<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1999
1933 ACT FILE NO. 333-75987
1940 ACT FILE NO. 811-06379
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
(Check appropriate box or boxes)
[ ] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] PRE-EFFECTIVE AMENDMENT NO. 1
[ ] POST-EFFECTIVE AMENDMENT NO.
AND/OR
[ ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] AMENDMENT NO. 17
NUVEEN INSURED
MUNICIPAL 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 W2...... 3,200 shares $25,000 $80,000,000 $22,518
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
NUVEEN INSURED MUNICIPAL 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 22, 1999
PROSPECTUS
NUVEEN INSURED MUNICIPAL OPPORTUNITY FUND, INC.
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK ("MUNIPREFERRED(R)")
3,200 SHARES SERIES W2
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 dated April 22,
1999, 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 Insured Municipal 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
in a diversified portfolio of tax-exempt municipal bonds that either are insured
or are backed by an escrow or trust account containing sufficient U.S.
Government or U.S. Government agency securities to ensure principal and interest
payments. Municipal bonds backed by an escrow or trust account will not
constitute more than 20% of the Fund's assets. 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. The amount
of taxable income allocated to MuniPreferred shares will depend on the amount of
taxable income 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-29 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 W2, 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 Insured Municipal 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 80,894,177 shares of common stock
outstanding, and 24,000 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 in a diversified portfolio of
tax-exempt municipal bonds that are either insured or are backed by an escrow or
trust account containing U.S. Government or U.S. Government agency securities.
Municipal bonds backed by an escrow or trust account will not constitute more
than 20% of the Fund's assets. 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.
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
A-1
<PAGE> 6
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-11 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 to be paid for the period relating to that auction. For longer
rate periods, the Fund may notify shareholders. The Fund may make shareholders
whole for taxes owing on dividends paid to shareholders that include taxable
income. 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-15 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 MuniPreferred -- Asset
Maintenance and Rating Agency Guidelines -- Rating Agencies" at Pages B-14 and
B-15 of this Prospectus.
A-2
<PAGE> 7
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 1991++
---------- ---------- ---------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value beginning
of period................ $ 15.78 $ 15.54 $ 15.60 $ 14.04 $ 16.24 $ 14.40 $ 14.13 $ 14.05
---------- ---------- ---------- ---------- ---------- ---------- -------- ----------
Operating performance:
Net investment income.... 1.21 1.23 1.24 1.25 1.24 1.24 1.13 0.05
Net realized & unrealized
gain (loss) from
investments............ .28 .28 .02 1.60 (2.18) 1.90 .34 .05
---------- ---------- ---------- ---------- ---------- ---------- -------- ----------
Total from investment
operations............... 1.49 1.51 1.26 2.85 (.94) 3.14 1.47 .10
---------- ---------- ---------- ---------- ---------- ---------- -------- ----------
Dividends from tax-exempt
net investment income:
To Common shareholders... (.97) (.98) (.98) (.98) (1.00) (1.04) (.87) --
To Preferred
shareholders+.......... (.26) (.26) (.26) (.31) (.25) (.33) (.18) --
Distributions from capital
gains:
To Common shareholders... -- (.02) (.06) -- (.01) (.02) -- --
To Preferred
shareholders+.......... -- (.01) (.02) -- -- (.01) -- --
---------- ---------- ---------- ---------- ---------- ---------- -------- ----------
Total
distributions.... (1.23) (1.27) (1.32) (1.29) (1.26) (1.30) (1.30) --
---------- ---------- ---------- ---------- ---------- ---------- -------- ----------
Organization and offering
costs and preferred share
underwriting discounts... -- -- -- -- -- -- (.15) (.02)
---------- ---------- ---------- ---------- ---------- ---------- -------- ----------
Net asset value end of
period................... 16.04 15.78 15.54 15.60 14.04 16.24 14.40 14.13
========== ========== ========== ========== ========== ========== ======== ==========
Per Common share market
value end of period...... 16.6250 15.7500 15.2500 14.8750 13.0000 16.1250 14.0000 14.8750
Total investment
return on market
value**.......... 12.03% 10.18% 9.77% 22.78% (13.60)% 23.41% (.14)% (.83)%
Total return on net
asset value**.... 7.99% 8.32% 6.50% 18.74% (7.59)% 20.75% 0.21% 0.57%
Ratios/Supplemental data:
Net assets end of period
(in thousands)......... $1,892,589 $1,861,771 $1,837,731 $1,841,780 $1,717,023 $1,892,814 $745,207 $1,116,736
Ratio of expenses to
average net assets++... .77% .78% .78% .79% .79% .81% .79% .77%*
Ratio of net investment
income to average net
assets++............... 5.17% 5.34% 5.38% 5.59% 5.44% 5.36% 5.55% 4.00%*
Portfolio turnover
rate................... 12% 8% 18% 16% 20% 5% 13% --%
</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 MuniPreferred
shareholders.
++ For the period December 19, 1990 to October 31, 1991.
A-3
<PAGE> 8
THE FUND
The Fund is a closed-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund was organized as a Minnesota corporation on July 25, 1991, and
may issue up to 1 million shares of MuniPreferred and up to 200 million shares
of common stock. In September and October 1991, the Fund issued 79,000,000
shares of common stock. In December 1991, the Fund issued 6,000 shares of
MuniPreferred stock in three offerings (2,000 shares each of Series M, T, and
TH1), and in February 1992, the Fund issued 6,000 shares of MuniPreferred stock
in three offerings (2,000 shares each of Series W, TH2, 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 24,000
MuniPreferred shares. The Fund has 80,894,177 shares of common stock outstanding
as of March 31, 1999. The common stock trades on the New York Stock Exchange
under the symbol "NIO." 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 UNIT* PREFERENCE PER UNIT
- ---------- --------------------- -------------- -----------------------
<S> <C> <C> <C>
1992.............................. 12,000 $145,434 $50,000
1993.............................. 12,000 $157,734 $50,000
1994.............................. 24,000 $ 71,543 $25,000
1995.............................. 24,000 $ 76,741 $25,000
1996.............................. 24,000 $ 76,572 $25,000
1997.............................. 24,000 $ 77,574 $25,000
1998.............................. 24,000 $ 78,858 $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 80,894,177
MuniPreferred..................... 1,000,000 0 24,000
</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 (24,000 shares issued and
27,200 shares issued, as adjusted respectively)...... $ 600,000,000 $ 680,000,000
Common Stock, $.01 per value per share; 200,000,000 shares
authorized, 80,587,879 shares outstanding*............. 805,879 805,879
Paid-in surplus........................................... 1,120,862,058 1,120,004,836
Balance of undistributed net investment income............ 1,000,488 1,000,488
Accumulated net realized gain (loss) from investment
transactions........................................... 4,126,497 4,126,497
Net unrealized appreciation of investments................ 165,793,813 165,793,813
-------------- --------------
Net Assets........................................ $1,892,588,735 $1,971,731,513
============== ==============
</TABLE>
- ---------------
* None of these outstanding shares are held by or for the account of the Fund.
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 in a diversified portfolio of tax-exempt
municipal bonds that are either covered by insurance guaranteeing the timely
payment of principal and interest thereon, or are backed by an escrow or trust
account containing sufficient U.S. Government or U.S. Government agency
securities to ensure timely payment of principal and interest. Municipal bonds
backed by an escrow or trust account will not constitute more than 20% of the
Fund's assets.
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 in tax-exempt municipal bonds that either are covered by insurance
guaranteeing the timely payment of principal and interest on the bonds, or are
backed by an escrow or trust account containing sufficient U.S. Government or
U.S. Government agency securities to ensure timely payment of principal and
interest. Uninsured municipal bonds backed by an escrow or trust account will
not constitute more than 20% of the Fund's assets. 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.
Each insured municipal bond that the Fund holds will either be (1) covered
by an insurance policy applicable to a specific security, whether obtained by
the issuer of the security or a third party at the time of original issuance, or
by the Fund or a third party after the original issuance, or (2) covered by
portfolio insurance through a master municipal insurance policy the Fund has
purchased. The Fund has bought, and will only buy, portfolio insurance from
insurers whose claims-paying ability Moody's rates "Aaa" or Standard & Poor's
rates "AAA."
A-6
<PAGE> 11
The Fund also may invest in municipal bonds that are backed by an escrow or
trust account containing securities issued or guaranteed by the U.S. Government
or U.S. Government agencies and backed by the full faith and credit of the
United States, in an amount that is sufficient to ensure the payment of interest
and principal. These bonds generally will not be insured. The Fund may buy
municipal bonds that have been (1) advance refunded, where the proceeds of the
refunding have been used to buy U.S. Government or U.S. Government agency
securities that are placed in escrow and whose interest and principal payments
are sufficient to cover the remaining scheduled debt service on that municipal
bond; or (2) issued under state or local housing finance programs that use the
issuance proceeds to fund mortgages that are then exchanged for U.S. Government
or U.S. Government agency securities and deposited with a trustee as security
for those municipal bonds. Both types of municipal bonds are normally regarded
as having the credit characteristics of the underlying U.S. Government or U.S.
Government agency securities.
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.
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 $ per share. The sales load the Fund will pay of
$ per share is equal to % of the initial offering price. The underwriters
may allow, and such dealers may reallow, a concession not in excess of $ 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.
A-7
<PAGE> 12
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.
The Fund has agreed to pay the underwriters $ as partial
reimbursement of expenses incurred in connection with this offering.
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.
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 1991 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 dated April 22, 1999
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.
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 this ratio will be slightly less than three to
one. 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 shares. Each Fund's Articles
of Incorporation or Declaration of Trust require the Fund to maintain, as of the
B-15
<PAGE> 28
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 slightly
less than 300%.
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's Articles of Incorporation or Declaration of
Trust require it to 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. In addition, Standard & Poor's requires each Fund to meet a minimum
liquidity level. Both of 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.
Minimum Liquidity. As long as Standard & Poor's is rating MuniPreferred
shares of a particular Fund, that Fund will maintain a "minimum liquidity
level." The Fund will be required to own cash and highly-rated municipal bonds,
on any business day: (1) with maturity or tender dates not later than the days
preceding the first dividend payment dates for each series of MuniPreferred
shares that follow that business day; and (2) having a value not less than the
aggregate amount of dividends for each MuniPreferred share of that series that
will accumulate up to the first dividend payment date that follows that business
day, minus the combined value of the Fund's cash and municipal bonds deposited
for the payment of MuniPreferred share dividends for that series.
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
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<PAGE> 30
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.
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
B-18
<PAGE> 31
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.
- 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).
B-19
<PAGE> 32
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.
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.
B-20
<PAGE> 33
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 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."
B-21
<PAGE> 34
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 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
B-22
<PAGE> 35
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. 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 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
B-23
<PAGE> 36
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 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
B-24
<PAGE> 37
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 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.
B-25
<PAGE> 38
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.
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
B-26
<PAGE> 39
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 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
B-27
<PAGE> 40
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-28
<PAGE> 41
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
Appendix C -- Description of Insurers....................... C-1
</TABLE>
B-29
<PAGE> 42
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> 43
- ------------------------------------------------------
- ------------------------------------------------------
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-8
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-26
Common Stock......................... B-26
Control of the Fund.................. B-26
Repurchase of Shares or Conversion to
an Open-End Fund................... B-27
Net Asset Value...................... B-27
Other Service Providers.............. B-27
Available Information................ B-27
Table of Contents of the Statement of
Additional Information............. B-29
Taxable Equivalent Yield Table....... B-A-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$80,000,000
NUVEEN INSURED
MUNICIPAL OPPORTUNITY
FUND, INC.
MUNICIPAL AUCTION
RATE CUMULATIVE
PREFERRED STOCK
MUNIPREFERRED(R)
3,200 SHARES SERIES W2
------------
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> 44
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 APRIL, 1999
NUVEEN INSURED MUNICIPAL
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
Description of Insurers .......................... C-1
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVE
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. The Fund seeks to achieve its investment objectives by
investing
S-1
<PAGE> 45
all of its assets in a diversified portfolio of tax-exempt municipal bonds that
are either covered by insurance guaranteeing the timely payment of principal and
interest thereon, or are backed by an escrow or trust account containing
sufficient U.S. Government or U.S. Government agency securities to ensure timely
payment of principal and interest. Municipal bonds backed by an escrow or trust
account will not constitute more than 20% of the Fund's assets.
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 in tax-exempt municipal bonds that are either covered by insurance
guaranteeing the timely payment of principal and interest on the bonds, or are
backed by an escrow or trust account containing sufficient U.S. Government or
U.S. Government agency securities to ensure timely payment of principal and
interest. Uninsured municipal bonds backed by an escrow or trust account will
not constitute more than 20% of the Fund's assets. 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.
Each insured municipal bond that the Fund holds will either be (1) covered
by an insurance policy applicable to a specific security, whether obtained by
the issuer of the security or a third party at the time of original issuance, or
by the Fund or a third party after the original issuance, or (2) covered by
portfolio insurance through a master municipal insurance policy the Fund has
purchased. The Fund has bought, and will only buy, portfolio insurance from
insurers whose claims-paying ability Moody's rates "Aaa" or Standard & Poor's
rates "AAA."
The Fund also may invest in municipal bonds that are backed by an escrow or
trust account containing securities issued or guaranteed by the U.S. Government
or U.S. Government agencies and backed by the full faith and credit of the
United States, in an amount that is sufficient to ensure the payment of interest
and principal. These bonds generally will not be insured. The Fund may buy
municipal bonds that have been (1) advance refunded, where the proceeds of the
refunding have been used to buy U.S. Government or U.S. Government agency
securities that are placed in escrow and whose interest and principal payments
are sufficient to cover the remaining scheduled debt service on that municipal
bond; or (2) issued under state or local housing finance programs that use the
issuance proceeds to fund mortgages that are then exchanged for U.S. Government
or U.S. Government agency securities and deposited with a trustee as security
for those municipal bonds. Both types of municipal bonds are normally regarded
as having the credit characteristics of the underlying U.S. Government or U.S.
Government agency securities.
S-2
<PAGE> 46
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> 47
appropriated for such purpose on a yearly basis. In the case of a
"non-appropriation" lease, the Fund's ability to recover under the lease in the
event of non-appropriation or default will be limited solely to the repossession
of the leased property, without recourse to the general credit of the lessee,
and disposition or releasing of the property might prove difficult. The Fund
seeks to minimize these risks by not investing more than 5% of its total
assets in Municipal Lease Obligations that contain "non-appropriation" clauses,
and by only investing in those "non-appropriation" Municipal Lease Obligations
where (a) the nature of the leased equipment or property is such that its
ownership or use is essential to a governmental function of the municipality,
(b) the lease payments will commence amortization of principal at an early date
that results in an average life of seven years or less for the Municipal Lease
Obligation, (c) appropriate covenants will be obtained from the municipal
obligor prohibiting the substitution or purchase of similar equipment if lease
payments are not appropriated, (d) the lease obligor has maintained good market
acceptability in the past, (e) the investment is of a size that will be
attractive to institutional investors and (f) the underlying leased equipment
has elements of portability or use, or both, that enhance its marketability in
the event foreclosure on the underlying equipment were ever required.
Certain municipal 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.
Additional information on Municipal Bond Insurance
Original Issue Insurance. If interest or principal on a municipal bond is
due, but the issuer fails to pay it, the insurer will make payments in the
amount due to its fiscal agent no later than one business day after the insurer
has been notified of the issuer's nonpayment. The fiscal agent will pay the
amount due to the Fund after the fiscal agent receives evidence of the Fund's
right to receive payment of principal and/or interest, and evidence that all of
the rights of payment due shall thereupon vest in the insurer. When the insurer
pays the Fund the payment due from the issuer, the insurer will succeed to the
Fund's rights to that payment.
Portfolio Insurance. Each portfolio insurance policy will be noncancellable
and will remain in effect so long as the Fund is in existence, the Fund
continues to own the municipal bonds covered by the policy, and the Fund pays
the premiums for the policy. Each insurer generally will reserve the right at
any time upon 90 days' written notice to the Fund to refuse to insure any
additional bonds the Fund buys after the effective date of the notice. The
Fund's Board of Directors will generally reserve the right to terminate each
policy upon seven days' written notice to an insurer if it determines that the
cost of the policy is not reasonable in relation to the value of the insurance
to the Fund.
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> 48
(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> 49
(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 more than 5% of its total assets in
unsecured obligations of issuers which, together with their predecessors, have
been in operation for less than three years, (2) invest for the purpose of
exercising control or management, (3) invest more than 10% of its total assets
in securities that are unmarketable, illiquid or not readily marketable
(securities that cannot reasonably be sold within seven days, including
repurchase agreements maturing in more than seven days) (4) invest in municipal
bonds that are backed by an escrow or trust account containing sufficient U.S.
Government or U.S. Government agency securities to insure timely payment of
principal and interest, unless such bonds are rated "AAA" or "Aaa" by Standard &
Poor's or Moody's, respectively, or (5) 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 Board is expected to eliminate the policies numbered 1, 3, and 4 on or about
April 30, 1999.
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> 50
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> 51
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> 52
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> 53
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> 54
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> 55
<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> 56
<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> 57
<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> 58
<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> 59
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 ............ $ 2,221 $ 71,500
Lawrence H. Brown ............ 2,444 79,000
Anne E. Impellizzeri ......... 2,221 71,500
Peter R. Sawers .............. 2,221 72,000
William J. Schneider ......... 2,221 71,500
Judith M. Stockdale .......... 2,221 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> 60
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> 61
<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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
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.
S-25
<PAGE> 69
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> 70
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> 71
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> 72
NUVEEN Exchange-Traded Funds
October 31, 1998
Annual Report
Dependable, tax-free income to help you keep more of what you earn.
NQI
Insured Quality
NIO
Insured Opportunity
NIF
Premier Insured Income
NPX
Insured Premium Income 2
Photo of: People walking along the beach.
S-29
<PAGE> 73
Highlights
As of October 31, 1998
Contents
1 Dear Shareholder
3 Portfolio Manager's Comments
5 NQI Performance Overview
6 NIO Performance Overview
7 NIF Performance Overview
8 NPX Performance Overview
9 Shareholder Meeting Report
13 Report of Independent Auditors
14 Portfolio of Investments
41 Statement of Net Assets
42 Statement of Operations
43 Statement of Changes in Net Assets
45 Notes to Financial Statements
50 Financial Highlights
52 Building Better Portfolios
53 Fund Information
Credit Quality Performance Highlights
================================================================================
Nuveen Insured Quality Municipal Fund, Inc. (NQI)
- Competitive taxable-equivalent yield of
8.52% for investors in the 31% federal
income tax bracket
- One-year taxable-equivalent total return
on share price of 8.89% for investors in
the 31% federal income tax bracket
- Outperformed Lipper's peer group average
and paralleled the Lehman Brothers Insured
Municipal Bond Index
Pie Chart:
Insured 76%
U.S. Guaranteed 24%
Nuveen Insured Municipal Opportunity Fund, Inc. (NIO)
- Competitive taxable-equivalent yield of
8.26% for investors in the 31% federal
income tax bracket
- One-year taxable-equivalent total return on
share price of 14.86% for investors in the
31% federal income tax bracket
- Due to its shorter duration, the fund
provided a better risk versus reward
comparison than the Lehman Brothers Insured
Municipal Bond Index
Pie Chart:
Insured 66%
U.S. Guaranteed 34%
Nuveen Premier Insured Municipal Income Fund, Inc. (NIF)
- Competitive taxable-equivalent yield of
7.72% for investors in the 31% federal
income tax bracket
- One-year taxable-equivalent total return on
share price of 16.78% for investors in the
31% federal income tax bracket
- Outperformed Lipper's peer group average
Pie Chart:
Insured 60%
U.S. Guaranteed 40%
Nuveen Insured Premium Income Municipal Fund 2 (NPX)
- Competitive taxable-equivalent yield of
7.68% for investors in the 31% federal
income tax bracket
- One-year taxable-equivalent total return on
share price of 19.04% for investors in the
31% federal income tax bracket
- Outperformed the Lehman Brothers Insured
Municipal Bond Index and Lipper's peer
group average
Pie Chart:
Insured 85%
U.S. Guaranteed 15%
S-30
<PAGE> 74
Photo of: Timothy R. Schwertfeger
Chairman of the Board
Sidebar text: Wealth takes a lifetime to build. Once achieved, it should
be preserved.
