succeeding Rate Period
thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series exist, that
the Applicable Rate for all shares of such series for the next succeeding
Rate
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Period thereof shall be equal to the Winning Bid Rate for shares of such
series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do not exist
(other than because all of the Outstanding shares of such series are
subject to Submitted Hold Orders), that the Applicable Rate for all shares
of such series for the next succeeding Rate Period thereof shall be equal
to the Maximum Rate for shares of such series; or
(iii) if all of the Outstanding shares of such series are subject to
Submitted Hold Orders, that the Applicable Rate for all shares of such
series for the next succeeding Rate Period thereof shall be as set
forth in Section 12 of APPENDIX A hereto.
4. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND
ALLOCATION OF SHARES. Existing Holders shall continue to hold the shares of
MuniPreferred that are subject to Submitted Hold Orders, and, based on the
determinations made pursuant to paragraph (a) of Section 3 of this Part 11, the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected by the
Auction Agent and the Auction Agent shall take such other action as set forth
below:
(a) If Sufficient Clearing Bids for shares of a series MuniPreferred have
been made, all Submitted Sell Orders with respect to shares of such series shall
be accepted and, subject to the provisions of paragraphs (d) and (e) of this
Section 4, Submitted Bids with respect to shares of such series shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids with respect to shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is higher than the Winning Bid Rate for shares of
such series shall be accepted, thus requiring each such Existing Holder to
sell the shares of MuniPreferred subject to such Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be rejected, thus entitling each such Existing Holder to
continue to hold the shares of MuniPreferred subject to such Submitted
Bids;
(iii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be accepted;
(iv) each Existing Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of such
series shall be rejected, thus entitling such Existing Holder to continue
to hold the shares of MuniPreferred subject to such Submitted Bid, unless
the number of Outstanding shares of MuniPreferred subject to all such
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Submitted Bids shall be greater than the number of shares of MuniPreferred
("remaining shares") in the excess of the Available MuniPreferred of such
series over the number of shares of MuniPreferred subject to Submitted Bids
described in clauses (ii) and (iii) of this paragraph (a), in which event
such Submitted Bid of such Existing Holder shall be rejected in part, and
such Existing Holder shall be entitled to continue to hold shares of
MuniPreferred subject to such Submitted Bid, but only in an amount equal to
the number of shares of MuniPreferred of such series obtained by
multiplying the number of remaining shares by a fraction, the numerator of
which shall be the number of Outstanding shares of MuniPreferred held by
such Existing Holder subject to such Submitted Bid and the denominator of
which shall be the aggregate number of Outstanding shares of MuniPreferred
subject to such Submitted Bids made by all such Existing Holders that
specified a rate equal to the Winning Bid Rate for shares of such series;
and
(v) each Potential Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of such
series shall be accepted but only in an amount equal to the number of
shares of such series obtained by multiplying the number of shares in the
excess of the Available MuniPreferred of such series over the number of
shares of MuniPreferred subject to Submitted Bids described in clauses (ii)
through (iv) of this paragraph (a) by a fraction, the numerator of which
shall be the number of Outstanding shares of MuniPreferred subject to such
Submitted Bid and the denominator of which shall be the aggregate number of
Outstanding shares of MuniPreferred subject to such Submitted Bids made by
all such Potential Holders that specified a rate equal to the Winning Bid
Rate for shares of such series.
(b) If Sufficient Clearing Bids for shares of a series of MuniPreferred
have not been made (other than because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), subject to the provisions of
paragraph (d) of this Section 4, Submitted Orders for shares of such series
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids for shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be rejected, thus entitling such Existing
Holders to continue to hold the shares of MuniPreferred subject to such
Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for shares of such series
specifying any rate that is higher than the Maximum Rate for shares of such
series and the Submitted Sell Orders for shares of such series of each
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Existing Holder shall be accepted, thus entitling each Existing Holder that
submitted or on whose behalf was submitted any such Submitted Bid or
Submitted Sell Order to sell the shares of such series subject to such
Submitted Bid or Submitted Sell Order, but in both cases only in an amount
equal to the number of shares of such series obtained by multiplying the
number of shares of such series subject to Submitted Bids described in
clause (ii) of this paragraph (b) by a fraction, the numerator of which
shall be the number of Outstanding shares of such series held by such
Existing Holder subject to such Submitted Bid or Submitted Sell Order and
the denominator of which shall be the aggregate number of Outstanding
shares of such series subject to all such Submitted Bids and Submitted Sell
Orders.