Dear Shareholder
I'm pleased to report that over the 12 months ended October 31, 1998, the Nuveen
Exchange-Traded Funds covered in this report have continued to perform well,
meeting their primary objective of providing you with attractive levels of
tax-free income and after-tax total returns. The strong market for fixed-income
securities, bolstered by investor demand for quality investments, benefited
these four funds and led to equal (NQI) or higher share prices (NIO, NIF, and
NPX) than those posted a year ago. Attractive tax-free income, enhanced by
strong share price performance, illustrates once again that Nuveen's
Exchange-Traded Funds can provide an excellent investment option for
income-oriented investors.
The Year in Review
Over the past year, the markets endured bouts of volatility, as the Asian
financial crisis spilled over into emerging markets and affected economies
around the globe. Investors responded by seeking a haven from the uncertainty in
more conservative investments, such as municipal bond funds. As interest rates
continued to trend downward, the competitive yields offered by our
exchange-traded funds stimulated additional investor interest and demand, which
led to improved share prices overall. In this environment, the market for
exchange-traded municipal bond funds has been exceptionally strong. These funds
continue to represent a bright spot among fixed-income investments, offering
attractive income in a market that places a high premium on yield.
In the coming months, we will continue to watch several key factors affecting
the future of the economy, including corporate earnings reports, wage and
employment figures, U.S. consumer confidence levels, the continuing impact of
foreign financial turmoil, and any further interest rate indications from the
Federal Reserve. These factors will influence the outlook for fixed-income
markets into the coming year.
Municipals Very Attractively Priced
Over the past year, rising prices drove yields on 30-year Treasuries to their
lowest levels since 1977. The story in the municipal market, however, was quite
different. With yields on the long Treasury bond pushing below 5% at times, the
yield on the Bond Buyer 40, an unmanaged index of long-term municipal bonds,
fell just 27 basis points - from 5.40% to 5.13% - compared with the 100-basis
point drop in Treasury yields over the past 12 months. As of October 31, 1998,
the ratio of municipal yields to Treasury yields stood at 98.8%, compared with
the more typical range of 86-87%. Over the past few months, this ratio has
ranged as high as 100.6%. For investors, this means that quality municipal bonds
currently offer about the same yield as Treasury bonds with comparable
maturities - even before the tax advantages of municipal bonds are taken into
account. On an after-tax basis in today's market, municipal bonds present an
exceptionally attractive investment option relative to Treasuries.
One of the main factors in the steep decline in Treasury yields during the past
year was the strong interest in these investments by international investors. As
the financial turmoil in Asia continued to spread to economies worldwide and the
dollar strengthened against foreign currencies, the demand for U.S.
dollar-denominated Treasury securities increased. In the municipal market, where
foreign demand was limited by an inability to benefit from the tax advantages of
munis, low interest rates and a strong economy combined to generate high levels
of new issuance and a dramatic increase in the refinancing of existing bonds.
The first ten months of 1998 saw $234 billion of municipal issuance, up 32% over
the same period in 1997. In terms of total municipal issuance, this puts 1998 on
pace to be the second largest year on record.
In addition, the continued strength of the U.S. economy has brought about
improvements in the fundamental financial health of many municipalities and
boosted the overall credit quality of municipal bonds. In the third quarter of
1998, upgraded issues by the two major rating agencies outnumbered downgrades by
a margin of 7 to 2.
Nuveen Expertise Is Key
The key to taking advantage of the exceptional values currently available in the
municipal market is the expertise of a proven investment manager. At Nuveen, we
recognize the value of time-tested expertise. The high level of recent municipal
issuance, for example, highlights the value of Nuveen's in-depth knowledge of
the municipal market, as our portfolio management teams carefully analyze the
flood of issues to select those securities best suited to help the funds achieve
their investment objectives.
As a further enhancement to our management capabilities, Nuveen has assembled a
strong core of Premier Advisers(SM), managers who are experts in their
particular area of the market who can provide time-tested experience and
insight. In addition to Nuveen Advisory Corp., our Premier Adviser for tax-free
investing, you can rely on other Nuveen Premier Advisers(SM) to share their
wisdom on the equity market, including Institutional Capital Corporation for
equity value investing and Rittenhouse Financial Services for equity growth
investing. For more infor mation about our funds, including charges and
expenses, contact your financial adviser for a prospectus, or call Nuveen at
(800) 621-7227. Please read the prospectus carefully before you invest or send
money.
We encourage you to talk with your financial adviser about the ways Nuveen's
expanding selection of investments can assist you in establishing a diversified
portfolio designed to help you build and sustain long-term financial security.
For more than 100 years, investors have known they can count on Nuveen. We are
grateful for the confidence you have shown in us, and we intend to continue
earning your trust in the years ahead.
Sincerely,
Timothy R. Schwertfeger
Chairman of the Board
December 15, 1998
Sidebar text: "The key to taking advantage of the exceptional values currently
available in the municipal market is the expertise of a proven investment
manager."
S-31
<PAGE> 75
Nuveen Exchange-Traded Funds
Portfolio Manager's Comments
Portfolio manager Steve Krupa discusses the municipal market environment, fund
performance, and the outlook for the Nuveen national insured exchange-traded
funds. Steve, who has served as portfolio manager for the Insured Quality and
Insured Opportunity funds since their inceptions, assumed management
responsibilities for the Premier Insured Income and Insured Premium Income 2
funds on July 1, 1998, as part of Nuveen's efforts to maximize the efficient use
of staff resources and portfolio manager expertise. Steve is a 20-year veteran
of Nuveen.
What outside factors influenced the municipal bond market the most over the past
year?
The third quarter of 1998 saw an acceleration of trends that has been apparent
in the fixed-income markets over the past 12 months: declining interest rates
and the increased ratio of municipal to Treasury yields. The cause in both
cases was heightened concern about the condition of the global financial
system. While the U.S. economy exhibited continued growth, the impact of the
financial turmoil in Southeast Asia, Russia, and other emerging markets was
felt in the U.S. equity market.
A desire to cushion this impact and avert a domestic credit crunch prompted the
Federal Reserve to ease short-term interest rates in late September, the first
rate cut in almost three years. In response to concerns that the initial
quarter-point cut might not be sufficient, the Fed reduced rates again in
October and November, bringing the federal funds rate to 4.75%. The Fed
indicated that this accommodative stance was intended to sustain U.S. economic
growth going forward, while also adding some stability to global markets.
How have these outside factors affected municipal bond issuance?
In response to an environment of low interest rates and continued economic
growth, municipal bond issuance over the past year has been among the heaviest
in years. As of the end of October, total issuance in 1998 - both new deals and
refundings - was on pace to become the second largest year on record. Another
point concerns the level of insured bonds that have been brought to market. For
the month of September, insured bonds made up 56% of all issuance. Most notable
among the flood of new bonds was the $7 billion Long Island Power Authority
(LIPA) offering. The first part of the LIPA issuance, which exceeded $3.5
billion, the largest issuance in municipal bond history, came to market in May,
and another segment was brought out in October. Increased municipal supply has
been met with strong investor demand, due in part to recent volatility in the
equity markets. Demand from institutional buyers such as insurance companies
has also increased, as these investors recognize the exceptionally attractive
values currently offered by municipal bonds.
What were the funds' total returns for the past year?
For the fiscal year ended October 31, 1998, the Nuveen Exchange-Traded Funds
covered in this report produced the following total returns on net asset value
(NAV), compared to the total return of the Lehman Brothers Insured Municipal
Bond Index *:
<TABLE>
<CAPTION>
Lehman Brothers Insured
Taxable-Equivalent Municipal Bond Index
Fund Total Return Total Return Total Return
- - --------------------------------------------------------------
<S> <C> <C> <C>
NQI 8.43% 11.19% 8.51%
- - --------------------------------------------------------------
NIO 7.99% 10.82% 8.51%
- - --------------------------------------------------------------
NIF 8.35% 11.04% 8.51%
- - --------------------------------------------------------------
NPX 9.28% 11.74% 8.51%
- - --------------------------------------------------------------
</TABLE>
* The Lehman Brothers Insured Municipal Bond Index is an unleveraged index
comprised of a broad range of investment-grade municipal bonds, and does not
reflect any initial or ongoing expenses.
What were the funds' durations, and what role does duration play regarding
investment risk?
The following chart illustrates the funds' durations compared to that of the
insured Lehman index, as of October 31, 1998:
<TABLE>
<CAPTION>
Fund Fund Duration* Insured Lehman Brothers Duration
- - -------------------------------------------------------------
<S> <C> <C>
NQI 7.47 years 8.41 years
- - -------------------------------------------------------------
NIO 7.48 years 8.41 years
- - -------------------------------------------------------------
NIF 8.24 years 8.41 years
- - -------------------------------------------------------------
NPX 9.44 years 8.41 years
- - -------------------------------------------------------------
</TABLE>
* The fund duration listed in the chart takes into account the leveraging
process for each fund and therefore differs from the duration of the actual
portfolio of individual bonds that comprise the fund. Fund duration is also
known as leverage adjusted duration. Any future reference to duration, unless
otherwise noted, will be to fund duration.
Fund duration measures a bond fund's price volatility, or reaction to interest
rate movements. The longer the duration, the more sensitive the fund is to
changes in interest rates. During a period of falling interest rates, longer
duration enables a fund to participate more fully in market gains. However, when
rates rise, longer duration can make the fund more vulnerable to potential price
declines. As interest rates trended downward over the past year, funds with
durations shorter than that of the index generally tended to underperform the
market.
For the three funds with durations shorter than the Insured Lehman Index (NQI,
NIO, and NIF), why are they shorter considering the trend is for lower rates?
For the funds with durations shorter than that of the Lehman index (NQI, NIO,
and NIF), we held bonds purchased during higher interest rate environments
rather than sell them in an attempt to lengthen duration and capture slightly
higher total returns. In the low interest rate environment of the past year, any
bonds we would have sold would have been replaced with issues offering lower
yields, which could have impacted the monthly dividend. In keeping with the
funds' objectives, our focus for all four of the funds in this report will
continue to be on maintaining the attractiveness and stability of the funds'
dividends as long as possible.
How have the dividends been affected?
In this low interest rate environment, good call protection helped support the
dividend of NPX and protect the income of this fund from erosion. As of October
31, 1998, this fund has provided shareholders with 24 consecutive months of
steady income. However, declining interest rates played a role in reducing the
income levels of NQI, NIO, and NIF, as proceeds from higher-yielding bonds that
matured or were called from these funds were reinvested in bonds paying
relatively lower current interest rates. Over the past year, the change in
income level earned by these funds necessitated dividend reductions. Despite
these adjustments, the Nuveen national insured funds continue to provide very
competitive current market yields. The following chart highlights the four
funds' market yields and their taxable-equivalent yields at the 31% federal
income tax bracket, as of October 31, 1998:
<TABLE>
<CAPTION>
Fund Market Yield Taxable-Equivalent Yield
- - ---------------------------------------------------------
<S> <C> <C>
NQI 5.88% 8.52%
- - ---------------------------------------------------------
NIO 5.70% 8.26%
- - ---------------------------------------------------------
NIF 5.33% 7.72%
- - ---------------------------------------------------------
NPX 5.30% 7.68%
- - ---------------------------------------------------------
</TABLE>
What effect was there to the funds' share price performance?
As Tim mentioned in his letter to shareholders, share price performance among
many of the Nuveen Exchange-Traded Funds has generally been strong over the
past 12 months. For a few funds, however, like NQI and NPX, market reaction to
the effect of bond calls over the past year resulted in their share prices
trading at discounts to their NAVs. NQI closed with the same share price for
this year as it did on October 31, 1997, NPX saw its discount narrow
dramatically over the year by more than 560 basis points, and NIO and NIF
closed the year at premiums to their NAVs. Meanwhile, a strong bond market
performance boosted all four of the funds' NAVs compared to a year ago. The
accompanying chart is as of October 31, 1998:
<TABLE>
<CAPTION>
Premium (+)
Fund Market Price Net Asset Value Discount (-)
- - ----------------------------------------------------------
<S> <C> <C> <C>
NQI $15.6250 $16.02 -2.47%
- - ----------------------------------------------------------
NIO $16.6250 $16.04 +3.65%
- - ----------------------------------------------------------
NIF $16.8750 $16.18 +4.30%
- - ----------------------------------------------------------
NPX $13.6875 $14.10 -2.93%
- - ----------------------------------------------------------
</TABLE>
Were there any particular sectors where Nuveen looked for undervalued
securities?
Over the past year, we found value in the healthcare and utilities sectors,
currently the two largest issuers in the municipal market, by taking advantage
of the competitive environment created by deregulation and consolidation. The
heavy volume in these two sectors provided addition al opportunities to find
value, as hospital and utility bonds often offered above-market yields and
special call provisions to attract buyers. During the first half of 1998, we
focused on California bonds, which have recently outper formed the market.
Currently, we favor bonds issued by the city and state of New York, as we
anticipate that high state taxes and improved credit quality will enhance the
performance of these bonds. Bonds added to our portfolios over the past year
tended to be in the 20-year maturity range, as we believe these bonds provide
the most value by offering yields close to those of longer bonds, but with less
volatility.
What is Nuveen's outlook for the future?
Looking ahead, our focus for the Nuveen national insured funds will continue to
be supporting the stability of the funds' income streams, especially if we
remain in a lower interest rate environment. NQI, NIO, and NIF have already
entered into a period where bond calls can affect their portfolios, while NPX
will begin to face bond calls over the next three years. In NQI and NIO, we plan
to lengthen the funds' durations while trying to limit any impact on their
dividends by preempting selected bond calls. This involves selling shorter
duration bonds prior to their call dates and replacing them with high-quality,
longer duration bonds offering attractive yields. Overall, we will continue to
monitor the market for value opportunities. We expect that supply will continue
to be plentiful, which should enhance our ability to find and take advantage of
such opportunities. Nuveen's expertise as an experienced investment manager
knowledgeable about the unique aspects of the municipal bond market is key to
our ability to select the right securities for our funds and add value for our
investors.
The past year offered excellent justification for buying insured funds, as
economic crises abroad caused the investment industry to reassess the premium
placed on security risk. With the increased awareness of investment risk
globally, these funds offered shareholders attractive yields and after-tax total
returns. The current market environment - influenced by declining interest
rates, benign inflation, and strong municipal supply - has helped to position
municipal bonds as one of the most compelling values in today's marketplace. We
expect that the excellent municipal-to-Treasury ratio, combined with continued
volatility in the equity markets and investors' increasing awareness of the need
for asset allocation rebalancing, will result in growing demand for municipal
bond funds. We believe that investors who take advantage of current
opportunities in the municipal market should be rewarded with healthy returns
and attractive yields in the months ahead, as the market recognizes the value of
these quality investments.
S-32
<PAGE> 76
Nuveen Insured Quality Municipal Fund, Inc.
Performance Overview
As of October 31, 1998
<TABLE>
<CAPTION>
NQI
Portfolio Statistics
==================================================
<S> <C>
Inception Date 12/90
- - --------------------------------------------------
Share Price $15 5/8
- - --------------------------------------------------
Net Asset Value $16.02
- - --------------------------------------------------
Current Market Yield Per Share 5.88%
- - --------------------------------------------------
Taxable-Equivalent Yield
(Federal Only)(1) 8.52%
- - --------------------------------------------------
Fund Net Assets ($000) $863,179
- - --------------------------------------------------
Effective Maturity (Years) 18.95
- - --------------------------------------------------
Fund Duration (Years) 7.47
- - --------------------------------------------------
Annualized Total Return
==================================================
<CAPTION>
On Share Price On NAV
- - --------------------------------------------------
<S> <C> <C>
1-Year 6.13% 8.43%
- - --------------------------------------------------
3-Year 8.39% 7.37%
- - --------------------------------------------------
5-Year 4.75% 6.16%
- - --------------------------------------------------
Since Inception 7.43% 8.73%
- - --------------------------------------------------
Taxable-Equivalent Total Return(2)
==================================================
<CAPTION>
On Share Price On NAV
- - --------------------------------------------------
<S> <C> <C>
1-Year 8.89% 11.19%
- - --------------------------------------------------
3-Year 11.13% 10.23%
- - --------------------------------------------------
5-Year 7.78% 9.10%
- - --------------------------------------------------
Since Inception 10.50% 11.78%
- - --------------------------------------------------
Top Five Sectors (as a % of total investments)
==================================================
U.S. Guaranteed 24%
- - --------------------------------------------------
Health Care 19%
- - --------------------------------------------------
Utilities 16%
- - --------------------------------------------------
Housing (Single Family) 13%
- - --------------------------------------------------
Tax Obligation (General) 8%
- - --------------------------------------------------
</TABLE>
Bar Chart:
1997-1998 Monthly Tax-Free Dividends Per Share(3)
11/97 0.0795
12/97 0.0795
1/98 0.0795
2/98 0.0795
3/98 0.0795
4/98 0.0795
5/98 0.0765
6/98 0.0765
7/98 0.0765
8/98 0.0765
9/98 0.0765
10/98 0.0765
Share Price Performance
Line Chart:
11/7/97 15.813
15.813
15.813
15.875
15.875
15.875
16.25
16.438
16.438
16.563
16.438
16.25
16.438
16.5
16.438
16.125
16.313
16.188
16.313
16.188
15.813
15.938
15.875
15.75
15.563
15.313
15.25
15.375
15.625
15.813
16
15.75
15.563
15.813
15.938
15.813
16
15.875
15.688
15.625
15.688
15.688
15.625
15.375
15.438
15.5
15.875
15.875
16.125
15.63
10/31/98 15.63
(1) Taxable-equivalent yield represents the yield on a taxable investment
necessary to equal the yield of the Nuveen fund on an after-tax basis. The
federal only rate is based on the current market yield and a federal income
tax rate of 31%.
(2) Taxable-equivalent total return is based on the annualized total return and
a federal income tax rate of 31%. It represents the return on a taxable
investment necessary to equal the return of the Nuveen fund on an after-tax
basis.
(3) The Fund also paid shareholders taxable distributions in December of $0.01
per share.
S-33
<PAGE> 77
Nuveen Insured Municipal Opportunity Fund, Inc.
Performance Overview
As of October 31, 1998
NIO
<TABLE>
<CAPTION>
Portfolio Statistics
==================================================
<S> <C>
Inception Date 9/91
- - --------------------------------------------------
Share Price $16 5/8
- - --------------------------------------------------
Net Asset Value $16.04
- - --------------------------------------------------
Current Market Yield Per Share 5.70%
- - --------------------------------------------------
Taxable-Equivalent Yield (Federal Only)(1) 8.26%
- - --------------------------------------------------
Fund Net Assets ($000) $1,892,589
- - --------------------------------------------------
Effective Maturity (Years) 16.92
- - --------------------------------------------------
Fund Duration (Years) 7.48
- - --------------------------------------------------
Annualized Total Return
==================================================
<CAPTION>
On Share Price On NAV
- - --------------------------------------------------
<S> <C> <C>
1-Year 12.03% 7.99%
- - --------------------------------------------------
3-Year 10.65% 7.60%
- - --------------------------------------------------
5-Year 7.49% 6.44%
- - --------------------------------------------------
Since Inception 8.20% 8.56%
- - --------------------------------------------------
Taxable-Equivalent Total Return(2)
==================================================
<CAPTION>
On Share Price On NAV
- - --------------------------------------------------
<S> <C> <C>
1-Year 14.86% 10.82%
- - --------------------------------------------------
3-Year 13.62% 10.50%
- - --------------------------------------------------
5-Year 10.55% 9.40%
- - --------------------------------------------------
Since Inception 11.20% 11.51%
- - --------------------------------------------------
Top Five Sectors (as a % of total investments)
==================================================
U.S. Guaranteed 34%
- - --------------------------------------------------
Health Care 16%
- - --------------------------------------------------
Utilities 15%
- - --------------------------------------------------
Housing (Single Family) 12%
- - --------------------------------------------------
Transportation 5%
- - --------------------------------------------------
</TABLE>
Bar Chart:
1997-1998 Monthly Tax-Free Dividends Per Share
11/97 0.082
12/97 0.082
1/98 0.082
2/98 0.082
3/98 0.082
4/98 0.082
5/98 0.079
6/98 0.079
7/98 0.079
8/98 0.079
9/98 0.079
10/98 0.079
Line Chart:
Share Price Performance
11/7/97 15.938
16
16.063
16.188
16.375
16.563
16.438
16.5
16.5
16.75
16.688
16.5
16.688
16.75
16.563
16.438
16.438
16.375
16.438
16.25
15.875
16
15.938
15.688
15.938
15.813
15.563
15.688
15.813
16.063
16.125
16.063
16.063
16.125
16.313
16.188
15.938
15.938
16
16
16.188
16.125
16.125
16.063
16.063
16.125
16.563
16.625
16.875
16.56
10/31/98 16.63
Weekly Closing Price
Past performance is not predictive of future results.
(1) Taxable-equivalent yield represents the yield on a taxable investment
necessary to equal the yield of the Nuveen fund on an after-tax basis. The
federal only rate is based on the current market yield and a federal income
tax rate of 31%.
(2) Taxable-equivalent total return is based on the annualized total return and
a federal income tax rate of 31%. It represents the return on a taxable
investment necessary to equal the return of the Nuveen fund on an after-tax
basis.
S-34
<PAGE> 78
Nuveen Premier Insured Municipal Income Fund, Inc.
Performance Overview
As of October 31, 1998
NIF
<TABLE>
<CAPTION>
Portfolio Statistics
==================================================
<S> <C>
Inception Date 12/91
- - --------------------------------------------------
Share Price $16 7/8
- - --------------------------------------------------
Net Asset Value Per Share $16.18
- - --------------------------------------------------
Current Market Yield 5.33%
- - --------------------------------------------------
Taxable-Equivalent Yield (Federal Only)(1) 7.72%
- - --------------------------------------------------
Fund Net Assets ($000) $450,466
- - --------------------------------------------------
Effective Maturity (Years) 15.99
- - --------------------------------------------------
Fund Duration (Years) 8.24
- - --------------------------------------------------
Annualized Total Return
==================================================
<CAPTION>
On Share Price On NAV
- - --------------------------------------------------
<S> <C> <C>
1-Year 14.06% 8.35%
- - --------------------------------------------------
3-Year 11.77% 7.61%
- - --------------------------------------------------
5-Year 8.15% 6.16%
- - --------------------------------------------------
Since Inception 8.13% 8.35%
- - --------------------------------------------------
Taxable-Equivalent Total Return(2)
==================================================
<CAPTION>
On Share Price On NAV
- - --------------------------------------------------
<S> <C> <C>
1-Year 16.78% 11.04%
- - --------------------------------------------------
3-Year 14.65% 10.36%
- - --------------------------------------------------
5-Year 11.15% 8.97%
- - --------------------------------------------------
Since Inception 11.04% 11.15%
- - --------------------------------------------------
Top Five Sectors (as a % of total investments)
==================================================
U.S. Guaranteed 40%
- - --------------------------------------------------
Utilities 17%
- - --------------------------------------------------
Health Care 12%
- - --------------------------------------------------
Tax Obligation (Limited) 10%
- - --------------------------------------------------
Housing (Multifamily) 6%
- - --------------------------------------------------
</TABLE>
Bar Chart:
1997-1998 Monthly Tax-Free Dividends Per Share(3)
11/97 0.078
12/97 0.078
1/98 0.078
2/98 0.078
3/98 0.078
4/98 0.078
5/98 0.078
6/98 0.078
7/98 0.075
8/98 0.075
9/98 0.075
10/98 0.075
Line Chart:
Share Price Performance
11/7/97 15.625
15.688
15.688
15.813
15.938
16.125
16.125
16.25
16.188
16.438
16.188
16.188
16.25
16.375
16.188
16.25
16.25
16.188
15.813
15.813
16.125
16.25
16.25
16
15.938
15.813
15.875
15.688
15.75
15.938
16.063
15.875
15.875
16.125
16.063
15.875
15.75
15.688
15.75
15.813
15.938
15.938
15.938
15.938
16.063
16
16.688
16.5
16.5
16.69
10/31/98 16.88
Weekly Closing Price
Past performance is not predictive of future results.
(1) Taxable-equivalent yield represents the yield on a taxable investment
necessary to equal the yield of the Nuveen fund on an after-tax basis. The
federal only rate is based on the current market yield and a federal income
tax rate of 31%.
(2) Taxable-equivalent total return is based on the annualized total return and
a federal income tax rate of 31%. It represents the return on a taxable
investment necessary to equal the return of the Nuveen fund on an after-tax
basis.
(3) The Fund also paid shareholders taxable distributions in December of $0.0211
per share.
S-35
<PAGE> 79
Nuveen Insured Premium Income Municipal Fund 2
Performance Overview
As of October 31, 1998
NPX
<TABLE>
<CAPTION>
Portfolio Statistics
==================================================
<S> <C>
Inception Date 7/93
- - --------------------------------------------------
Share Price $13 11/16
- - --------------------------------------------------
Net Asset Value Per Share $14.10
- - --------------------------------------------------
Current Market Yield 5.30%
- - --------------------------------------------------
Taxable-Equivalent Yield (Federal Only)(1) 7.68%
- - --------------------------------------------------
Fund Net Assets ($000) $793,862
- - --------------------------------------------------
Effective Maturity (Years) 16.15
- - --------------------------------------------------
Fund Duration (Years) 9.44
- - --------------------------------------------------
Annualized Total Return
==================================================
<CAPTION>
On Share Price On NAV
- - --------------------------------------------------
<S> <C> <C>
1-Year 16.35% 9.28%
- - --------------------------------------------------
3-Year 12.83% 8.36%
- - --------------------------------------------------
5-Year 6.09% 5.59%
- - --------------------------------------------------
Since Inception 4.31% 5.72%
- - --------------------------------------------------
Taxable-Equivalent Total Return(2)
==================================================
<CAPTION>
On Share Price On NAV
- - --------------------------------------------------
<S> <C> <C>
1-Year 19.04% 11.74%
- - --------------------------------------------------
3-Year 15.68% 10.88%
- - --------------------------------------------------
5-Year 9.02% 8.24%
- - --------------------------------------------------
Since Inception 7.07% 8.27%
- - --------------------------------------------------
Top Five Sectors (as a % of total investments)
==================================================
Utilities 20%
- - --------------------------------------------------
Tax Obligation (General) 17%
- - --------------------------------------------------
U.S. Guaranteed 15%
- - --------------------------------------------------
Tax Obligation (Limited) 12%
- - --------------------------------------------------
Housing (Multifamily) 9%
- - --------------------------------------------------
</TABLE>
Bar Chart:
1997-1998 Monthly Tax-Free Dividends Per Share
11/97 0.0605
12/97 0.0605
1/98 0.0605
2/98 0.0605
3/98 0.0605
4/98 0.0605
5/98 0.0605
6/98 0.0605
7/98 0.0605
8/98 0.0605
9/98 0.0605
10/98 0.0605
Line Chart:
Share Price Performance
11/7/97 12.438
12.438
12.688
12.75
12.625
12.75
12.875
13
13.063
13.375
13.375
13.188
13.5
13.438
13.188
13.063
13.375
13.375
12.813
13.188
12.938
13.125
13
13.063
12.688
12.688
12.625
12.688
12.813
13
12.938
13.063
12.875
12.813
13.063
12.938
12.875
13
13.125
12.875
12.938
13.063
12.938
13.063
13.188
13.313
13.563
13.563
13.625
13.75
10/31/98 13.69
Weekly Closing Price
Past performance is not predictive of future results.
1 Taxable-equivalent yield represents the yield on a taxable investment
necessary to equal the yield of the Nuveen fund on an after-tax basis. The
federal only rate is based on the current market yield and a federal income
tax rate of 31%.
2 Taxable-equivalent total return is based on the annualized total return and a
federal income tax rate of 31%. It represents the return on a taxable
investment necessary to equal the return of the Nuveen fund on an after-tax
basis.
S-36
<PAGE> 80
Shareholder Meeting Report
<TABLE>
<CAPTION>
NQI
- - ---------------------------------------------------------------------------------------------------------------------------
Approval of the Directors was reached as follows:
Preferred Preferred Preferred Preferred
Common Shares Shares Shares Shares
Shares Series-M Series-T Series-W Series-F
===========================================================================================================================
<S> <C> <C> <C> <C> <C>
Robert P. Bremner
For 33,004,504 2,228 2,301 2,172 1,873
Withhold 181,262 62 11 -- 126
- - ---------------------------------------------------------------------------------------------------------------------------
Total 33,185,766 2,290 2,312 2,172 1,999
===========================================================================================================================
Lawrence H. Brown
For 33,012,534 2,283 2,301 2,172 1,873
Withhold 173,232 7 11 -- 126
- - ---------------------------------------------------------------------------------------------------------------------------
Total 33,185,766 2,290 2,312 2,172 1,999
===========================================================================================================================
Anthony T. Dean
For 33,016,002 2,278 2,301 2,172 1,873
Withhold 169,764 12 11 -- 126
- - ---------------------------------------------------------------------------------------------------------------------------
Total 33,185,766 2,290 2,312 2,172 1,999
===========================================================================================================================
Anne E. Impellizzeri
For 32,992,692 2,283 2,301 2,172 1,873
Withhold 193,074 7 11 -- 126
- - ---------------------------------------------------------------------------------------------------------------------------
Total 33,185,766 2,290 2,312 2,172 1,999
===========================================================================================================================
Peter R. Sawers
For 33,009,597 2,278 2,301 2,172 1,873
Withhold 176,169 12 11 -- 126
- - ---------------------------------------------------------------------------------------------------------------------------
Total 33,185,766 2,290 2,312 2,172 1,999
===========================================================================================================================
William J. Schneider
For -- 2,228 2,301 2,172 1,873
Withhold -- 62 11 -- 126
- - ---------------------------------------------------------------------------------------------------------------------------
Total -- 2,290 2,312 2,172 1,999
===========================================================================================================================
Timothy R. Schwertfeger
For -- 2,283 2,301 2,172 1,873
Withhold -- 7 11 -- 126
- - ---------------------------------------------------------------------------------------------------------------------------
Total -- 2,290 2,312 2,172 1,999
===========================================================================================================================
Judith M. Stockdale
For 32,954,610 2,233 2,301 2,172 1,869
Withhold 231,156 57 11 -- 130
- - ---------------------------------------------------------------------------------------------------------------------------
Total 33,185,766 2,290 2,312 2,172 1,999
============================================================================================================================
Ratification of auditors was reached as follows:
For 32,609,608 2,283 2,298 2,172 1,985
Against 79,280 -- -- -- --
Abstain 496,878 7 14 -- 14
- - ---------------------------------------------------------------------------------------------------------------------------
Total 33,185,766 2,290 2,312 2,172 1,999
===========================================================================================================================
</TABLE>
S-37
<PAGE> 81
<TABLE>
<CAPTION>
Shareholder Meeting Report
NIO
- -----------------------------------------------------------------------------------------------------------------------------------
Approval of the Directors was reached as follows:
Preferred Preferred Preferred Preferred Preferred Preferred
Common Shares Shares Shares Shares Shares Shares
Shares Series-M Series-T Series-W Series-TH Series-TH-2 Series-F
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Robert P. Bremner
For 72,885,685 3,716 3,446 3,447 3,704 3,653 3,480
Withhold 457,843 6 59 46 37 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total 73,343,528 3,722 3,505 3,493 3,741 3,655 3,482
==================================================================================================================================
Lawrence H. Brown
For 72,895,146 3,716 3,446 3,487 3,704 3,653 3,480
Withhold 448,382 6 59 6 37 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total 73,343,528 3,722 3,505 3,493 3,741 3,655 3,482
==================================================================================================================================
Anthony T. Dean
For 72,902,788 3,706 3,446 3,487 3,704 3,653 3,480
Withhold 440,740 16 59 6 37 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total 73,343,528 3,722 3,505 3,493 3,741 3,655 3,482
==================================================================================================================================
Anne E. Impellizzeri
For 72,878,080 3,716 3,446 3,487 3,704 3,653 3,480
Withhold 465,448 6 59 6 37 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total 73,343,528 3,722 3,505 3,493 3,741 3,655 3,482
==================================================================================================================================
Peter R. Sawers
For 72,889,817 3,716 3,446 3,483 3,704 3,653 3,480
Withhold 453,711 6 59 10 37 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total 73,343,528 3,722 3,505 3,493 3,741 3,655 3,482
==================================================================================================================================
William J. Schneider
For -- 3,716 3,446 3,447 3,704 3,653 3,480
Withhold -- 6 59 46 37 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total -- 3,722 3,505 3,493 3,741 3,655 3,482
==================================================================================================================================
Timothy R. Schwertfeger
For -- 3,716 3,446 3,487 3,704 3,653 3,480
Withhold -- 6 59 6 37 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total -- 3,722 3,505 3,493 3,741 3,655 3,482
==================================================================================================================================
Judith M. Stockdale
For 72,847,481 3,716 3,446 3,447 3,704 3,653 3,480
Withhold 496,047 6 59 46 37 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total 73,343,528 3,722 3,505 3,493 3,741 3,655 3,482
==================================================================================================================================
Ratification of auditors was reached as follows:
For 72,657,955 3,716 3,468 3,421 3,709 3,643 3,480
Against 199,745 -- 3 -- 31 12 --
Abstain 485,828 6 34 72 1 -- 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total 73,343,528 3,722 3,505 3,493 3,741 3,655 3,482
==================================================================================================================================
</TABLE>
S-38
<PAGE> 82
<TABLE>
<CAPTION>
Shareholder Meeting Report
NIF
- ------------------------------------------------------------------------------------------------------------------------------------
Approval of the Directors was reached as follows:
Preferred Preferred
Common Shares Shares
Shares Series-TH Series-F
=================================================================================================================================
<S> <C> <C> <C>
Robert P. Bremner
For 17,008,176 2,337 2,187
Withhold 147,799 25 2
- -----------------------------------------------------------------------------------------------------------------------------------
Total 17,155,975 2,362 2,189
=================================================================================================================================
Lawrence H. Brown
For 17,008,355 2,337 2,187
Withhold 147,620 25 2
- -----------------------------------------------------------------------------------------------------------------------------------
Total 17,155,975 2,362 2,189
=================================================================================================================================
Anthony T. Dean
For 17,008,355 2,337 2,187
Withhold 147,620 25 2
- -----------------------------------------------------------------------------------------------------------------------------------
Total 17,155,975 2,362 2,189
=================================================================================================================================
Anne E. Impellizzeri
For 17,002,225 2,337 2,187
Withhold 153,750 25 2
- -----------------------------------------------------------------------------------------------------------------------------------
Total 17,155,975 2,362 2,189
=================================================================================================================================
Peter R. Sawers
For 17,005,355 2,337 2,187
Withhold 150,620 25 2
- -----------------------------------------------------------------------------------------------------------------------------------
Total 17,155,975 2,362 2,189
=================================================================================================================================
William J. Schneider
For -- 2,337 2,187
Withhold -- 25 2
- -----------------------------------------------------------------------------------------------------------------------------------
Total -- 2,362 2,189
=================================================================================================================================
Timothy R. Schwertfeger
For -- 2,337 2,187
Withhold -- 25 2
- -----------------------------------------------------------------------------------------------------------------------------------
Total -- 2,362 2,189
=================================================================================================================================
Judith M. Stockdale
For 17,000,868 2,337 2,187
Withhold 155,107 25 2
- -----------------------------------------------------------------------------------------------------------------------------------
Total 17,155,975 2,362 2,189
=================================================================================================================================
Ratification of auditors was reached as follows:
For 17,021,173 2,354 2,187
Against 18,665 8 2
Abstain 116,137 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total 17,155,975 2,362 2,189
=================================================================================================================================
</TABLE>
S-39
<PAGE> 83
<TABLE>
<CAPTION>
Shareholder Meeting Report
NPX
- ------------------------------------------------------------------------------------------------------------------------------------
Approval of the Trustees was reached as follows:
Preferred Preferred Preferred Preferred Preferred
Common Shares Shares Shares Shares Shares
Shares Series-M Series-T Series-W Series-TH Series-F
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Bremner
For 34,173,828 1,853 1,950 1,751 1,986 1,912
Withhold 306,575 -- -- 8 1 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total 34,480,403 1,853 1,950 1,759 1,987 1,914
- ------------------------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown
For 34,174,433 1,853 1,950 1,755 1,986 1,912
Withhold 305,970 -- -- 4 1 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total 34,480,403 1,853 1,950 1,759 1,987 1,914
- ------------------------------------------------------------------------------------------------------------------------------------
Anthony T. Dean
For 34,181,114 1,853 1,950 1,755 1,986 1,909
Withhold 299,289 -- -- 4 1 5
- ------------------------------------------------------------------------------------------------------------------------------------
Total 34,480,403 1,853 1,950 1,759 1,987 1,914
- ------------------------------------------------------------------------------------------------------------------------------------
Anne E. Impellizzeri
For 34,157,048 1,853 1,949 1,749 1,974 1,912
Withhold 323,355 -- 1 10 13 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total 34,480,403 1,853 1,950 1,759 1,987 1,914
- ------------------------------------------------------------------------------------------------------------------------------------
Peter R. Sawers
For 34,176,844 1,853 1,949 1,749 1,974 1,912
Withhold 303,559 -- 1 10 13 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total 34,480,403 1,853 1,950 1,759 1,987 1,914
- ------------------------------------------------------------------------------------------------------------------------------------
William J. Schneider
For -- 1,853 1,950 1,751 1,986 1,912
Withhold -- -- -- 8 1 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total -- 1,853 1,950 1,759 1,987 1,914
- ------------------------------------------------------------------------------------------------------------------------------------
Timothy R. Schwertfeger
For -- 1,853 1,950 1,755 1,986 1,912
Withhold -- -- -- 4 1 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total -- 1,853 1,950 1,759 1,987 1,914
- ------------------------------------------------------------------------------------------------------------------------------------
Judith M. Stockdale
For 34,156,524 1,853 1,944 1,749 1,986 1,912
Withhold 323,879 -- 6 10 1 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total 34,480,403 1,853 1,950 1,759 1,987 1,914
- ------------------------------------------------------------------------------------------------------------------------------------
Ratification of auditors was reached as follows:
For 33,949,562 1,850 1,950 1,755 1,987 1,914
Against 103,630 -- -- 4 -- --
Abstain 427,211 3 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total 34,480,403 1,853 1,950 1,759 1,987 1,914
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-40
<PAGE> 84
Report of Independent Auditors
The Board of Directors, Trustees and Shareholders
Nuveen Insured Quality Municipal Fund, Inc.