(c) If all of the Outstanding shares of a series of MuniPreferred are
subject to SubmItted Hold Orders, all Submitted Bids for shares of such series
shall be rejected.
(d) If, as a result of the procedures described in clause (iv) or (v) of
paragraph (a) or clause (iii) of paragraph (b) of this Section 4, any Existing
Holder would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of a series of
MuniPreferred on any Auction Date, the Auction Agent shall, in such manner as it
shall determine in its sole discretion, round up or down the number of shares of
MuniPreferred of such series to be purchased or sold by any Existing Holder or
Potential Holder on such Auction Date as a result of such procedures so that the
number of shares so purchased or sold by each Existing Holder or Potential
Holder on such Auction Date shall be whole shares of MuniPreferred.
(e) If, as a result of the procedures described in clause (v) of paragraph
(a) of this Section 4, any Potential Holder would be entitled or required to
purchase less than a whole share of a series of MuniPreferred on any Auction
Date, the Auction Agent shall, in such manner as it shall determine in its sole
discretion, allocate shares of MuniPreferred of such series for purchase among
Potential Holders so that only whole shares of MuniPreferred of such series are
purchased on such Auction Date as a result of such procedures by any Potential
Holder, even if such allocation results in one or more Potential Holders not
purchasing shares of MuniPreferred of such series on such Auction Date.
(f) Based on the results of each Auction for shares of a series of
MuniPreferred, the Auction Agent shall determine the aggregate number of shares
of such series to be purchased and the aggregate number of shares of such series
to be sold by Potential Holders and Existing Holders and, with respect to each
Potential Holder and Existing Holder, to the extent that such aggregate number
of shares to be purchased and such aggregate number of
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shares to be sold differ, determine to which other Potential Holder(s) or
Existing Holder(s) they shall deliver, or from which other Potential Holder(s)
or Existing Holder(s) they shall receive, as the case may be, shares of
MuniPreferred of such series.
5. NOTIFICATION OF ALLOCATIONS. Whenever the Fund intends to include any
net capital gains or other income taxable for Federal income tax purposes in any
dividend on shares of MuniPreferred, the Fund shall, in the case of a Minimum
Rate Period or a Special Rate Period of 28 Rate Period Days or fewer, and may,
in the case of any other Special Rate Period, notify the Auction Agent of the
amount to be so included not later than the Dividend Payment Date next preceding
the Auction Date on which the Applicable Rate for such dividend is to be
established. Whenever the Auction Agent receives such notice from the Fund, it
will be required in turn to notify each Broker-Dealer, who, on or prior to such
Auction Date, in accordance with its Broker-Dealer Agreement, will be required
to notify its Beneficial Owners and Potential Beneficial Owners of shares of
MuniPreferred believed by it to be interested in submitting an Order in the
Auction to be held on such Auction Date.
6. AUCTION AGENT. For so long as any shares of MuniPreferred are
outstanding, the Auction Agent, duly appointed by the Fund to so act, shall be
in each case a commercial bank, trust company or other financial institution
independent of the Fund and its affiliates (which however, may engage or have
engaged in business transactions with the Fund or its affiliates) and at no time
shall the Fund or any of its affiliates act as the Auction Agent in connection
with the Auction Procedures. If the Auction Agent resigns or for any reason its
appointment is terminated during any period that any shares of MuniPreferred are
outstanding, the Board of Directors shall use its best efforts promptly
thereafter to appoint another qualified commercial bank, trust company or
financial institution to act as the Auction Agent.