Nuveen Insured Municipal Opportunity Fund, Inc.
Nuveen Premier Insured Municipal Income Fund, Inc.
Nuveen Insured Premium Income Municipal Fund 2
We have audited the accompanying statements of net assets, including the
portfolios of investments, of 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
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 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 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.
Ernst & Young LLP
Chicago, Illinois
December 11, 1998
S-41
<PAGE> 85
<TABLE>
<CAPTION>
Portfolio of Investments
Nuveen Insured Quality Municipal Fund, Inc. (NQI)
October 31, 1998
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alabama - 1.0%
$ 8,500,000 The Special Care Facilities Financing Authority of the City of Birmingham-
Medical Center East, Health Care Facility Revenue Refunding Bonds,
Medical Center East, Series 1986 (Birmingham, Alabama),
7.250%, 7/01/15 No Opt. Call AAA $8,528,220
- ------------------------------------------------------------------------------------------------------------------------------------
Alaska - 0.6%
5,000,000 Municipality of Anchorage, Alaska, Senior Lien Refunding Electric
Revenue Bonds, Series 1989, 7.125%, 6/01/06 6/99 at 102 AAA 5,215,800
- ------------------------------------------------------------------------------------------------------------------------------------
Arizona - 5.1%
5,000,000 City of Phoenix (Arizona), Civic Improvement Corporation, Wastewater
System Lease Revenue Bonds, Series 1993, 6.125%, 7/01/23
(Pre-refunded to 7/01/03) 7/03 at 102 AAA 5,584,650
10,000,000 Industrial Development Authority of The County of Pima (Arizona),
Health Care System Revenue Bonds, Carondelet Health Services, Inc.,
St. Joseph's and St. Mary's Hospitals and Health Centers Issue,
Series 1991, 6.750%, 7/01/16 7/01 at 102 AAA 10,888,900
Business Development Finance Corporation, Tucson (Arizona),
Local Development Lease Revenue Refunding Bonds, Series 1992:
3,020,000 6.250%, 7/01/08 (Pre-refunded to 7/01/02) 7/02 at 102 AAA 3,339,546
6,980,000 6.250%, 7/01/08 7/02 at 102 AAA 7,669,066
15,250,000 City of Tucson, Arizona, Water System Revenue Bonds, Series 1991,
7.100%, 7/01/18 (Pre-refunded to 7/01/01) 7/01 at 102 AAA 16,881,903
- ------------------------------------------------------------------------------------------------------------------------------------
Arkansas - 2.3%
9,450,000 Arkansas Development Finance Authority, Single Family Mortgage Revenue
Bonds, 1995 Series B (Mortgage-Backed Securities Program),
6.700%, 7/01/27 (Alternative Minimum Tax) 7/05 at 102 AAA 10,234,256
Pope County, Arkansas, Solid Waste Disposal Revenue Bonds,
Series 1991 (Arkansas Power & Light Company Project):
6,400,000 8.000%, 1/01/21 (Alternative Minimum Tax) 1/01 at 102 BBB+ 6,937,984
2,250,000 8.000%, 1/01/21 (Alternative Minimum Tax) 1/01 at 102 AAA 2,472,638
- ------------------------------------------------------------------------------------------------------------------------------------
California - 11.6%
9,650,000 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 10,648,100
12,695,000 Antioch Area Public Facilities Financing Agency, Community Facilities
District No. 1989-1, Series 1993 Special Tax Bonds, 5.000%, 8/01/18 8/02 at 102 AAA 12,736,132
11,000,000 California Health Facilities Financing Authority, Kaiser Permanente
Revenue Bonds, Series 1998A, 5.000%, 6/01/24 6/08 at 102 AAA 10,960,180
8,500,000 California Health Facilities Financing Authority, Insured Revenue Bonds
(Sutter Health), Series 1998A, 5.000%, 8/15/37 8/08 at 101 AAA 8,420,185
California Housing Finance Agency, Home Mortgage Revenue Bonds,
1997 Series E:
3,000,000 5.650%, 8/01/17 (Alternative Minimum Tax) 8/07 at 102 AAA 3,145,140
14,075,000 5.750%, 2/01/29 (Alternative Minimum Tax) 8/07 at 102 AAA 14,788,040
5,500,000 California Statewide Communities Development Authority, Certificates of
Participation, The Salk Institute for Biological Studies, San Diego,
California, 6.200%, 7/01/24 7/04 at 102 AAA 6,123,040
5,000,000 Inland Empire Solid Waste Financing Authority, Revenue Bonds, 1996
Series B 0 (Landfill Improvement Financing Project), 6.000%, 8/01/16
(Alternative Minimum Tax) 8/06 at 102 AAA 5,427,95
11,270,000 Los Angeles County Metropolitan Transportation Authority (California),
Proposition A, Sales Tax Revenue Refunding Bonds, Series 1993-A,
5.000%, 7/01/21 7/03 at 100 AAA 11,261,660
</TABLE>
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<PAGE> 86
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California (continued)
$ 6,910,000 Ontario Redevelopment Financing Authority (San Bernardino County,
California), 1993 Revenue Bonds (Ontario Redevelopment Project No. 1),
5.850%, 8/01/22 8/03 at 102 AAA $7,350,651
8,500,000 Airports Commission, City and County of San Francisco, California,
San Francisco International Airport, Second Series Revenue Bonds,
Issue 11 (Noise Insulation Program), 6.250%, 5/01/26
(Alternative Minimum Tax) 5/05 at 101 AAA 9,366,490
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado - 3.0%
1,600,000 Adams County, Colorado, Single Family Revenue Refunding Bonds,
1991 Series A-2, 8.700%, 6/01/12 6/01 at 103 AAA 1,727,312
5,630,000 E-470 Public Highway Authority, Arapahoe County, Colorado, Capital
Improvement Trust Fund Highway Revenue Bonds (E-470 Project), Vehicle
Registration Fee Bonds, 6.150%, 8/31/26 8/05 at 103 AAA 6,375,919
Colorado Health Facilities Authority, Insured Hospital Revenue
Bonds (PSL Healthcare System Project), Series 1991 A:
5,000,000 7.250%, 2/15/16 (Pre-refunded to 2/15/01) 2/01 at 102 AAA 5,490,350
4,500,000 6.250%, 2/15/21 (Pre-refunded to 2/15/01) 2/01 at 102 AAA 4,845,285
6,500,000 Colorado Health Facilities Authority, Revenue Bonds, Series 1998 (Sisters
of Charity of Leavenworth Health Services Corporation), 5.000%, 12/01/25 6/08 at 101 AAA 6,390,800
155,000 El Paso County, Colorado, Colorado Local Single Family Mortgage Revenue
Bonds, 1990 Series A, 7.850%, 9/01/09 (Alternative Minimum Tax) 9/00 at 102 AAA 161,941
815,000 Jefferson County, Colorado, Single Family Revenue Refunding Bonds,
Series 1991A, 8.875%, 10/01/13 4/01 at 103 AAA 869,923
- ------------------------------------------------------------------------------------------------------------------------------------
District of Columbia - 1.3%
10,000,000 District of Columbia (Washington, D.C.), General Obligation Bonds
(Series 1990B), 7.500%, 6/01/10 (Pre-refunded to 6/01/00) 6/00 at 102 AAA 10,804,800
- ------------------------------------------------------------------------------------------------------------------------------------
Florida - 1.2%
9,845,000 Florida Housing Finance Agency, Single Family Mortgage Revenue Bonds,
1994 Series B, 6.650%, 7/01/26 (Alternative Minimum Tax) 7/04 at 102 AAA 10,558,763
- ------------------------------------------------------------------------------------------------------------------------------------
Hawaii - 2.9%
6,130,000 Department of Budget and Finance of the State of Hawaii, Special Purpose
Revenue Bonds (Hawaiian Electric Company, Inc. and Subsidiaries
Projects), Series 1992, 6.550%, 12/01/22 (Alternative Minimum Tax) 12/02 at 103 AAA 6,774,999
16,180,000 Department of Budget and Finance of the State of Hawaii, Special Purpose
Revenue Bonds (Hawaii Electric Company, Inc. and Subsidiaries Project),
Series 1996A, 6.200%, 5/01/26 (Alternative Minimum Tax) 5/06 at 101 AAA 17,851,556
- ------------------------------------------------------------------------------------------------------------------------------------
Illinois - 11.3%
5,000,000 Central Lake County Joint Action Water Agency, Lake County, Illinois,
Water Revenue Bonds, Series 1991, 7.000%, 5/01/20
(Pre-refunded to 5/01/01) 5/01 at 102 AAA 5,495,500
10,000,000 City of Chicago, General Obligation Bonds, Project Series 1995,
6.125%, 1/01/16 7/05 at 102 AAA 11,152,00
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:
20,000,000 5.250%, 12/01/27 12/07 at 102 AAA 20,293,000
10,000,000 5.250%, 12/01/30 12/07 at 102 AAA 10,146,500
6,000,000 City of Chicago (Illinois), Chicago-O'Hare International Airport, General
Airport Second Lien Revenue Refunding Bonds, 1994 Series A,
6.375%, 1/01/12 1/05 at 102 AAA 6,713,340
6,280,000 Public Building Commission of Chicago (Illinois), Building Revenue Bonds,
Series A of 1990 (Board of Education of the City of Chicago),
7.125%, 1/01/15 1/00 at 102 AAA 6,725,252
6,825,000 Public Building Commission of Chicago (Illinois), Building Revenue Bonds,
Series A of 1993 (Board of Education of the City of Chicago),
5.750%, 12/01/18 12/03 at 102 AAA 7,310,121
18,880,000 Illinois Health Facilities Authority, FHA Insured Mortgage Revenue Bonds,
Series 1996 (Sinai Health System), 6.000%, 2/15/24 2/06 at 102 AAA 20,864,288
</TABLE>
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<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illinois (continued)
$ 305,000 City of Moline, Illinois, City of Rock Island, Illinois, City of Urbana,
Illinois, Single Family Mortgage Revenue Bonds (GNMA Mortgage-Backed
Securities Program), Series 1990, 8.050%, 8/01/23
(Alternative Minimum Tax) 8/00 at 102 AAA $ 319,210
7,700,000 Board of Trustees of Southern Illinois University, Southern Illinois
University Medical Facilities System Revenue Bonds, Series 1997,
5.875%, 4/01/23 4/07 at 102 AAA 8,369,053
- ------------------------------------------------------------------------------------------------------------------------------------
Indiana - 6.1%
9,050,000 Indiana Development Finance Authority, Environmental Revenue Bonds,
Series 1993B (PSI Energy, Inc.), 5.750%, 2/15/28
(Alternative Minimum Tax) 2/03 at 102 AAA 9,478,880
1,900,000 Indiana Housing Finance Authority, Residential Mortgage Bonds,
1988 Series R-A, 8.375%, 1/01/20 (Alternative Minimum Tax) 1/99 at 102 1/2 Aa 1,952,117
7,855,000 Indiana Housing Finance Authority, Single Family Mortgage Revenue Bonds
(GNMA Collateralized Home Mortgage Program), 1990 Series C,
7.800%, 1/01/22 (Alternative Minimum Tax) 7/00 at 102 Aaa 8,216,487
6,000,000 Jasper County, Indiana, Collateralized Pollution Control Refunding
Revenue Bonds (Northern Indiana Public Service Company Project),
Series 1991, 7.100%, 7/01/17 7/01 at 102 AAA 6,565,980
9,645,000 Marion County Convention and Recreational Facilities Authority (Indiana),
Excise Taxes Lease Rental Revenue Bonds, Series 1991B, 7.000%, 6/01/21
(Pre-refunded to 6/01/01) 6/01 at 102 AAA 10,622,135
4,230,000 City of Rockport, Indiana, Pollution Control Revenue Refunding Bonds
(Indiana Michigan Power Company Project), Series B, 7.600%, 3/01/16 3/01 at 102 AAA 4,639,887
10,000,000 Hospital Authority of St. Joseph County (Indiana), Fixed Rate Hospital
Revenue Refunding Bonds, Series 1991A (Memorial Hospital of South Bend
Project), 7.000%, 8/15/20 (Pre-refunded to 8/15/01) 8/01 at 102 AAA 11,067,200
- ------------------------------------------------------------------------------------------------------------------------------------
Iowa - 0.7%
5,305,000 City of Mason, Iowa, Hospital Revenue Bonds (Sisters of Mercy Health
Corporation), 1991 Series L, 7.000%, 8/15/21 (Pre-refunded to 8/15/01) 8/01 at 102 AAA 5,875,659
- ------------------------------------------------------------------------------------------------------------------------------------
Louisiana - 2.6%
2,005,000 Louisiana Housing Finance Agency, GNMA Collateralized Single Family
Mortgage Revenue Bonds, Series 1988, 8.300%, 11/01/20
(Alternative Minimum Tax) 11/00 at 100 Aaa 2,069,200
13,170,000 City of New Orleans, Louisiana, General Obligation Refunding Bonds,
Series 1995, 6.200%, 10/01/21 10/05 at 102 AAA 14,848,385
5,275,000 Orleans Levee District (A Political Subdivision of the State of
Louisiana), Public Improvement Bonds, Series 1986, 5.950%, 11/01/15 12/05 at 103 AAA 5,814,211
- ------------------------------------------------------------------------------------------------------------------------------------
Maine - 1.6%
12,745,000 Maine State Housing Authority, Mortgage Purchase Bonds, 1991 Series A,
7.400%, 11/15/22 5/01 at 102 AAA 13,527,543
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts - 2.0%
7,100,000 Massachusetts Housing Financing Agency, Single Family Housing
Revenue Bonds, Series 12, 7.500%, 12/01/13 6/99 at 102 AAA 7,376,687
10,000,000 Massachusetts Turnpike Authority, Metropolitan Highway System
Revenue Bonds, 1997 Series C (Senior), 5.000%, 1/01/37 1/07 at 102 AAA 9,774,300
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan - 2.4%
4,380,000 Board of Control of Grand Valley State University, Michigan, General
Revenue and Refunding Bonds, Series 1997, 5.250%, 10/01/22 10/07 at 101 AAA 4,462,913
16,500,000 Michigan State Hospital Finance Authority, Revenue and Refunding Bonds
(St. John Health System), Series 1998A, 5.000%, 5/15/28 5/08 at 101 AAA 16,138,320
- ------------------------------------------------------------------------------------------------------------------------------------
Minnesota - 1.3%
9,775,000 Minneapolis/Saint Paul Housing Finance Board (Single Family Mortgage
Revenue Bonds (Minneapolis/Saint Paul Family Housing Program, Phase VI),
8.300%, 8/01/21 (Alternative Minimum Tax) 8/00 at 100 AAA 9,993,276
1,403,000 City of St. Louis Park, Minnesota, Single Family Residential Mortgage
Revenue Refunding Bonds (GNMA Mortgage-Backed Securities Program),
Series 1991-A, 7.250%, 4/20/23 4/01 at 102 Aaa 1,478,538
</TABLE>
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<PAGE> 88
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mississippi - 2.6%
$ 2,545,000 Harrison County, Wastewater Management District (Mississippi), Wastewater
Treatment Facilities Revenue Refunding Bonds, Series 1991A,
8.500%, 2/01/13 No Opt. Call AAA $3,557,477
2,715,000 Harrison County, Wastewater Management District (Mississippi), Wastewater Treatment
Facilities Revenue Refunding Bonds, Series 1991B, 7.750%, 2/01/14 No Opt. Call AAA 3,604,868
4,725,000 Mississippi Housing Finance Corporation, Single Family Mortgage Purchase
Revenue Bonds, Series 1989 (GNMA Mortgage-Backed Securities Program),
8.250%, 10/15/18 (Alternative Minimum Tax) 10/99 at 102 AAA 4,932,428
8,700,000 Mississippi Home Corporation, Single Family Mortgage Revenue Bonds,
Series 1996C, 7.600%, 6/01/29 (Alternative Minimum Tax) 6/06 at 105 Aaa 9,939,576
- --------------------------------------------------------------------------------------------------------------------------------
Missouri - 0.6%
5,000,000 St. Louis Municipal Finance Corporation, City Justice Center, Leasehold
Revenue Improvement Bonds, Series 1996A (City of St. Louis, Missouri,
Lessee), 6.000%, 2/15/19 2/06 at 102 AAA 5,591,800
- --------------------------------------------------------------------------------------------------------------------------------
Nevada - 2.1%
3,270,000 Clark County, Nevada, Industrial Development Revenue Bonds (Nevada Power
Company Project), Series 1990, 7.800%, 6/01/20 (Alternative Minimum Tax) 6/00 at 102 AAA 3,522,869
13,185,000 Washoe County, Nevada, Hospital Refunding Revenue Bonds (Washoe Medical
Center, Inc. Project), Series 1994A, 6.000%, 6/01/19 6/04 at 102 AAA 14,470,801
- --------------------------------------------------------------------------------------------------------------------------------
New Jersey - 0.5%
3,750,000 New Jersey Health Care Facilities Financing Authority, Revenue Bonds,
Monmouth Medical Center Issue, Series C, 6.250%, 7/01/24 7/04 at 102 AAA 4,176,113
- --------------------------------------------------------------------------------------------------------------------------------
New Mexico - 2.6%
5,000,000 City of Albuquerque, New Mexico, Airport Revenue Bonds, Series 1995A,
6.600%, 7/01/16 (Alternative Minimum Tax) 7/00 at 105 AAA 5,441,150
6,000,000 City of Farmington, New Mexico, Pollution Control Refunding Revenue Bonds
(Southern California Edison Company Four Corners Project),
1991 Series A, 7.200%, 4/01/21 4/01 at 102 A+ 6,520,140
3,850,000 New Mexico Mortgage Finance Authority, Multifamily Housing Refunding
Revenue Bonds, 1990 Series A - Tax-Exempt (Fannie Mae Collateralized),
7.625%, 1/01/24 1/01 at 102 AAA 4,110,145
5,750,000 City of Santa Fe, New Mexico, Revenue Bonds, Series 1994A,
6.300%, 6/01/24 (Pre-refunded to 6/01/04) 6/04 at 100 AAA 6,437,988
- --------------------------------------------------------------------------------------------------------------------------------
New York - 12.4%
The City of New York, General Obligation Bonds, Fiscal 1991 Series A:
2,000,000 8.000%, 3/15/11 3/00 at 101 1/2 AAA 2,144,200
6,000,000 7.250%, 3/15/19 3/00 at 101 1/2 AAA 6,364,140
17,700,000 New York City Housing Development Corporation, Multi-Unit Mortgage
Refunding Bonds (FHA Insured Mortgage Loans), 1991 Series A,
7.250%, 6/01/19 6/01 at 102 AAA 18,947,496
10,335,000 New York City, New York, Municipal Water Finance Authority, Water and
Sewer System Revenue Bonds, Fiscal 1996 Series A, 6.000%, 6/15/25
(Pre-refunded to 6/15/05) 6/05 at 101 AAA 11,648,268
5,000,000 New York City Transit Authority, Transit Facilities Revenue Bonds,
Series 1990 (Livingston Plaza Project), 7.500%, 1/01/20
(Pre-refunded to 1/01/00) 1/00 at 102 AAA 5,330,950
7,000,000 New York State Energy Research and Development Authority, Facilities
Refunding Revenue Bonds, Series 1995 A (Consolidated Edison Company
of New York, Inc. Project), 6.100%, 8/15/20 7/05 at 102 A+ 7,634,480
11,950,000 New York State Finance Agency, Housing Project Mortgage Revenue Bonds,
1996 Series A Refunding, 6.125%, 11/01/20 5/06 at 102 AAA 13,033,985
20,250,000 New York State Medical Care Facilities Finance Agency,
St. Luke's-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 21,663,248
12,000,000 New York State Medical Care Facilities Finance Agency, New York Hospital
FHA-Insured Mortgage Revenue Bonds, 1994 Series A, 6.900%, 8/15/34
(Pre-refunded to 2/15/05) 2/05 at 102 AAA 14,118,960
6,055,000 New York State Medical Care Facilities Finance Agency, Hospital and
Nursing Home Insured Mortgage Revenue Bonds, 1989 Series A,
7.600%, 2/15/29 2/99 at 102 AA 6,246,883
</TABLE>
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<PAGE> 89
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
North Dakota - 3.3%
$ 21,075,000 Mercer County, North Dakota, Pollution Control Refunding Revenue Bonds,
Second 1995 Series (Basin Electric Power Cooperative-Antelope Valley
Unit 1 and Common Facilities), 6.050%, 1/01/19 1/05 at 102 AAA $23,286,821
5,000,000 Oliver County, North Dakota (Square Butte Electric Cooperative),
Pollution Control Revenue Refunding Bonds, Series 1998A, 5.300%, 1/01/27 1/09 at 102 AAA 5,128,250
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio - 0.6%
5,000,000 County of Lucas, Ohio, Hospital Improvement and Refunding Revenue Bonds,
Series 1993 (The Toledo Hospital), 5.000%, 11/15/22 11/03 at 102 AAA 4,907,300
- ------------------------------------------------------------------------------------------------------------------------------------
Oklahoma - 1.4%
1,365,000 Oklahoma Housing Finance Agency, Single Family Mortgage Revenue Bonds,
1991 Series A, 7.200%, 3/01/11 3/01 at 102 AAA 1,440,061
9,900,000 Pottawatomie County Development Authority, Water Revenue Bonds,
Series 1990 (North Deer Creek Reservoir Project), 7.375%, 7/01/26
(Pre-refunded to 7/01/00) 7/00 at 102 AAA 10,716,552
- ------------------------------------------------------------------------------------------------------------------------------------
Oregon - 1.2%
10,000,000 Oregon Health Sciences University, Insured Revenue Bonds, 1995 Series B,
5.250%, 7/01/25 7/06 at 102 AAA 10,101,200
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania - 5.1%
7,000,000 County of Allegheny, Pennsylvania, Airport Revenue Refunding Bonds,
Series 1997A (Pittsburgh International Airport), 5.250%, 1/01/16
(Alternative Minimum Tax) 1/08 at 101 AAA 7,157,290
7,000,000 Berks County Municipal Authority (Pennsylvania), Hospital Revenue Bonds
(The Reading Hospital and Medical Center Project), Series B of 1994,
6.100%, 10/01/23 10/04 at 102 AAA 7,766,710
7,250,000 Lehigh County Industrial Development Authority, Pollution Control Revenue
Refunding Bonds, 1995 Series A (Pennsylvania Power and Light Company
Project), 6.150%, 8/01/29 8/05 at 102 AAA 8,148,493
14,190,000 City of Philadelphia, Pennsylvania, Water and Sewer Revenue Bonds,
Sixteenth Series, 7.000%, 8/01/21 (Pre-refunded to 8/01/01) 8/01 at 102 AAA 15,704,641
5,000,000 Health Care Facilities Authority of Sayre (Pennsylvania), Series 1991A
Revenue Bonds, Guthrie Healthcare System, 7.100%, 3/01/17 3/01 at 102 AAA 5,435,200
- ------------------------------------------------------------------------------------------------------------------------------------
Rhode Island - 2.3%
12,500,000 Rhode Island Depositors Economic Protection Corporation, Special
Obligation Bonds, 1991 Series A, 7.500%, 8/01/14
(Pre-refunded to 8/01/01) 8/01 at 102 AAA 13,989,625
5,050,000 Rhode Island Port Authority and Economic Development Corporation, Airport
Revenue Bonds, 1994 Series A, 6.625%, 7/01/24 (Alternative Minimum Tax) 7/04 at 102 AAA 5,677,412
- ------------------------------------------------------------------------------------------------------------------------------------
Tennessee - 0.6%
5,170,000 The Health, Educational and Housing Facilities Board of the County of
Sullivan, Tennessee, Hospital Revenue Bonds, Series 1993 (Holston Valley
Health Care, Inc.), 5.750%, 2/15/13 2/03 at 102 AAA 5,581,635
- ------------------------------------------------------------------------------------------------------------------------------------
Texas - 3.9%
8,000,000 Abilene Health Facilities Development Corporation (Texas), Hospital
Revenue Refunding and Improvement Bonds (Hendrick Medical Center
Project), Series 1995C, 6.150%, 9/01/25 9/05 at 102 AAA 8,949,680
4,000,000 Brazos County Health Facilities Development Corporation (Texas),
Franciscan Services Corporation, Obligated Group Revenue Bonds,
Series 1997A, 5.375%, 1/01/22 7/07 at 102 AAA 4,097,640
Brazos River Authority (Texas), Revenue Refunding Bonds (Houston
Industries Incorporated Project), Series 1998C:
1,750,000 5.125%, 5/01/19 11/08 at 102 AAA 1,754,532
2,000,000 5.125%, 11/01/20 11/08 at 102 AAA 1,999,999
Harris County Hospital District, Refunding Revenue Bonds, Series 1990:
3,000,000 7.500%, 2/15/03 No Opt. Call AAA 3,297,059
5,000,000 7.400%, 2/15/10 No Opt. Call AAA 6,080,999
7,450,000 Matagorda County Navigation, District Number One (Texas), Pollution
Control Revenue Refunding Bonds (Central Power and Light Company
Project), Series 1995, 6.100%, 7/01/28 7/00 at 102 AAA 7,857,216
</TABLE>
S-46
<PAGE> 90
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utah - 2.0%
$ 10,770,000 Intermountain Power Agency (Utah), Power Supply Revenue Refunding Bonds,
1993 Series A, 5.000%, 7/01/23 7/03 at 100 A+ $10,464,454
6,000,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospitals, Inc.), Series 1988 A, 8.000%, 5/15/07 5/00 at 100 AAA 7,218,479
- ----------------------------------------------------------------------------------------------------------------------------------
Vermont - 0.1%
1,230,000 Vermont Housing Finance Agency, Single Family Housing Bonds, Series 9,
6.000%, 5/01/37 (Alternative Minimum Tax) 6/07 at 101 1/2 AAA 1,304,119
- ----------------------------------------------------------------------------------------------------------------------------------
$ 789,113,000 Total Investments - (cost $777,485,367) - 98.3% 848,625,493
============= ------------------------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal Securities - 0.2%
$ 1,600,000 Geisinger Authority Health System, Series 1998B, Variable Rate
Demand Bonds, 3.700%, 8/15/28+ VMIG-1 1,600,000
500,000 Illinois Health Facilities Authority, The University of Chicago Hospitals,
Series 1998, Variable Rate Demand Bonds, 3.700%, 8/01/26+
VMIG-1 500,000
- ----------------------------------------------------------------------------------------------------------------------------------
$ 2,100,000 Total Temporary Investments - 0.2% 2,100,000
============ ------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.5% 12,453,858
------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $863,179,351
==================================================================================================================
</TABLE>
All of the bonds in the portfolio, excluding temporary investments in short-term
municipal securities, are either covered by Original Issue Insurance, Secondary
Market Insurance, or are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities, any of which ensure the timely
payment of principal and interest.
* 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.
+ The security has a maturity of more than one year, but has variable rate and
demand features which qualify it as a short-term security. The rate disclosed is
that currently in effect. This rate changes periodically based on market
conditions or a specified market index.
See accompanying notes to financial statements.
S-47
<PAGE> 91
<TABLE>
<CAPTION>
Portfolio of Investments
Nuveen Insured Municipal Opportunity Fund, Inc. (NIO)
October 31, 1998
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alabama - 2.2%
$ 3,850,000 Alabama Housing Finance Authority, Multifamily Housing Revenue Refunding
Bonds (GNMA Collateralized - Royal Hills), 1995 Series F,
6.500%, 7/20/30 7/05 at 103 Aaa $4,207,665
11,000,000 The Special Care Facilities Financing Authority of the City of
Birmingham (Alabama), Baptist Medical Centers Revenue Bonds,
Series 1995-B (Baptist Health System, Inc.) , 5.875%, 11/15/20 5/05 at 102 AAA 11,414,370
The Special Care Facilities Financing Authority of the City of
Birmingham (Alabama), Baptist Medical Centers Revenue Bonds,
Series 1996-A (Baptist Health System, Inc.):
7,465,000 5.875%, 11/15/19 11/06 at 102 AAA 7,736,875
10,000,000 5.875%, 11/15/26 11/06 at 102 AAA 10,325,100
3,745,000 City of Demopolis, Alabama, General Obligation Warrants,
Series 1991, 6.900%, 6/01/16 (Pre-refunded to 6/01/01) 6/01 at 102 AAA 4,120,511
4,250,000 County Board of Education of Shelby County, Alabama, Capital Outlay
Refunding School Warrants, Series 1995, 5.875%, 2/01/17 2/05 at 102 AAA 4,577,463
- ------------------------------------------------------------------------------------------------------------------------------------
Alaska - 1.1%
4,000,000 Alaska Energy Authority, Power Revenue Bonds, Second Series
(Bradley Lake Hydroelectric Project), 7.250%, 7/01/21 7/00 at 102 AAA 4,292,280
15,950,000 Alaska State Housing Finance Corporation, Governmental Purpose Bonds,
1995 Series A, 5.875%, 12/01/30 12/05 at 102 AAA 16,815,447
- ------------------------------------------------------------------------------------------------------------------------------------
Arizona - 1.0%
5,000,000 Coconino County, Arizona, Pollution Control Corporation, Pollution
Control Revenue Refunding Bonds (Arizona Public Service Company),
1993 Series A, 5.875%, 8/15/28 8/03 at 102 A- 5,181,900
11,625,000 The Industrial Development Authority of the County of Pima (Arizona),
Industrial Development Lease Obligation Refunding Revenue Bonds,
1988 Series A (Irvington Project), 7.250%, 7/15/10 1/02 at 103 AAA 13,004,771
- ------------------------------------------------------------------------------------------------------------------------------------
Arkansas - 0.7%
11,920,000 Arkansas Development Finance Authority, Single Family Mortgage Revenue
Bonds, 1990 Series A (GNMA-Backed Securities Program), 7.400%, 9/01/23
(Alternative Minimum Tax) 9/01 at 102 AAA 12,723,408
- ------------------------------------------------------------------------------------------------------------------------------------
California - 10.0%
6,135,000 California Housing Finance Agency, Housing Revenue Bonds (Insured),
1994 Series C, 6.250%, 8/01/25 8/04 at 102 AAA 6,548,806
5,000,000 California Housing Finance Agency, Multifamily Housing Revenue
Bonds III, 1998 Series B, 5.500%, 8/01/39 (Alternative Minimum Tax) 8/08 at 101 1/2 AAA 5,125,800
California Health Facilities Financing Authority, Insured Health
Facility Revenue Bonds, 1991 Series D (Catholic Healthcare
West):
9,000,000 6.500%, 7/01/16 (Pre-refunded to 7/01/01) 7/01 at 102 AAA 9,861,750
14,000,000 6.650%, 7/01/21 (Pre-refunded to 7/01/01) 7/01 at 102 AAA 15,393,560
California Rural Home Mortgage Finance Authority, Single Family
Mortgage Revenue Bonds (Mortgage-Backed Securities Program),
1996 Series A:
3,475,000 7.550%, 11/01/26 (Alternative Minimum Tax) No Opt. Call AAA 3,975,921
2,885,000 7.750%, 5/01/27 (Alternative Minimum Tax) No Opt. Call AAA 3,354,793
7,000,000 California Statewide Communities Development Authority, Certificates of Participation,
Huntington Memorial Hospital, 5.800%, 7/01/26 7/06 at 102 AAA 7,477,260
3,100,000 Campbell Union School District, Santa Clara County, California, 1994 General Obligation Bonds,
Series A, 6.250%, 8/01/19 (Pre-refunded to 8/01/04) 8/04 at 102 AAA 3,555,359
8,200,000 Castaic Lake Water Agency (California), Refunding Revenue Certificates of Participation
(Water System Improvement Projects), Series 1994A, 6.300%, 8/01/20 8/04 at 102 AAA 9,180,228
11,750,000 East Bay Municipal Utility District (Alameda and Contra Costa Counties, California), Water System
Subordinated Revenue Refunding Bonds, Series 1993A, 5.000%, 6/01/21 6/03 at 102 AAA 11,741,540
</TABLE>
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<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California (continued)
$ 5,500,000 Fallbrook Union High School District (San Diego County, California),
1994 General Obligation Bonds, Series A, 6.250%, 9/01/19
(Pre-refunded to 9/01/04) 9/04 at 102 AAA $6,317,025
6,530,000 La Quinta Financing Authority, Local Agency Revenue Bonds, Series 1991
(City Hall Project), 6.650%, 10/01/18 (Pre-refunded to 10/01/00) 10/00 at 102 AAA 7,061,803
9,000,000 County of Orange, California, Refunding Recovery Bonds, 1995 Series A,
5.750%, 6/01/15 6/05 at 102 AAA 9,777,060
12,500,000 County of Orange, California, 1996 Recovery Certificates of Participation,
Series A, 6.000%, 7/01/26 7/06 at 102 AAA 14,033,500
6,500,000 City of Salinas, California, Housing Facility Refunding Revenue Bonds,
Series 1994A (GNMA Collateralized - Villa Serra Project),
6.600%, 7/20/30 7/04 at 102 AAA 7,034,950
18,000,000 Airports Commission, City and County of San Francisco, California,
San Francisco International Airport, Second Series Revenue Bonds,
Issue 13B, 5.500%, 5/01/26 (Alternative Minimum Tax) 5/06 at 101 AAA 18,623,520
8,500,000 Airports Commission, City and County of San Francisco, California,
San Francisco International Airport, Second Series Revenue Bonds,
Issue 11 (Noise Insulation Program), 6.250%, 5/01/26
(Alternative Minimum Tax) 5/05 at 101 AAA 9,366,490
20,395,000 San Joaquin Hills Transportation Corridor Agency, Toll Road Refunding
Revenue Bonds, Series 1997A, 5.250%, 1/15/30 1/07 at 102 AAA 20,903,855
11,000,000 Santa Ana Financing Authority, Police Administration and Housing Facility
Lease Revenue Bonds, Series 1994A, 6.250%, 7/01/24 No Opt. Call AAA 13,218,810
5,500,000 Santa Clara County Financing Authority, Lease Revenue Bonds (VMC Facility
Replacement Project), 1994 Series A, 6.750%, 11/15/20
(Pre-refunded to 11/15/04) 11/04 at 102 AAA 6,487,140
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado - 0.8%
14,150,000 Board of Water Commissioners, City and County of Denver, Colorado,
Certificates of Participation, Series 1991, 6.625%, 11/15/11 11/01 at 101 AAA 15,403,266
- ------------------------------------------------------------------------------------------------------------------------------------
Connecticut - 0.2%
2,500,000 State of Connecticut, Health and Educational Facilities Authority,
Revenue Bonds, Choate Rosemary Hall Issue, Series A, 7.000%, 7/01/25
(Pre-refunded to 7/01/04) 7/04 at 101 AAA 2,915,550
- ------------------------------------------------------------------------------------------------------------------------------------
District of Columbia - 2.2%
19,355,000 District of Columbia (Washington, D.C.), General Obligation Bonds
(Series 1989A), 7.500%, 6/01/09 (Pre-refunded to 6/01/99) 6/99 at 102 AAA 20,245,717
6,000,000 District of Columbia, Hospital Improvement and Refunding Revenue Bonds
(Children's Hospital Issue), Series 1992A, 6.250%, 7/15/19 7/02 at 102 AAA 6,534,780
4,860,000 District of Columbia Housing Finance Agency, Collateralized Single
Family Mortgage Revenue Bonds, Series 1988C, 7.850%, 12/01/22
(Alternative Minimum Tax) 6/00 at 102 AAA 5,067,716
4,820,000 District of Columbia Housing Finance Agency, Collateralized Single
Family Mortgage Revenue Bonds, Series 1990B, 7.100%, 12/01/24
(Alternative Minimum Tax) 12/01 at 102 AAA 5,093,439
5,000,000 District of Columbia, Revenue Bonds (The American College of
Obstetricians and Gynecologists Issue), Series 1991, 6.500%, 8/15/18 8/01 at 102 AAA 5,433,600
- ------------------------------------------------------------------------------------------------------------------------------------
Florida - 1.2%
2,189,000 Housing Finance Authority of Dade County (Florida), Single Family
Mortgage Revenue Refunding Bonds, 1991 Series D, 6.950%, 12/15/12 12/01 at 102 AAA 2,327,454
2,745,000 Escambia County Housing Finance Authority (Florida), Single Family
Mortgage Revenue Bonds (Multi-County Program), Series 1995,
6.950%, 10/01/27 (Alternative Minimum Tax) 4/05 at 102 AAA 2,980,878
8,800,000 Florida Housing Finance Agency, Home Ownership Revenue Refunding Bonds,
1987 Series G1, 8.595%, 11/01/17 No Opt. Call AAA 10,419,024
7,000,000 City of South Miami (Florida), Health Facilities Revenue Bonds,
Series 1998 (Baptist Health Systems Obligated Group),
5.000%, 11/15/28 (WI) 11/08 at 101 AAA 6,908,720
- ------------------------------------------------------------------------------------------------------------------------------------
Georgia - 1.0%
8,315,000 The Fulton-De Kalb Hospital Authority, Georgia, Revenue Certificates,
Series 1991 (Grady Memorial Hospital), 6.900%, 1/01/15
(Pre-refunded to 1/01/01) 1/01 at 102 AAA 9,039,569
</TABLE>
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<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Georgia (continued)
$ 5,000,000 The Hospital Authority of Hall County and The City of Gainesville,
Revenue Anticipation Certificates (Northeast Georgia Healthcare