7. TRANSFER OF SHARES OF MUNIPREFERRED. Unless otherwise permitted by the
Fund, a Beneficial Owner or an Existing Holder may sell, transfer or otherwise
dispose of shares of MuniPreferred only in whole shares and only pursuant to a
Bid or Sell Order placed with the Auction Agent in accordance with the
procedures described in this Part 11 or to a Broker-Dealer; PROVIDED, HOWEVER,
that (a) a sale, transfer or other disposition of shares of MuniPreferred from a
customer of a Broker-Dealer who is listed on the records of that Broker-Dealer
as the holder of such shares to that Broker-Dealer or another customer of that
Broker-Dealer shall not be deemed to be a sale, transfer or other disposition
for purposes of this Section 7 if such Broker-Dealer remains the Existing Holder
of the shares so sold, transferred or disposed of immediately after such sale,
transfer or disposition and (b) in the case of all transfers other than pursuant
to Auctions, the Broker-Dealer (or other Person, if permitted by the Fund) to
whom such transfer is made shall advise the Auction Agent of such transfer.
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<PAGE> 65
8. GLOBAL CERTIFICATE. Prior to the commencement of a Voting Period, (i)
all of the shares of a series of MuniPreferred outstanding from time to time
shall be represented by one global certificate registered in the name of the
Securities Depository or its nominee and (ii) no registration of transfer of
shares of a series of MuniPreferred shall be made on the books of the Fund to
any Person other than the Securities Depository or its nominee. The foregoing
restriction on registration of transfer shall be conspicuously noted on the face
or back of the certificates of MuniPreferred in such a manner as to comply with
the requirements of Minnesota Statute Section 302A.429, Subd. 2, and Section
8-204 of the Uniform Commercial Code as in effect in the State of Minnesota, or
any successor provisions.
IN WITNESS WHEREOF, NUVEEN MUNICIPAL MARKET OPPORTUNITY FUND, INC., has
caused these presents to be signed in its name and on its behalf by its Vice
President on May , 1999.
NUVEEN MUNICIPAL MARKET
OPPORTUNITY FUND, INC.
By /s/ Gifford R. Zimmerman
------------------------------
Gifford R. Zimmerman
Vice President and Secretary
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<PAGE> 66
NUVEEN MUNICIPAL MARKET
OPPORTUNITY FUND, INC.
APPENDIX A
SECTION 1. DESIGNATION AS TO SERIES.
SERIES W: A series of 10,000 shares of Preferred Stock, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Stock, Series W." Each share of Series M
MuniPreferred shall be issued on May , 1999, have an Applicable Rate for its
Initial Rate Period equal to % per annum; have an initial Dividend Payment
Date of May , 1999 and have such other preferences, limitations and relative
voting rights, in addition to those required by applicable law or set forth in
the Articles applicable to Preferred Stock of the Fund, as set forth in Part I
and Part 11 of this Statement. The Series W MuniPreferred shall constitute a
separate series of Preferred Stock of the Fund, and each share of Series W
MuniPreferred shall be identical except as provided in Section 11 of Part I of
this Statement.
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F MuniPreferred shall be identical except as provided in Section 11 of Part I of
this Statement. Shares of Series F MuniPreferred shall not be redeemable by the
Fund pursuant to the provisions of Section 11(a) of Part I of this Statement
during the Special Rate Period thereof ending on May 30, 1994, except on the
second Business Day preceding May 31, 1994.
SECTION 2. NUMBER OF AUTHORIZED SHARES PER SERIES.
The number of authorized shares constituting Series W MuniPreferred is
10,000.
SECTION 3. EXCEPTIONS TO CERTAIN DEFINITIONS.
Notwithstanding the definitions contained under the heading "Definitions"
in this Statement, the following terms shall have the following meanings for
purposes of this Statement:
Not applicable.
SECTION 4. CERTAIN DEFINITIONS.