Project), Series 1995, 6.000%, 10/01/20 10/05 at 102 AAA $5,554,500
5,000,000 The Glynn-Brunswick Memorial Hospital Authority, Revenue Anticipation
Certificates (Southeast Georgia Health Systems Project), Series 1996,
5.250%, 8/01/13 8/06 at 102 AAA 5,218,750
- ------------------------------------------------------------------------------------------------------------------------------------
Hawaii - 1.4%
24,250,000 Department of Budget and Finance of the State of Hawaii, Special Purpose
Revenue Bonds (Hawaii Electric Company, Inc. and Subsidiaries Project),
Series 1996A, 6.200%, 5/01/26 (Alternative Minimum Tax) 5/06 at 101 AAA 26,755,268
- ------------------------------------------------------------------------------------------------------------------------------------
Idaho - 0.6%
Idaho Housing Agency, Single Family Mortgage Bonds, 1994 Series B:
2,870,000 6.750%, 7/01/22 No Opt. Call Aa 3,234,347
2,755,000 6.900%, 7/01/26 (Alternative Minimum Tax) No Opt. Call Aa 3,157,230
4,305,000 Idaho Housing Agency, Single Family Mortgage Bonds, 1995 Series B,
6.600%, 7/01/27 (Alternative Minimum Tax) 1/05 at 102 Aaa 4,615,778
- ------------------------------------------------------------------------------------------------------------------------------------
Illinois - 9.7%
6,515,000 City of Berwyn, Illinois, Revenue Bonds, Series 1991 (MacNeal
Memorial Hospital Association Project), 7.000%, 6/01/15
(Pre-refunded to 6/01/01) 6/01 at 102 AAA 7,173,341
4,055,000 Central Lake County Joint Action Water Agency, Lake County, Illinois,
General Obligation Water Refunding Bonds, Series 1992, 6.000%, 2/01/19 2/03 at 102 Aa 4,313,385
10,000,000 City of Chicago (Illinois), General Obligation Adjustable Rate Bonds,
Central Public Library Project, Series C of 1988, 6.850%, 1/01/17
(Pre-refunded to 7/01/02) 7/02 at 101 1/2 AAA 11,209,700
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 1997A, 5.250%, 12/01/27 12/07 at 102 AAA 15,219,750
6,500,000 City of Chicago (Illinois), Chicago Midway Airport Revenue Bonds,
Series 1998A, 5.125%, 1/01/31 (Alternative Minimum Tax) 1/09 at 101 AAA 6,339,450
5,750,000 City of Chicago, Illinois, Motor Fuel Tax Revenue Bonds, Series 1990,
6.500%, 1/01/16 (Pre-refunded to 1/01/01) 1/01 at 100 AAA 6,098,968
8,000,000 City of Chicago, Water Revenue Bonds, Series 1995,
5.000%, 11/01/25 11/06 at 102 AAA 7,854,640
The County of Cook, Illinois, General Obligation Bonds, Series 1991:
18,430,000 6.750%, 11/01/18 (Pre-refunded to 11/01/01) 11/01 at 102 AAA 20,400,720
26,475,000 6.250%, 11/01/21 (Pre-refunded to 11/01/01) 11/01 at 102 AAA 28,932,145
6,370,000 City of Decatur, Macon County, Illinois (Decatur Memorial Hospital),
Hospital Facility Revenue Bonds, Series 1991B, 7.750%, 10/01/21
(Pre-refunded to 10/01/01) 10/01 at 102 AAA 7,204,279
Board of Governors of State Colleges and Universities, Eastern
Illinois University, Auxiliary Facilities System Revenue Bonds,
Series 1989:
12,355,000 0.000%, 10/01/09 10/04 at 74 1/16 AAA 6,943,757
16,470,000 0.000%, 4/01/16 10/04 at 47 1/16 AAA 5,750,501
2,065,000 Illinois Housing Development Authority, Residential Mortgage Revenue
Bonds, 1989 Series A, 7.400%, 2/01/20 (Alternative Minimum Tax) 8/99 at 102 Aa1 2,123,708
20,000,000 Illinois Health Facilities Authority, Brokaw-Mennonite Association,
Revenue Refunding Bonds, Series 1992 (BroMenn Healthcare),
6.250%, 8/15/18 8/02 at 102 AAA 21,811,400
3,500,000 Illinois Health Facilities Authority, Revenue Bonds, Series 1990
(Alexian Brothers Medical Center, Inc. Project), 7.125%, 1/01/21 1/01 at 102 AAA 3,787,175
2,500,000 Illinois Health Facilities Authority, Revenue Bonds, Series 1991
(Memorial Medical Center System Project), Springfield, Illinois,
7.100%, 10/01/21 (Pre-refunded to 10/01/01) 10/01 at 102 AAA 2,783,250
State of Illinois, Civic Center Bonds (Dedicated Tax Revenue),
Series 1990-A:
1,385,000 7.000%, 12/15/10 (Pre-refunded to 12/15/00) 12/00 at 102 AAA 1,510,800
3,615,000 7.000%, 12/15/10 12/00 at 102 AAA 3,925,022
</TABLE>
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<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illinois (continued)
Participations, The State of Illinois, Department of Central Management
Services, Illinois Student Assistance Commission:
$ 2,965,000 6.875%, 7/01/07 7/02 at 102 AAA $3,317,301
6,085,000 6.950%, 7/01/13 7/02 at 102 AAA 6,777,960
4,560,000 County of Macon, Illinois, Revenue Bonds, Millikin University,
Series 1995, 6.250%, 10/01/16 10/05 at 100 AAA 5,105,923
5,000,000 Regional Transportation Authority, Cook, DuPage, Kane, Lake, McHenry
and Will Counties, Illinois, General Obligation Bonds, Series 1994D,
6.750%, 6/01/25 (Pre-refunded to 6/01/04) 6/04 at 102 AAA 5,790,850
- ------------------------------------------------------------------------------------------------------------------------------------
Indiana -4.8%
10,500,000 Hospital Authority of the City of Fort Wayne, Indiana, Revenue Bonds,
Series 1992 (Parkview Memorial Hospital, Inc. Project), 6.400%, 11/15/22 11/02 at 102 A+ 11,358,270
7,750,000 Indiana Health Facility Financing Authority Hospital Revenue Bonds,
Series 1997A (Sisters of St. Francis Health Services, Inc. Project),
5.375%, 11/01/27 11/07 at 102 AAA 7,878,805
2,600,000 Indiana Health Facility Financing Authority, Hospital Revenue Bonds,
Series 1991 (Community Hospitals of Indiana), 7.000%, 7/01/21
(Pre-refunded to 7/01/01) 7/01 at 102 AAA 2,868,424
10,000,000 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 10,599,800
1,875,000 Indiana Housing Finance Authority, Single Family Mortgage Revenue Bonds
(GNMA Collateralized Home Mortgage Program), 1990 Series B,
7.800%, 1/01/22 (Alternative Minimum Tax) 7/00 at 102 Aaa 1,963,125
685,000 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 715,633
12,250,000 City of Lawrenceburg, Indiana, Pollution Control Revenue Refunding Bonds
(Indiana Michigan Power Company Project), Series D, 7.000%, 4/01/15 4/02 at 102 AAA 13,570,918
12,950,000 Marion County Convention and Recreational Facilities Authority (Indiana),
Excise Taxes Lease Rental Revenue Bonds, Series 1991B, 7.000%, 6/01/21
(Pre-refunded to 6/01/01) 6/01 at 102 AAA 14,261,965
9,545,000 New Prairie School Building Corporation (LaPonte and St. Joseph Counties,
Indiana), First Mortgage Bonds, Series 1994, 7.200%, 7/15/21
(Pre-refunded to 7/15/04) 7/04 at 102 AAA 11,282,954
14,000,000 Holy Cross Health System Corporation, Indiana Hospital Revenue Bonds
Issues, Hospital Authority of St. Joseph County, Hospital Revenue
Refunding Bonds, Series 1991 (Holy Cross Parkview Hospital, Inc.),
7.000%, 12/01/12 (Pre-refunded to 12/01/01) 12/01 at 102 AAA 15,610,420
- ------------------------------------------------------------------------------------------------------------------------------------
Iowa - 1.3%
5,000,000 City of Davenport, Iowa, Hospital Facility Revenue Bonds (Mercy Hospital
Project), Series 1992, 6.250%, 7/01/22 (Pre-refunded to 7/01/02) 7/02 at 102 AAA 5,521,750
11,400,000 City of Davenport, Iowa, Insured Hospital Revenue Bonds (St. Luke's
Hospital), 1990 Series A, 7.400%, 7/01/20 (Pre-refunded to 7/01/00) 7/00 at 102 AAA 12,338,790
7,000,000 Polk County, Iowa, Health Facilities Revenue Bonds, Catholic Health
Corporation (Mercy Health Center of Central Iowa Project), Series 1991,
6.750%, 11/01/15 (Pre-refunded to 11/01/01) 11/01 at 101 AAA 7,685,580
- ------------------------------------------------------------------------------------------------------------------------------------
Kansas - 0.1%
1,880,000 Sedgwick County, Kansas, and Shawnee County, Kansas, GNMA Collateralized
Mortgage Revenue Bonds, Senior 1991 Series A, 7.300%, 12/01/12 6/01 at 103 Aaa 1,997,199
- ------------------------------------------------------------------------------------------------------------------------------------
Kentucky - 1.2%
10,000,000 City of Danville, Kentucky, Multi-City Lease Revenue Bonds (Louisville
and Jefferson County Metropolitan Sewer District Sewer and Drainage
System Revenue Project), Series 1991-G, 6.800%, 3/01/19
(Pre-refunded to 3/01/02) 3/02 at 102 AAA 11,156,300
53,000,000 Jefferson County, Kentucky, Capital Projects Corporation, Lease
Revenue Bonds, Series 1989B, 0.000%, 8/15/19
(Pre-refunded to 2/15/01) 2/01 at 24 11/16 AAA 11,999,730
- ------------------------------------------------------------------------------------------------------------------------------------
Louisiana - 2.7%
15,650,000 Louisiana Public Facilities Authority, Hospital Revenue Refunding Bonds
(Southern Baptist Hospital Project), Series 1992, 6.800%, 5/15/12
(Pre-refunded to 5/15/02) 5/02 at 102 AAA 17,533,947
</TABLE>
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<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Louisiana (continued)
$ 5,670,000 Louisiana Public Facilities Authority, Hospital Revenue Bonds
(Franciscan Missionaries of Our Lady Health System Project),
Series 1998A, 5.000%, 7/01/25 7/08 at 101 AAA $5,567,146
5,775,000 Louisiana Public Facilities Authority, Hospital Revenue Bonds
(Franciscan Missionaries of Our Lady Health System Project),
Series 1998C, 5.000%, 7/01/28 7/08 at 101 AAA 5,665,102
5,340,000 Public Improvement Bonds, Issue of 1992, City of New Orleans, Louisiana,
7.000%, 9/01/19 (Pre-refunded to 9/01/02) 9/02 at 100 AAA 5,966,916
8,995,000 Orleans Levee District (A Political Subdivision of the State of
Louisiana), Public Improvement Bonds, Series 1986, 5.950%, 11/01/15 12/05 at 103 AAA 9,914,469
3,000,000 Parish of St. Charles, State of Louisiana, Pollution Control Revenue
Bonds (Louisiana Power and Light Company Project), Series 1991,
7.500%, 6/01/21 (Alternative Minimum Tax) 6/01 at 102 AAA 3,302,040
3,500,000 Hospital Service District No. 1 of the Parish of Tangipahoa,
State of Louisiana, Hospital Revenue Bonds (Series 1994),
6.250%, 2/01/24 2/04 at 102 AAA 3,876,180
- ------------------------------------------------------------------------------------------------------------------------------------
Maine - 0.6%
10,500,000 Maine Health and Higher Educational Facilities Authority, Revenue Bonds,
Series 1991, 6.375%, 7/01/21 7/01 at 102 AAA 11,320,575
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts - 4.8%
5,050,000 Massachusetts Health and Educational Facilities Authority, Revenue
Bonds, Fallon Healthcare System Issue, Series A, 6.750%, 6/01/20
(Pre-refunded to 6/01/01) 6/01 at 102 AAA 5,532,023
6,000,000 Massachusetts Health and Educational Facilities Authority, Revenue
Bonds, Brigham and Women's Hospital Issue, Series D,
6.750%, 7/01/24 (Pre-refunded to 7/01/01) 7/01 at 102 AAA 6,589,680
10,500,000 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 11,580,555
5,850,000 Massachusetts Health and Educational Facilities Authority, Revenue
Bonds, South Shore Hospital Issue, Series D, 6.500%, 7/01/22 7/02 at 102 AAA 6,427,337
8,400,000 Massachusetts Health and Educational Facilities Authority, Revenue
Bonds, Berkshire Health Systems Issue, Series D, 6.000%, 10/01/13 10/05 at 102 AAA 9,278,388
7,000,000 Massachusetts Health and Educational Facilities Authority Revenue
Bonds, Baystate Medical Center Issue, Series E, 6.000%, 7/01/26 7/06 at 102 AAA 7,810,040
20,000,000 Massachusetts Health and Educational Facilities Authority, Revenue
Bonds, Boston Medical Center Issue, Series A, 5.000%, 7/01/29 7/08 at 101 AAA 19,583,800
13,590,000 Massachusetts Housing Finance Agency, Single Family Housing Revenue
Bonds, Series 17, 7.150%, 12/01/24 (Alternative Minimum Tax) 6/01 at 102 Aa 14,311,901
4,020,000 Massachusetts Housing Finance Agency, Single Family Housing Revenue
Bonds, Series 11, 7.750%, 12/01/20 (Alternative Minimum Tax) 6/99 at 102 Aa3 4,180,076
4,865,000 Massachusetts Housing Finance Agency, Housing Revenue Refunding
Bonds, 1995 Series A, 6.100%, 12/01/16 12/05 at 102 AAA 5,164,149
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan - 5.9%
5,930,000 Cheboygan Area Schools, Counties of Cheboygan and Presque Isle,
State of Michigan, 1996 School Building and State Bonds (General
Obligation - Unlimited Tax), 5.700%, 5/01/16 5/07 at 100 AAA 6,408,610
11,245,000 The Economic Development Corporation of the City of Detroit, Resource
Recovery Revenue Bonds, Series 1991A, 6.875%, 5/01/09
(Alternative Minimum Tax) 5/01 at 102 AAA 12,172,038
20,300,000 City of Detroit, Michigan, Sewage Disposal System Revenue Bonds,
Series 1991, 6.625%, 7/01/21 (Pre-refunded to 7/01/01) 7/01 at 102 AAA 22,231,139
13,500,000 City of Detroit, Michigan, Water Supply System Revenue and Revenue
Refunding Bonds, Series 1993, 5.000%, 7/01/23 7/04 at 102 AAA 13,320,045
8,000,000 Gaylord Community Schools, Counties of Otsego and Antrim,
State of Michigan, 1992 School Building and Site and Refunding Bonds,
0.000%, 5/01/21 (Pre-refunded to 5/01/07) 5/07 at 37 3/4 AAA 2,111,920
8,500,000 County of Jackson Hospital Finance Authority, Hospital Revenue Refunding
Bonds (W. A. Foote Memorial Hospital, Jackson Michigan),
Series 1993A, 5.250%, 6/01/23 6/03 at 102 AAA 8,548,960
10,880,000 Lincoln Consolidated School District, Counties of Washtenaw and Wayne,
State of Michigan, 1998 School Building and Site Bonds (General
Obligation - Unlimited Tax), 5.000%, 5/01/28 (WI) 5/08 at 100 AAA 10,649,279
</TABLE>
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<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michigan (continued)
$ 3,000,000 Michigan State Hospital Finance Authority, Revenue and Refunding Bonds
(MidMichigan Obligated Group), Series 1997A, 5.125%, 6/01/24 12/07 at 102 AAA $2,957,790
3,640,000 Michigan State Housing Development Authority, Rental Housing Revenue
Bonds, 1991 Series A, 7.150%, 4/01/10 (Alternative Minimum Tax) 1/02 at 102 AA- 3,920,862
10,000,000 Michigan Strategic Fund Limited Obligation Refunding Revenue Bonds
(The Detroit Edison Company Pollution Control Bonds Project),
Collateralized Series 1991DD, 6.875%, 12/01/21 12/01 at 102 AAA 10,981,600
27,000,000 Okemos Public School, County of Ingham, State of Michigan, 1991 School
Building and Site Bonds, Series I, 0.000%, 5/01/21
(Pre-refunded to 5/01/06) 5/06 at 34 17/32 AAA 6,838,020
2,975,000 Tecumseh Public Schools, County of Lenawee, State of Michigan,
1998 School Building and Site Bonds (General Obligation -
Unlimited Tax), 5.000%, 5/01/21 (DD) 5/08 at 100 AAA 2,941,323
7,590,000 Western Townships Utilities Authority, Sewage Disposal System Refunding
Bonds, Series 1991, 6.500%, 1/01/19 1/02 at 100 AAA 8,154,924
- ------------------------------------------------------------------------------------------------------------------------------------
Minnesota - 0.7%
6,635,000 Minnesota Housing Finance Agency, Single Family Mortgage Bonds,
1994 Series M, 6.700%, 7/01/26 (Alternative Minimum Tax) 1/04 at 102 AA 7,101,042
5,000,000 Minnesota Housing Finance Agency, Single Family Mortgage Bonds,
1992 Series E, 6.850%, 1/01/24 (Alternative Minimum Tax) 7/02 at 102 AA+ 5,315,000
- ------------------------------------------------------------------------------------------------------------------------------------
Missouri - 0.5%
2,965,000 Missouri Housing Development Commission, Single Family Mortgage
Revenue Bonds (GNMA Mortgage-Backed Securities Program),
Series 1989A, 7.900%, 2/01/21 (Alternative Minimum Tax) 2/99 at 102 AAA 3,039,362
5,295,000 Missouri Housing Development Commission, Single Family Mortgage
Revenue Bonds (GNMA Mortgage-Backed Securities Program),
1991 Series C, 6.900%, 7/01/18 1/02 at 102 AAA 5,633,192
- ------------------------------------------------------------------------------------------------------------------------------------
Montana - 1.5%
26,000,000 City of Forsyth, Rosebud County, Montana, Pollution Control Revenue
Refunding Bonds (Puget Sound Power and Light Company Colstrip Project),
Series 1992, 6.800%, 3/01/22 3/02 at 102 AAA 28,590,380
- ------------------------------------------------------------------------------------------------------------------------------------
Nebraska - 0.2%
4,000,000 Hospital Authority No.1 of Lancaster County, Nebraska, Hospital Revenue
Bonds, Series 1997B (Bryan Memorial Hospital Project), 5.375%, 6/01/22 6/08 at 101 AAA 4,114,560
- ------------------------------------------------------------------------------------------------------------------------------------
Nevada - 2.9%
29,775,000 Clark County, Nevada, Industrial Development Revenue Bonds (Nevada Power
Company Project), Series 1990, 7.800%, 6/01/20 (Alternative Minimum Tax) 6/00 at 102 AAA 32,077,501
11,000,000 Clark County, Nevada, Las Vegas-McCarran International Airport Passenger
Facility Charge Revenue Bonds, 1992 Series A, 6.000%, 7/01/22
(Pre-refunded to 7/01/02) 7/02 at 102 AAA 12,058,310
5,725,000 Nevada Housing Division, Single Family Program Bonds, 1994 Issue B-1
Senior Bonds, 6.700%, 10/01/17 4/04 at 102 Aa2 6,125,407
4,415,000 Nevada Housing Division, 6.950%, 10/01/26 (Alternative Minimum Tax) 4/04 at 102 Aa2 4,749,039
- ------------------------------------------------------------------------------------------------------------------------------------
New Hampshire - 0.3%
4,950,000 New Hampshire Higher Educational and Health Facilities Authority,
Hospital Revenue Bonds, Lakes Region Hospital Association Issue,
Series 1993, 5.750%, 1/01/11 1/03 at 102 AAA 5,336,447
- ------------------------------------------------------------------------------------------------------------------------------------
New York - 5.1%
10,000,000 Long Island Power Authority (New York), Electric System General Revenue
Bonds, Series 1998A, 5.250%, 12/01/26 6/08 at 101 AAA 10,248,400
8,265,000 The City of New York, General Obligation Bonds, Fiscal 1992 Series C,
Fixed Rate Bonds, Subseries C-1, 6.250%, 8/01/10
(Pre-refunded to 8/01/02) 8/02 at 101 1/2 AAA 9,111,667
10,000,000 The City of New York, General Obligation Bonds, Fiscal 1998 Series H,
5.125%, 8/01/25 8/08 at 101 AAA 10,034,300
10,000,000 New York City (New York), Municipal Water Finance Authority, Water and
Sewer System Revenue Bonds, Fiscal 1996 Series B, 5.750%, 6/15/26 6/06 at 101 AAA 10,760,600
</TABLE>
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<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York (continued)
Dormitory Authority of the State of New York, City University
System Consolidated, Third General Resolution Revenue Bonds,
1994 Series 2:
$ 3,000,000 6.250%, 7/01/19 (Pre-refunded to 7/01/04) 7/04 at 100 AAA $3,359,340
6,400,000 6.750%, 7/01/24 (Pre-refunded to 7/01/04) 7/04 at 102 AAA 7,431,040
18,220,000 New York State Energy Research and Development Authority, Electric
Facilities Revenue Bonds, Series 1989 C (Consolidated Edison Company
of New York, Inc. Project), 7.250%, 11/01/24 (Alternative Minimum Tax) 11/00 at 100 AAA 18,459,046
7,000,000 New York State Energy Research and Development Authority, Electric
Facilities Revenue Bonds, Series 1990 A (Consolidated Edison of
New York, Inc. Project), 7.500%, 7/01/25 (Alternative Minimum Tax) 7/99 at 101 AAA 7,250,880
3,000,000 State of New York Mortgage Agency, Homeowner Mortgage Revenue Bonds,
Series KK, 7.800%, 10/01/20 (Alternative Minimum Tax) 10/99 at 102 Aa2 3,115,980
15,600,000 Port Authority of New York and New Jersey, Consolidated Revenue Bonds,
Ninety-Seventh Series, 6.650%, 1/15/23 (Alternative Minimum Tax) 1/05 at 101 AAA 17,620,200
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina - 2.6%
45,000,000 City of Charlotte, North Carolina, Certificates of Participation,
Series 1991 (Convention Facility Project), 6.750%, 12/01/21
(Pre-refunded to 12/01/01) 12/01 at 102 AAA 49,934,700
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio - 3.3%
12,550,000 City of Cleveland, Ohio, Waterworks Improvement First Mortgage
Revenue Bonds, Series F, 1992 A, 6.500%, 1/01/21 (Pre-refunded
to 1/01/02) 1/02 at 102 AAA 13,836,375
5,000,000 Columbus Municipal Airport Authority (Ohio), Airport Improvement Revenue
Bonds (Port Columbus International Airport Project), Series 1998B,
5.000%, 1/01/28 1/08 at 101 AAA 4,935,400
9,000,000 County of Lucas, Ohio, Hospital Improvement Revenue Bonds, Series 1992
(St. Vincent Medical Center), 6.625%, 8/15/22 (Pre-refunded to 8/15/02) 8/02 at 102 AAA 9,982,800
9,105,000 Ohio Housing Finance Agency, Residential Mortgage Revenue Bonds (GNMA
Mortgage-Backed Securities Program), 1995 Series A-2, 6.625%, 3/01/26
(Alternative Minimum Tax) 3/05 at 102 AAA 9,830,942
Ohio Air Quality Development Authority, Air Quality Development
Revenue Refunding Bonds (JMG Funding Limited Partnership
Project), Series 1994:
13,750,000 6.375%, 1/01/29 (Alternative Minimum Tax) 10/04 at 102 AAA 15,314,063
8,000,000 6.375%, 4/01/29 (Alternative Minimum Tax) 10/04 at 102 AAA 8,910,000
- ------------------------------------------------------------------------------------------------------------------------------------
Oklahoma - 2.7%
3,360,000 Norman Regional Hospital Authority (Norman, Oklahoma), Hospital
Revenue Bonds, Series 1991, 6.900%, 9/01/21 (Pre-refunded to 9/01/01) 9/01 at 102 AAA 3,716,160
680,000 Oklahoma Housing Finance Agency, Single Family Mortgage Revenue Bonds,
1991 Series A, 7.150%, 3/01/07 3/01 at 102 AAA 716,652
37,625,000 Oklahoma Housing Finance Agency, GNMA Collateralized Single Family
Mortgage Revenue Bonds, Series 1987A, 7.997%, 8/01/18
(Alternative Minimum Tax) No Opt. Call AAA 44,305,319
1,365,000 Tulsa County Home Finance Authority, GNMA Collateralized Mortgage
Revenue Bonds, Series 1991C, 7.100%, 6/01/22 (Alternative Minimum Tax) 12/01 at 102 AAA 1,441,645
- ------------------------------------------------------------------------------------------------------------------------------------
Oregon - 0.3%
5,500,000 State of Oregon, Housing and Community Services Department Mortgage
Revenue Bonds (Single-Family Mortgage Program), 1995 Series A,
6.450%, 7/01/26 (Alternative Minimum Tax) 7/05 at 102 Aa2 5,934,995
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania - 5.7%
14,700,000 County of Allegheny, Pennsylvania Airport Revenue Bonds, Series 1992A
and 1992B (Greater Pittsburgh International Airport), 6.625%, 1/01/22
(Alternative Minimum Tax) 1/02 at 102 AAA 16,011,093
7,000,000 Beaver County (Pennsylvania), Industrial Development Authority, Pollution
Control Revenue Refunding Bonds, 1991 Series A, Pennsylvania Power
Company, Mansfield Project), 7.150%, 9/01/21 9/01 at 102 AAA 7,698,740
24,800,000 Butler County Hospital Authority (Butler County, Pennsylvania), Hospital
Revenue Bonds, Series 1991 A (North Hills Passavant Hospital),
7.000%, 6/01/22 (Pre-refunded to 6/01/01) 6/01 at 102 AAA 27,312,488
</TABLE>
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<PAGE> 98
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania (continued)
Delaware County Industrial Development Authority, Pollution
Control Revenue Refunding Bonds, 1991 Series A (Philadelphia
Electric Company Project):
$ 5,000,000 7.375%, 4/01/21 4/01 at 102 BBB+ $5,382,050
5,000,000 7.375%, 4/01/21 4/01 at 102 AAA 5,471,600
10,000,000 The Harrisburg Authority (Dauphin County, Pennsylvania), Commonwealth
of Pennsylvania Lease Bonds, Series of 1991, 6.625%, 6/01/13
(Pre-refunded to 6/01/01) 6/01 at 101 AAA 10,837,900
7,120,000 Lehigh County, Pennsylvania, General Purpose Authority, Hospital
Revenue Bonds (Lehigh Valley Hospital, Inc.), Series A of 1994,
6.250%, 7/01/22 (Pre-refunded to 7/01/04) 7/04 at 102 AAA 8,079,562
9,000,000 Montgomery County Higher Education and Health Authority (Pennsylvania),
Hospital Revenue Bonds, Series 1998A (Abington Memorial Hospital),
5.000%, 6/01/28 6/08 at 101 AAA 8,802,360
8,950,000 Montgomery County Industrial Development Authority, Pollution Control
Revenue Refunding Bonds, 1992 Series A (Philadelphia Electric Company
Project), 6.625%, 6/01/22 6/02 at 102 AAA 9,855,651
7,000,000 Certificates of Participation, Commonwealth of Pennsylvania, Harristown
Development Corporation, 6.250%, 5/01/16 11/01 at 102 AAA 7,581,350
- ------------------------------------------------------------------------------------------------------------------------------------
Puerto Rico - 1.3%
25,400,000 Puerto Rico Highway and Transportation Authority, Transportation Revenue
Bonds (Series A), 5.000%, 7/01/28 7/08 at 101 AAA 25,409,398
- ------------------------------------------------------------------------------------------------------------------------------------
Rhode Island - 3.8%
38,650,000 The Convention Center Authority (Rhode Island), Revenue Bonds,
1991 Series A, 6.700%, 5/15/20 (Pre-refunded to 5/15/01) 5/01 at 102 AAA 42,235,561
2,195,000 Providence Housing Development Corporation (Rhode Island), Mortgage
Revenue Refunding Bonds, Series 1994A, FHA Insured Mortgage
Loan-Barbara Jordan Apartments Project), 6.750%, 7/01/25 7/04 at 102 AAA 2,384,911
5,140,000 Rhode Island Depositor's Economic Protection Corporation, Special
Obligation Bonds, 1991 Series A, 7.100%, 8/01/18
(Pre-refunded to 8/01/01) 8/01 at 102 AAA 5,699,952
20,475,000 Rhode Island Depositor's Economic Protection Corporation, Special
Obligation Refunding Bonds, 1992 Series B, 5.250%, 8/01/21
(Pre-refunded to 2/01/11) 2/11 at 100 AAA 21,593,140
- ------------------------------------------------------------------------------------------------------------------------------------
South Carolina - 1.1%
5,275,000 Lexington County Health Services District, Inc., South Carolina,
Hospital Revenue Bonds, Series 1991, 6.750%, 10/01/18
(Pre-refunded to 10/01/01) 10/01 at 102 AAA 5,831,882
22,000,000 Piedmont Municipal Power Agency (South Carolina), Electric Revenue
Bonds, 1988 Refunding Series, 0.000%, 1/01/13 No Opt. Call AAA 11,187,386
3,775,000 South Carolina Jobs-Economic Development Authority, Hospital Facilities
Revenue Bonds, Series 1995 (Oconee Memorial Hospital, Inc.),
6.150%, 3/01/15 3/05 at 102 AAA 4,125,985
- ------------------------------------------------------------------------------------------------------------------------------------
South Dakota - 0.1%
1,635,000 South Dakota Health and Educational Facilities Authority, Revenue Bonds,
Series 1989 (Rapid City Regional Hospital), 7.000%, 9/01/14 9/99 at 102 AAA 1,713,644
- ------------------------------------------------------------------------------------------------------------------------------------
Tennessee - 0.6%
2,250,000 Chattanooga-Hamilton County Hospital Authority, Hospital Revenue Bonds
(Erlanger Medical Center), Series 1998A, 5.000%, 10/01/28 4/08 at 101 AAA 2,220,660
7,500,000 Metropolitan Nashville Airport Authority (Tennessee), Airport Improvement
Revenue Bonds, Refunding Series 1991C, 6.600%, 7/01/15 7/01 at 102 AAA 8,148,450
- ------------------------------------------------------------------------------------------------------------------------------------
Texas - 4.9%
6,000,000 Brazos County Health Facilities Development Corporation (Texas),
Franciscan Services Corporation, Obligated Group Revenue Bonds,
Series 1997A, 5.375%, 1/01/28 7/07 at 102 AAA 6,146,460
9,500,000 Coastal Bend Health Facilities Development Corporation (Texas),
Incarnate Word Health Services Revenue Bonds, Series 1993-A,
6.000%, 11/15/22 11/02 at 102 AAA 10,351,200
165,000 East Texas Housing Finance Corporation, Single Family Mortgage
Revenue Bonds (GNMA Mortgage-Backed Securities Program), Series 1990,
7.750%, 6/01/17 (Alternative Minimum Tax) 6/00 at 103 AA+ 173,545
</TABLE>
S-55
<PAGE> 99
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas (continued)
$ 1,480,000 Gulf Coast Water Authority (Texas), Water System Contract Revenue
Bonds (South Project), Series 1998B, 5.000%, 8/15/22 8/08 at 100 AAA $1,460,627
Harris County, Texas, Toll Road Senior Lien Revenue Bonds,
Series 1989:
9,000,000 0.000%, 8/15/18 (Pre-refunded to 8/15/09) 8/09 at 53 27/32 AAA 3,035,610
39,000,000 0.000%, 8/15/19 (Pre-refunded to 8/15/09) 8/09 at 50 1/4 AAA 12,279,540
7,280,000 0.000%, 8/15/20 (Pre-refunded to 8/15/09) 8/09 at 46 29/32 AAA 2,139,810
5,085,000 0.000%, 8/15/21 (Pre-refunded to 8/15/09) 8/09 at 43 25/32 AAA 1,395,222
3,250,000 Harris County (Texas), Health Facilities Development Corporation,
Hospital Revenue Bonds (Memorial Hermann Hospital System Project),
Series 1998, 5.125%, 6/01/22 6/08 at 101 AAA 3,210,415
14,160,000 City of Houston, Texas, Water and Sewer System, Junior Lien Revenue
Refunding Bonds, Series 1991C, 6.375%, 12/01/17
(Pre-refunded to 12/01/01) 12/01 at 102 AAA 15,366,432
13,500,000 Matagorda County Navigation District Number One (Texas), Pollution
Control Revenue Refunding Bonds (Central Power and Light Company
Project), Series 1996, 6.125%, 5/01/30 (Alternative Minimum Tax) 5/06 at 102 AAA 14,863,500
3,945,000 Ratama Development Corporation, Special Facilities Revenue Bonds
(Retama Park Racetrack Project), Series 1993, 10.000%, 12/15/17 No Opt. Call AAA 6,427,194
14,590,000 Texas Department of Housing and Community Affairs, Single Family
Mortgage Revenue Bonds, 1996 Series D, 6.250%, 9/01/28
(Alternative Minimum Tax) 9/06 at 102 AAA 15,571,323
- ------------------------------------------------------------------------------------------------------------------------------------
Utah - 0.9%
6,130,000 Utah Housing Finance Agency, Multifamily Housing Refunding Bonds,
1992 Issue A (FHA Insured Mortgage Loans), 7.400%, 7/01/24 1/02 at 102 AAA 6,613,596
3,480,000 Utah Housing Finance Agency, Single Family Mortgage Bonds, 1994
Issue D (Federally Insured or Guaranteed Mortgage Loans),
6.750%, 1/01/27 (Alternative Minimum Tax) 7/04 at 102 Aaa 3,713,891
7,185,000 Utah Water Finance Agency, Revenue Bonds (Timpanos Loan Financing
Program), Series 1998B, 5.000%, 6/01/19 6/08 at 100 AAA 7,170,917
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia - 0.5%
8,000,000 Industrial Development Authority of Loudoun County, Virginia, Hospital
Revenue Bonds (Loudoun Hospital Center), Series 1995, 5.800%, 6/01/20 6/05 at 102 AAA 8,548,480
- ------------------------------------------------------------------------------------------------------------------------------------
Washington - 2.2%
2,515,000 Public Utility District No. 1 of Douglas County, Washington, Wells
Hydro-Electric Revenue Bonds, Series of 1990, 7.800%, 9/01/18
(Alternative Minimum Tax) 9/00 at 102 A+ 2,706,970
4,250,000 Public Utility District No. 1 of Snohomish County, Washington, Generation
System Revenue Bonds, Series 1989, 6.650%, 1/01/16 No Opt. Call AAA 4,701,988
19,750,000 Washington Health Care Facilities Authority, Revenue Bonds, Series 1989
(Group Health Cooperative of Puget Sound, Seattle), 7.200%, 12/01/15 12/99 at 102 AAA 20,872,788
4,100,000 Washington Public Power Supply System, Nuclear Project No. 1 Refunding
Revenue Bonds, Series 1992A, 6.250%, 7/01/17 7/02 at 102 Aaa 4,477,405
8,500,000 Washington Public Power Supply System, Nuclear Project No. 3 Refunding
Revenue Bonds, Series 1993B, 5.600%, 7/01/17 7/03 at 102 AAA 8,805,575
- ------------------------------------------------------------------------------------------------------------------------------------
West Virginia - 1.1%
10,000,000 The County Commission of Harrison County, West Virginia, Solid Waste
Disposal Revenue Bonds (West Penn Power Company Harrison Station
Project), Series B, 6.300%, 5/01/23 (Alternative Minimum Tax) 5/03 at 102 A+ 10,703,600
4,100,000 West Virginia Water Development Authority, Water Development Revenue
Refunding Bonds (Loan Program), 1991 Series A, 7.000%, 11/01/25 11/01 at 102 AAA 4,532,959
5,050,000 State of West Virginia, University of West Virginia Board of Trustees,
Dormitory Revenue Bonds (West Virginia University Project),
1992 Series A, 6.750%, 5/01/17 (Pre-refunded to 5/01/02) 5/02 at 100 AAA 5,556,009
- ------------------------------------------------------------------------------------------------------------------------------------
Wisconsin - 3.4%
8,270,000 Wisconsin Housing and Economic Development Authority, Housing
Revenue Bonds, 1992 Series A, 6.850%, 11/01/12 11/02 at 102 AAA 8,935,072
</TABLE>
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<PAGE> 100
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wisconsin (continued)
$ 8,150,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds,
Series 1991 (St. Luke's Medical Center Project), 7.100%, 8/15/19
(Pre-refunded to 8/15/01) 8/01 at 102 AAA $9,042,587
17,710,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds,
Series 1991-B (Novus Health Group), 6.750%, 12/15/20
(Pre-refunded to 12/15/01) 12/01 at 102 AAA 19,648,004
10,000,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds,
Series 1990A (Marshfield Clinic Project), 7.250%, 8/01/15
(Pre-refunded to 8/01/00) 8/00 at 102 AAA 10,828,899
15,000,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds,
Series 1997 (Marshfield Clinic Project), 5.750%, 2/15/27 2/07 at 102 AAA 16,000,949
- ------------------------------------------------------------------------------------------------------------------------------------
$1,877,174,000 Total Investments - (cost $1,711,830,329) - 99.2% 1,877,624,142
==============
- ------------------------------------------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal Securities - 0.6%
5,200,000 Roanoke Industrial Development Authority, Hospital Revenue Bonds,
Series B (Carilion Health System), Variable Rate Demand Bonds,
3.700%, 7/01/19+ VMIG-1 5,200,000
4,400,000 Roanoke Industrial Development Authority, Hospital Revenue Bonds,
Series 1995A (Carilion Health System), Variable Rate Demand Bonds,
3.700%, 7/01/19+ VMIG-1 4,400,000
1,300,000 Schuykill County Industrial Development Authority, Schuykill
County, Pennsylvania, Resource Recovery Refunding Revenue Binds
(Northeastern Power Company Project), Series 1997B, Variable
Rate Demand Bonds, 3.850%, 12/01/22+ (Alternative Minimum Tax) A-1+ 1,300,000
- ------------------------------------------------------------------------------------------------------------------------------------
$ 10,900,000 Total Temporary Investments -0.6% 10,900,000
============
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -0.2% 4,064,593
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets -100% $1,892,588,735
====================================================================================================================================
</TABLE>
All of the bonds in the portfolio, excluding temporary investments in short-term
municipal securities, are either covered by Original Issue Insurance, Secondary
Market Insurance, or are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities, any of which ensure the timely
payment of principal and interest.