For purposes of this Statement, the following terms shall have the
following meanings (with terms defined in the singular having comparable
meanings when used in the plural and vice versa), unless the context otherwise
requires:
"GROSS-UP PAYMENT" means payment to a Holder of shares of MuniPreferred
of an amount which, when taken together with the aggregate amount of
Taxable Allocations made to such Holder to which such Gross-up Payment
relates, would cause such Holder's dividends in dollars (after Federal
income tax consequences) from the aggregate of such Taxable Allocations and
the related Gross-up Payment to be equal to the dollar amount of the
dividends which would have been received by such Holder if the amount of
such aggregate Taxable Allocations would have been excludable from the
gross income of such Holder. Such Gross-up Payment shall be calculated (i)
without consideration being given to the time value of money; (ii) assuming
that no Holder of shares of MuniPreferred is subject to the Federal
alternative minimum tax with respect to dividends received from the Fund;
and (iii) assuming that each Taxable Allocation and each Gross-up Payment
(except to the extent such Gross-up Payment is designated as an
exempt-interest dividend under Section 852(b)(5) of the Code or successor
provisions) would be taxable in the hands of each Holder of shares of
MuniPreferred at the maximum marginal regular Federal individual income tax
rate applicable to ordinary income or net capital gains, as applicable,
or the maximum marginal regular Federal corporate income tax rate
applicable to ordinary income or net capital gains, as applicable,
whichever is greater, in effect at the time such Gross-up Payment is made.
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"MOODY'S DISCOUNT FACTOR" shall mean, for purposes of determining the
Discounted Value of any Moody's Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest Exposure Period set forth
opposite such rating that is the same length as or is longer than the Moody's
Exposure Period, in accordance with the table set forth below:
RATING CATEGORY
----------------------------------------------------------
EXPOSURE PERIOD Aaa* Aa* A* Baa* OTHER** (V)MIG-1*** SP-1+***
--------------- ---- --- -- ---- ------- ----------- --------
7 weeks ..........151% 159% 168% 202% 229% 136% 148%
8 weeks or less
but greater
than seven
weeks ............154 164 173 205 235 137 149
9 weeks or less
but greater
than eight
weeks ............158 169 179 209 242 138 150
------------
*Moody's rating.
**Municipal Obligations not rated by Moody's but rated BBB by S&P.
***Municipal Obligations rated MIG-1 or VMIG-1 or, if not rated by Moody's,
rated SP-1+ by S&P, which do not mature or have a demand feature at par
exercisable in 30 days and which do not have a long-term rating.
Notwithstanding the foregoing, (i) the Moody's Discount Factor for
short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated at least MIG-1, VMIG-1 or P-1 by Moody's and mature or
have a demand feature at par exercisable in 30 days or less or 125% as long as
such Municipal Obligations are rated at least A-l+/AA or SP-1+/AA by S&P and
mature or have a demand feature at par exercisable in 30 days or less and (ii)
no Moody's Discount Factor will be applied to cash or to Receivables for
Municipal Obligations Sold.
"MOODY'S ELIGIBLE ASSET" shall mean cash, Receivables for Municipal
Obligations Sold or a Municipal Obligation that (i) pays interest in cash, (ii)
is publicly rated Baa or higher by Moody's or, if not rated by Moody's but rated
by S&P, is rated at least BBB by S&P (PROVIDED, HOWEVER, that for purposes of
determining the Moody's Discount Factor applicable to any such S&P-rated
Municipal Obligation, such Municipal Obligation (excluding any short-term
Municipal Obligation) shall be deemed to have a Moody's rating which is one full
rating category lower than its S&P rating), (iii) does not have its Moody's
rating suspended by Moody's, and (iv) is part of an issue of Municipal
Obligations of at least $10,000,000. Municipal Obligations issued by any one
issuer and rated BBB by S&P may comprise no more than 4% of total Moody's
Eligible Assets; such BBB-
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rated Municipal Obligations, if any, together with any Municipal Obligations
issued by the same issuer and rated Baa by Moody's or A by S&P, may comprise no
more than 6% of total Moody's Eligible Assets; such BBB, Baa and A-rated
Municipal Obligations, if any, together with any Municipal Obligations issued by
the same issuer and rated A by Moody's or AA by S&P, may comprise no more than
10% of total Moody's Eligible Assets; and such BBB, Baa, A and AA-rated
Municipal Obligations, if any, together with any Municipal Obligations issued by
the same issuer and rated Aa by Moody's or AAA by S&P, may comprise no more than
20% of total Moody's Eligible Assets. For purposes of the foregoing sentence,
any Municipal Obligation backed by the guaranty, letter of credit or insurance
issued by a third party shall be deemed to be issued by such third party if the
issuance of such third party credit is the sole determinant of the rating on
such Municipal Obligation. Municipal Obligations issued by issuers located
within a single state or territory and rated BBB by S&P may comprise no more
than 12% of total Moody's Eligible Assets: such BBB-rated Municipal Obligations,
if any, together with any Municipal Obligations issued by issuers located within
the same state or territory and rated Baa by Moody's or A by S&P, may comprise
no more than 20% of total Moody's Eligible Assets; such BBB, Baa and A-rated
Municipal Obligations, if any, together with any Municipal Obligations issued by
issuers located within the same state or territory and rated A by Moody's or AA
by S&P, may comprise no more than 40% of total Moody's Eligible Assets; and such
BBB, Baa, A and AA-rated Municipal Obligations, if any, together with any
Municipal Obligations issued by issuers located within the same state or
territory and rated Aa by Moody's or AAA by S&P, may comprise no more than 60%
of total Moody's Eligible Assets. For purposes of applying the foregoing
requirements, a Municipal Obligation shall be deemed to be rated BBB by S&P if
rated BBB-, BBB or BBB+ by S&P, Moody's Eligible Assets shall be calculated
without including cash, and Municipal Obligations rated MIG-1, VMIG-l or P-1 or,
if not rated by Moody's, rated A-1+/AA or SP-1+/AA by S&P, shall be considered
to have a long-term rating of A. When the Fund sells a Municipal Obligation and
agrees to repurchase such Municipal Obligation at a future date, such Municipal
Obligation shall be valued at its Discounted Value for purposes of determining
Moody's Eligible Assets, and the amount of the repurchase price of such
Municipal Obligation shall be included as a liability for purposes of
calculating the MuniPreferred Basic Maintenance Amount. When the Fund purchases
a Moody's Eligible Asset and agrees to sell it at a future date, such Eligible
Asset shall be valued at the amount of cash to be received by the Fund upon such
future date, provided that the counterparty to the transaction has a long-term
debt rating of at least A2 from Moody's and the transaction has a term of no
more than 30 days, otherwise such Eligible Asset shall be valued at the
Discounted Value of such Eligible Asset.
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Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset to the extent it is (i) subject to any material lien, mortgage,
pledge, security interest or security agreement of any kind (collectively,
"Liens"), except for (a) Liens which are being contested in good faith by
appropriate proceedings and which Moody's has indicated to the Fund will not
affect the status of such asset as a Moody's Eligible Asset, (b) Liens for taxes
that are not then due and payable or that can be paid thereafter without
penalty, (c) Liens to secure payment for services rendered or cash advanced to
the Fund by Nuveen Advisory Corp., United States Trust Company of New York or
the Auction Agent and (d) Liens by virtue of any repurchase agreement; or (ii)
deposited irrevocably for the payment of any liabilities for purposes of
determining the MuniPreferred Basic Maintenance Amount.
"RATE MULTIPLE," for shares of a series of MuniPreferred on any Auction
Date for shares of such series, shall mean the percentage, determined as set
forth below, based on the prevailing rating of shares of such series in effect
at the close of business on the Business Day next preceding such Auction Date:
PREVAILING RATING PERCENTAGE
----------------- ----------
"aa3"/AA- or higher ................................110%
"a3"/A- . ..........................................125%
"baa3"/BBB- ........................................150%
"ba3"/BB- ..........................................200%
Below "ba3"/BB- . ..................................250%
PROVIDED HOWEVER, that in the event the Fund has notified the Auction Agent of
its intent to allocate income taxable for Federal income tax purposes to shares
of such series prior to the Auction establishing the Applicable Rate for shares
of such series, the applicable percentage in the foregoing table shall be
divided by the quantity 1 minus the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income, whichever is
greater.
For purposes of this definition, the "prevailing rating" of shares of a
series of MuniPreferred shall be (i) "aa3"/AA- or higher if such shares have a
rating of "aa3" or better by Moody's and AA- or better by S&P or the equivalent
of such ratings by such agencies or a substitute rating agency or substitute
rating agencies selected as provided below, (ii) if not "aa3"/AA- or higher,
then "a3"/A- if such shares have a rating of "a3" or better by Moody's and A- or
better by S&P or the equivalent of such ratings by such agencies or a substitute
rating agency or substitute rating agencies selected as provided below, (iii) if
not "aa3"/AA- or higher or "a3"/A-, then "baa3"/BBB- if such shares have a
rating of "baa3" or better by Moody's and BBB- or better by S&P or the
equivalent of such
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<PAGE> 71
ratings by such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, (iv) if not "aa3"/AA- or higher, "a3"/A- or
"baa3"/BBB-, then "ba3"/BB- if such shares have a rating of "baa3" or better by
Moody's and BB- or better by S&P or the equivalent of such ratings by such
agencies or a substitute rating agency or substitute rating agencies selected as
provided below, and (v) if not "aa3"/AA- or higher, "a3"/A-, "baa3"/BBB-, or
"ba3"/BB-, then Below "ba3"/BB-; PROVIDED, HOWEVER, that if such shares are
rated by only one rating agency, the prevailing rating will be determined
without reference to the rating of any other rating agency. The Fund shall take
all reasonable action necessary to enable either S&P or Moody's to provide a
rating for shares of MuniPreferred. If neither S&P nor Moody's shall make such a
rating available, the party set forth in Section 7 of APPENDIX A or its
successor shall select at least one nationally recognized statistical rating
organization (as that term is used in the rules and regulations of the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended from time to time) to act as a substitute rating agency in respect of
shares of the series of MuniPreferred set forth opposite such party's name in
Section 7 of APPENDIX A and the Fund shall take all reasonable action to enable
such rating agency to provide a rating for such shares.
"S&P DISCOUNT FACTOR" shall mean, for purposes of determining the
Discounted Value of any S&P Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest Exposure Period set forth
opposite such rating that is the same length as or is longer than the S&P
Exposure Period, in accordance with the table set forth below:
RATING CATEGORY
----------------------------------
EXPOSURE PERIOD AAA* AA* A* BBB*
--------------- ---- --- -- ----
40 Business Days ..................... 190% 195% 210% 250%
22 Business Days ..................... 170 175 190 230
10 Business Days ..................... 155 160 175 215
7 Business Days ...................... 150 155 170 210
3 Business Days ...................... 130 135 150 190
-------------
* S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
Municipal Obligations will be 115%, so long as such Municipal Obligations are
rated A-1+ or SP-l+ by S&P and mature or have a demand feature exercisable
within 30 days or less, or 125% if such Municipal Obligations are not rated by
S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's; PROVIDED, HOWEVER, that any
such Moody's-rated short-term Municipal Obligations which have demand features
exercisable within 30 days or less must be backed by a letter of credit,
liquidity facility or guarantee from a bank or other financial institution with
a short-term rating of at least A-l+ from S&P; and FURTHER PROVIDED that such
Moody's-rated short-
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<PAGE> 72
term Municipal Obligations may comprise. no more than 50% of short-term
Municipal Obligations that qualify as S&P Eligible Assets and (ii) no S&P
Discount Factor will be applied to cash or to Receivables for Municipal
Obligations Sold. For purposes of the foregoing, Anticipation Notes rated SP-l+
or, if not rated by S&P, rated MIG-1 or VMIG-1 by Moody's, which do not mature
or have a demand feature at par exercisable in 30 days and which do not have a
long-term rating, shall be considered to be short-term Municipal Obligations.
"S&P ELIGIBLE ASSET" shall mean cash (excluding any cash irrevocably
deposited by the Fund for the payment of any liabilities within the meaning of
MuniPreferred Basic Maintenance Amount), Receivables for Municipal Obligations
Sold or a Municipal Obligation owned by the Fund that (i) is interest bearing
and pays interest at least semi-annually; (ii) is payable with respect to
principal and interest in U.S. Dollars; (iii) is publicly rated BBB or higher by
S&P or, if not rated by S&P but rated by Moody's, is rated at least A by Moody's
(PROVIDED, HOWEVER, that such Moody's-rated Municipal Obligations will be
included in S&P Eligible Assets only to the extent the Market Value of such
Municipal Obligations does not exceed 50% of the aggregate Market Value of S&P
Eligible Assets; and FURTHER PROVIDED that, for purposes of determining the S&P
Discount Factor applicable to any such Moody's-rated Municipal Obligation, such
Municipal Obligation will be deemed to have an S&P rating which is one full
rating category lower than its Moody's rating); (iv) is not part of a private
placement of Municipal Obligations; and (v) is part of an issue of Municipal
Obligations with an original issue size of at least $20 million or, if of an
issue with an original issue size below $20 million (but in no event below $10
million), is issued by an issuer with a total of at least $50 million of
securities outstanding. Solely for purposes of this definition, the term
"Municipal Obligation" means any obligation the interest on which is exempt from
regular Federal income taxation and which is issued by any of the fifty United
States, the District of Columbia or any of the territories of the United States,
their subdivisions, counties, cities, towns villages, school districts and
agencies (including authorities and special districts created by the states),
and federally sponsored agencies such as local housing authorities.
Notwithstanding the foregoing limitations:
(1) Municipal Obligations (excluding Escrowed Bonds) of any one issuer or
guarantor (excluding bond insurers) shall be considered S&P Eligible Assets
only to the extent the Market Value of such Municipal Obligations does not
exceed 10% of the aggregate Market Value of S&P Eligible Assets, provided
that 2% is added to the applicable S&P Discount Factor for every 1% by
which the Market Value of such Municipal Obligations exceeds 5% of the
aggregate Market Value of S&P Eligible Assets;
(2) Municipal Obligations guaranteed or insured by any one bond insurer
shall be considered S&P Eligible Assets only to the extent the
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<PAGE> 73
Market Value of such Municipal Obligations does not exceed 25% of the
aggregate Market Value of S&P Eligible Assets; and
(3) Long-term Municipal Obligations (excluding Escrowed Bonds)issued by
issuers in any one state or territory shall be considered S&P Eligible
Assets only to the extent the Market Value of such Municipal
Obligations does not exceed 20% of the aggregate Market Value of S&P
Eligible Assets.
For purposes of determining as of any Valuation Date whether the Fund
has S&P Eligible Assets with an aggregate Discounted Value at least equal
to the MuniPreferred Basic Maintenance Amount, the Fund shall include as a
liability in the calculation of the MuniPreferred Basic Maintenance Amount
an amount calculated semi-annually equal to 150% of the estimated cost of
obtaining Permanent Insurance with respect to S&P Eligible Assets that are
(i) covered by Portfolio Insurance policies which provide the Fund with
the option to obtain such Permanent Insurance and (ii) discounted by an
S&P Discount Factor determined by reference to the insurance claims-paying
ability rating of the issuer of such Portfolio Insurance policy.
"Secondary Market Insurance" shall mean "Secondary Market Insurance"
as defined in the Fund's Registration Statement.
SECTION 5. INITIAL RATE PERIOD.
The Initial Rate Period for shares of Series W MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
May , 1999.
SECTION 6. DATE FOR PURPOSES OF PARAGRAPH (yyy) CONTAINED UNDER THE HEADING
"DEFINITIONS" IN THIS STATEMENT.
May 31, 1999.
SECTION 7. PARTY NAMED FOR PURPOSES OF THE DEFINITION OF "RATE MULTIPLE" IN
THIS STATEMENT.
PARTY: SERIES OF MUNIPREFERRED:
Salomon Smith Barney Inc. Series W
SECTION 8. ADDITIONAL DEFINITIONS.
Not applicable.
SECTION 9. DIVIDEND PAYMENT DATES.
Except as otherwise provided in paragraph (d) of Section 2 of Part I of
this Statement, dividends shall be payable on shares of:
Series W MuniPreferred on Thursday, May , 1999, and thereafter on each
Thursday;
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<PAGE> 74
SECTION 10. AMOUNT FOR PURPOSES OF SUBPARAGRAPH (c)(i) OF SECTION 5 OF PART I OF
THIS STATEMENT.
$300,000,000.
SECTION II. REDEMPTION PROVISIONS APPLICABLE TO INITIAL RATE PERIODS.
Not applicable.
Section 12. APPLICABLE RATE FOR PURPOSES OF SUBPARAGRAPH (b)(iii) OF SECTION 3
OF PART II OF THIS STATEMENT.
For purpose of subparagraph (b)(iii) of Section 3 of Part II of this
Statement, the Applicable Rate for shares of such series for the next succeeding
Rate Period of shares of such series shall be equal to the lesser of the Kenny
Index (if such Rate Period consists of fewer than 183 Rate Period Days) or the
product of (A) (I) the "AA" Composite Commercial Paper Rate on such Auction Date
for such Rate Period, if such Rate Period consists of fewer than 183 Rate Period
Days; (II) the Treasury Bill Rate on such Auction Date for such Rate Period, if
such Rate Period consists of more than 182 but fewer than 365 Rate Period Days;
or (III) the Treasury Note Rate on such Auction Date for such Rate Period, if
such Rate Period is more than 364 Rate Period Days (the rate described in the
foregoing clause (A)(I), (II) or (III), as applicable, being referred to herein
as the "Benchmark Rate") and (B) 1 minus the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income,
whichever is greater; PROVIDED, HOWEVER, that if the Fund has notified the
Auction Agent of its intent to allocate to shares of such series in such Rate
Period any net capital gains or other income taxable for Federal income tax
purposes ("Taxable Income"), the Applicable Rate for shares of such series for
such Rate Period will be (i) if the Taxable Yield Rate (as defined below) is
greater than the Benchmark Rate, then the Benchmark Rate, or (ii) if the Taxable
Yield Rate is less than or equal to the Benchmark Rate, then the rate equal to
the sum of (x) the lesser of the Kenny Index (if such Rate Period consists of
fewer than 183 Rate Period Days) or the product of the Benchmark Rate multiplied
by the factor set forth in the preceding clause (B) and (y) the product of the
maximum marginal regular Federal individual income tax rate applicable to
ordinary income or the maximum marginal regular Federal corporate income tax
applicable to ordinary income,
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whichever is greater, multiplied by the Taxable Yield Rate. For purposes of the
foregoing, Taxable Yield Rate means the rate determined by (a)-dividing the
amount of Taxable Income available for distribution per such share of
MuniPreferred by the number of days in the Dividend Period in respect of which
such Taxable Income is contemplated to be distributed, (b) multiplying the
amount determined in (a) above by 365 (in the case of a Dividend Period of 7
Rate Period Days) or 360 (in the case of any other Dividend Period), and (c)
dividing the amount determined in (b) above by $25,000.
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<PAGE> 1
EXHIBIT 99.2n
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Experts" and to the use of our report dated December 11, 1998
in the Registration Statement (Form N-2) and related Prospectus and Statement
of Additional Information of Nuveen Municipal Market Opportunity Fund, Inc.
filed with the Securities and Exchange Commission in this Pre-Effective
Amendment No. 1 to the Registration Statement under the Securities Act of 1933
(Registration No. 333-77365) and in this Amendment No. 15 to the Registration
Statement under the Investment Company Act of 1940 (Registration No. 811-06040).
ERNST & YOUNG LLP
Chicago, Illinois
April 30, 1999