* 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.
+ 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.
(WI) Security purchased on a when-issued basis (note 1).
(DD) Security purchased on a delayed delivery basis (note 1).
See accompanying notes to financial statements.
S-57
<PAGE> 101
Portfolio of Investments
Nuveen Premier Insured Municipal Income Fund, Inc. (NIF)
October 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alabama - 1.6%
$ 2,250,000 BMC Special Care Facilities Financing Authority of the City of
Montgomery, Revenue Bonds, Series 1992-A (Baptist Medical Center),
5.750%, 1/01/22 1/02 at 100 AAA $2,325,015
3,000,000 BMC Special Care Facilities Financing Authority of the City of
Montgomery, Revenue Bonds, Series 1992-B (Baptist Medical Center),
6.700%, 12/01/10 12/02 at 102 AAA 3,350,070
Water Revenue Bonds, Series 1996 of West Morgan-East Lawrence
Water Authority:
1,000,000 5.625%, 8/15/21 8/06 at 102 AAA 1,068,210
400,000 5.625%, 8/15/25 8/06 at 102 AAA 427,604
- ------------------------------------------------------------------------------------------------------------------------------------
Arkansas - 1.3%
5,555,000 Sebastian County (Arkansas), Community Junior College District, General
Obligation Refunding and Improvement Bonds, Series 1997, 5.600%, 4/01/17 4/07 at 101 Aaa 5,925,907
- ------------------------------------------------------------------------------------------------------------------------------------
California - 18.6%
4,000,000 State of California Veteran's General Obligation Bonds, Series BH,
5.400%, 12/01/16 (Alternative Minimum Tax) 12/08 at 101 AAA 4,117,560
1,090,000 Housing Authority of the County of Kern, Guaranteed Tax-Exempt Mortgage
Obligations, 1994 Series A, Subseries I, 7.150%, 12/30/24
(Alternative Minimum Tax) No Opt. Call AAA 1,290,211
595,000 Housing Authority of the County of Kern, Guaranteed Tax-Exempt Mortgage
Obligations, 1994 Series A Subseries III, 7.450%, 6/30/25
(Alternative Minimum Tax) No Opt. Call AAA 695,043
6,045,000 La Verne - Grand Terrace Housing Finance Agency, Single Family
Residential Mortgage Revenue Bonds, 1984 Series A, 10.250%, 7/01/17 No Opt. Call AAA 9,231,984
5,840,000 Lancaster Redevelopment Agency, Lancaster Residential Redevelopment
Project Area, Tax Allocation Refunding Bonds, Issue of 1992,
6.100%, 8/01/19 8/01 at 102 AAA 6,290,614
5,040,000 Northern California Power Agency, Hydroelectric Project Number One
Revenue Bonds, 1992 Refunding Series A, 10.000%, 7/01/04 No Opt. Call AAA 6,600,233
5,000,000 Ontario Redevelopment Financing Authority (San Bernardino County,
California), 1995 Revenue Refunding Bonds (Ontario Redevelopment
Project No. 1), 7.400%, 8/01/25 No Opt. Call AAA 6,884,700
1,340,000 Pomona Public Financing Authority, California, 1992 Revenue Bonds,
Series A, (Water Treatment Project), 6.100%, 7/01/17 7/02 at 102 AAA 1,460,895
8,880,000 City of Pomona, California, Single Family Mortgage Revenue Refunding
Bonds (GNMA and FHLMC Mortgage-Backed Securities), Series 1990B,
7.500%, 8/01/23 No Opt. Call AAA 11,773,814
10,305,000 City of San Bernardino, California, Single Family Mortgage Revenue
Refunding Bonds (GNMA Mortgage Backed Securities), Series 1990A,
7.500%, 5/01/23 No Opt. Call AAA 13,265,523
14,755,000 County of San Bernardino, California, Single Family Mortgage Revenue
Bonds (GNMA Mortgage-Backed Securities), 1988 Series A, 8.300%, 9/01/14
(Alternative Minimum Tax) No Opt. Call AAA 19,750,600
2,000,000 City of Santa Barbara, California, Certificates of Participation
(1992 Water System Improvement Project and Refunding), 6.700%, 4/01/27 4/02 at 102 AAA 2,200,080
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado - 0.3%
1,225,000 Summit School District RE-1, Summit County, Colorado, General
Obligation Improvement Bonds, Series 1994, 6.700%, 12/01/14
(Pre-refunded to 12/01/04) 12/04 at 100 AAA 1,410,980
- ------------------------------------------------------------------------------------------------------------------------------------
District of Columbia - 1.2%
2,000,000 District of Columbia (Washington, D.C.), Hospital Revenue Bonds
(National Rehabilitation Hospital, Inc. Issue), Series 1989A, Medlantic
Healthcare Group, 7.125%, 11/01/19 (Pre-refunded to 11/01/99) 11/99 at 102 AAA 2,118,220
3,385,000 District of Columbia (Washington, D.C.), General Obligation Bonds
(Series 1998A), 5.000%, 6/01/17 6/08 at 101 AAA 3,358,563
</TABLE>
S-58
<PAGE> 102
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Florida - 3.5%
$ 3,750,000 Florida Housing Finance Agency, Housing Revenue Bonds, 1997 Series J-1
(Willow Lake Apartment Project), 5.350%, 7/01/27
(Alternative Minimum Tax) 1/08 at 102 AAA $3,828,788
6,750,000 Polk County Industrial Development Authority, Industrial Development
Variable Rate Revenue Bonds, 1985 Series 2 (Winter Haven Hospital
Project), 6.250%, 9/01/15 9/02 at 103 AAA 7,439,513
4,200,000 Financing Corporation for the School Board of Sarasota County, Florida,
Lease Revenue Bonds, Series 1990, 7.250%, 7/01/10
(Pre-refunded to 7/01/00) 7/00 at 101 AAA 4,501,476
- ------------------------------------------------------------------------------------------------------------------------------------
Georgia - 3.6%
Development Authority of Burke County, Georgia, Pollution
Control Revenue Bonds (Oglethorpe Power Corporation Vogtle
Project):
3,555,000 7.800%, 1/01/08 (Pre-refunded to 1/01/03) 1/03 at 103 AAA 4,190,172
10,000,000 8.000%, 1/01/15 (Pre-refunded to 1/01/03) 1/03 at 103 AAA 11,863,200
- ------------------------------------------------------------------------------------------------------------------------------------
Illinois - 9.6%
10,000,000 City of Chicago (Illinois), General Obligation Adjustable Rate
Bonds, Central Public Library Project, Series C of 1988,
6.850%, 1/01/17 (Pre-refunded to 7/01/02) 7/02 at 101 1/2 AAA 11,209,700
8,200,000 Board of Education of the City of Chicago, General Obligation
Lease Certificates, 1992 Series A, 6.250%, 1/01/15 No Opt. Call AAA 9,571,614
2,600,000 The County of Cook, Illinois, General Obligation Bonds, Series 1991,
6.250%, 11/01/21 (Pre-refunded to 11/01/01) 11/01 at 102 AAA 2,841,306
10,150,000 Onterie Center Housing Finance Corporation (An Illinois Not For
Profit Corporation), Mortgage Revenue Refunding Bonds, Series 1992A
(FHA Insured Mortgage Loan-Onterie Center Project), 7.050%, 7/01/27 7/02 at 102 AAA 10,891,255
3,225,000 Regional Transportation Authority, Cook, DuPage, Kane, Lake, McHenry
and Will Counties, Illinois, General Obligation Bonds, Series 1992A,
9.000%, 6/01/09 No Opt. Call AAA 4,481,202
4,000,000 Public Building Commission of St. Clair County, Illinois,
St. Clair County, Illinois, Public Building Revenue Bonds, Series 1992,
6.350%, 12/01/09 (Alternative Minimum Tax) 12/02 at 102 AAA 4,371,640
- ------------------------------------------------------------------------------------------------------------------------------------
Indiana - 4.8%
2,000,000 Fremont Middle School Building Corporation, First Mortgage Bonds,
Series 1992, Fremont, Indiana, 6.750%, 3/15/13
(Pre-refunded to 3/15/02) 3/02 at 101 AAA 2,210,580
2,500,000 Indiana Bond Bank, Special Program Bonds, Series 1985A, 9.000%, 8/01/09
(Pre-refunded to 2/01/99) 2/99 at 101 1/2 AAA 2,648,775
5,375,000 Indiana Health Facility Financing Authority, Hospital Revenue Refunding
and Improvement Bonds, Series 1992 (Community Hospitals Projects),
6.400%, 5/01/12 5/02 at 102 AAA 5,847,194
7,000,000 Southwest Allen Multi School Building Corporation, First Mortgage
Refunding Bonds, Series 1992B, Ft. Wayne, Indiana, 6.375%, 1/15/09 1/02 at 101 AAA 7,574,210
3,000,000 Wheeler-Union Township School Building Corporation (Porter County,
Indiana), First Mortgage Bonds, Series 1997A, 5.625%, 1/15/15 7/07 at 102 AAA 3,213,930
- ------------------------------------------------------------------------------------------------------------------------------------
Kentucky - 1.6%
6,500,000 County of Daviess, Kentucky, Insured Hospital Revenue Bonds, 1992
(ODCH, Inc. Project), Series A, 6.250%, 8/01/22 8/02 at 102 AAA 7,108,140
- ------------------------------------------------------------------------------------------------------------------------------------
Louisiana - 2.2%
Louisiana Public Facilities Authority, Hospital Revenue Bonds
(Our Lady of Lourdes Regional Medical Center Project), Series
1992:
5,000,000 6.375%, 2/01/12 (Pre-refunded to 2/01/03) 2/03 at 102 AAA 5,585,000
4,000,000 6.450%, 2/01/22 (Pre-refunded to 2/01/03) 2/03 at 102 AAA 4,483,040
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts - 4.7%
3,000,000 Framingham Housing Authority, GNMA Collateralized Mortgage Revenue Bonds
(Beaver Terrace Apartments), 6.650%, 2/20/32 8/01 at 102 AAA 3,206,940
8,335,000 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 9,192,755
</TABLE>
S-59
<PAGE> 103
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Massachusetts (continued)
$ 8,270,000 Massachusetts Housing Finance Authority, Single Family Housing
Revenue Bonds, Series 59, 5.500%, 12/01/30 (Alternative Minimum Tax) 6/08 at 101 AAA $8,584,177
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan - 0.5%
2,000,000 Paw Paw Public Schools, County of Van Buren, State of Michigan,
1995 School Building and Site Bonds, 5.625%, 5/01/25
(Pre-refunded to 5/01/05) 5/05 at 100 AAA 2,188,660
- ------------------------------------------------------------------------------------------------------------------------------------
Minnesota - 0.4%
1,770,000 Minnesota Housing Finance Agency, Rental Housing Bonds, 1995 Series D
(Non-AMT), 5.950%, 2/01/18 2/05 at 102 AAA 1,872,589
- ------------------------------------------------------------------------------------------------------------------------------------
Mississippi - 0.6%
2,360,000 Mississippi Home Corporation, Single Family Senior Revenue Refunding
Bonds, Series 1990A, 9.250%, 3/01/12 9/00 at 103 AAA 2,524,610
- ------------------------------------------------------------------------------------------------------------------------------------
Missouri - 3.9%
7,495,000 The Industrial Development Authority of Jefferson County, Missouri,
Housing Revenue Bonds (Richardson Road Apartments Project),
Series 1985, 11.000%, 12/15/15 (Pre-refunded to 8/15/07) 8/07 at 100 AAA 11,176,694
4,000,000 Health and Educational Facilities Authority of the State of Missouri,
Educational Facilities Revenue Bonds (Saint Louis University),
Series 1996, 5.200%, 10/01/26 10/06 at 102 AAA 4,041,520
2,250,000 The Industrial Development Authority of The City of University City,
Missouri, Multifamily Housing Revenue Refunding Bonds (GNMA
Collateralized-Canterbury Gardens Project), Series 1995A,
6.000%, 12/20/30 12/05 at 102 AAA 2,357,775
- ------------------------------------------------------------------------------------------------------------------------------------
Montana - 3.2%
13,000,000 City of Forsyth, Rosebud County, Montana, Pollution Control
Revenue Refunding Bonds (Puget Sound Power and Light Company
Colstrip Project), Series 1992, 6.800%, 3/01/22 3/02 at 102 AAA 14,295,190
- ------------------------------------------------------------------------------------------------------------------------------------
Nebraska - 0.6%
2,500,000 Nebraska Investment Finance Authority, Multifamily Housing Revenue
Bonds (Cambury Hills Apartments Project), Series 1997,
5.875%, 10/01/29 (Alternative Minimum Tax) 10/07 at 101 AAA 2,601,050
- ------------------------------------------------------------------------------------------------------------------------------------
Nevada - 3.7%
10,250,000 Humboldt County, Nevada, Variable Rate Demand Pollution Control
Refunding Revenue Bonds (Sierra Pacific Power Company Project),
Series 1987, 6.550%, 10/01/13 5/02 at 102 AAA 11,281,765
5,050,000 Washoe County, Nevada, Variable Rate Demand Gas and Water Facilities
Refunding Revenue Bonds (Sierra Pacific Power Company Project),
Series 1987, 6.300%, 12/01/14 7/02 at 102 AAA 5,503,339
- ------------------------------------------------------------------------------------------------------------------------------------
New Hampshire - 0.7%
3,000,000 New Hampshire Higher Educational and Health Facilities Authority,
Hospital Revenue Bonds, Concord Hospital Issue, Series 1996,
6.000%, 10/01/26 10/06 at 102 AAA 3,355,080
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey - 1.4%
6,000,000 The Union County Utilities Authority (New Jersey), Solid Waste Bonds,
County Deficiency Agreement, Series 1998A, 5.350%, 6/01/23
(Alternative Minimum Tax) 6/08 at 101 AAA 6,100,800
- ------------------------------------------------------------------------------------------------------------------------------------
New York - 5.5%
7,645,000 Metropolitan Transportation Authority, Transit Facilities Revenue
Bonds, Series J, 9.100%, 7/01/05 No Opt. Call AAA 9,856,163
1,425,000 The City of New York, General Obligation Bonds, Fiscal 1990 Series H,
7.875%, 8/01/00 No Opt. Call AAA 1,531,818
The City of New York, General Obligation Bonds, 1992 Series C:
6,910,000 6.625%, 8/01/14 (Pre-refunded to 8/01/02) 8/02 at 101 1/2 AAA 7,707,898
90,000 6.625%, 8/01/14 8/02 at 101 1/2 AAA 99,863
The City of New York, General Obligation Bonds, Fiscal 1992
Series C, Subseries C-1:
4,950,000 6.625%, 8/01/15 (Pre-refunded to 8/01/02) 8/02 at 101 1/2 AAA 5,521,577
50,000 6.625%, 8/01/15 8/02 at 101 1/2 AAA 55,202
</TABLE>
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<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ohio - 0.6%
$ 2,690,000 County of Cuyahoga, Ohio, Hospital lmprovement and Refunding
Revenue Bonds, Series 1997 (The MetroHealth System Project),
5.500%, 2/15/27 2/07 at 102 AAA $2,822,348
- ------------------------------------------------------------------------------------------------------------------------------------
Oklahoma - 2.8%
7,975,000 Oklahoma Housing Finance Agency, GNMA Collateralized Single Family
Mortgage Revenue Bonds, Series 1987A, 7.997%, 8/01/18
(Alternative Minimum Tax) No Opt. Call AAA 9,390,961
3,000,000 Tulsa Industrial Authority, Multifamily Housing Revenue Refunding Bonds
(GNMA Collateralized - Country Club of Woodland Hills Development),
Series 1995, 6.250%, 11/01/27 11/05 at 103 Aaa 3,223,890
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania - 6.4%
8,000,000 Allegheny County Hospital Development Authority, Health Center
Revenue Refunding Bonds, Series 1998B (UPMC Health System),
5.000%, 11/01/18 10/08 at 101 Aaa 7,915,200
19,140,000 Montgomery County Industrial Development Authority, Pollution Control
Revenue Refunding Bonds, 1992 Series A (Philadelphia Electric Company
Project), 6.625%, 6/01/22 6/02 at 102 AAA 21,076,777
- ------------------------------------------------------------------------------------------------------------------------------------
Rhode Island - 3.6%
1,900,000 The Convention Center Authority (Rhode Island), Revenue Bonds,
1991 Series A, 6.700%, 5/15/20 (Pre-refunded to 5/15/01) 5/01 at 102 AAA 2,076,263
12,750,000 Rhode Island Depositor's Economic Corporation, Special Obligation
Bonds, 1992 Series A, 6.625%, 8/01/19 (Pre-refunded to 8/01/02) 8/02 at 102 AAA 14,277,833
- ------------------------------------------------------------------------------------------------------------------------------------
South Carolina - 2.3%
9,450,000 South Carolina Public Service Authority, Santee Cooper, Revenue
Bonds, 1991 Series D, 6.500%, 7/01/24 (Pre-refunded to 7/01/02) 7/02 at 102 AAA 10,533,726
- ------------------------------------------------------------------------------------------------------------------------------------
South Dakota - 0.5%
2,100,000 South Dakota Health and Educational Facilities Authority, Vocational
Education Program Revenue Bonds, Series 1993B, 5.700%, 8/01/23 8/03 at 102 AAA 2,244,039
- ------------------------------------------------------------------------------------------------------------------------------------
Texas - 4.4%
5,000,000 Brazos River Authority (Texas), Collateralized Pollution Control
Revenue Bonds (Texas Utilities Electric Company Project),
Series 1993A, 6.050%, 4/01/25 (Alternative Minimum Tax) 4/03 at 102 AAA 5,392,550
1,645,000 Corpus Christi (Texas), Housing Finance Corporation, Single Family
Mortgage Senior Revenue Refunding Bonds, Series 1991A,
7.700%, 7/01/11 7/01 at 103 AAA 1,807,822
1,510,000 City of El Paso (Texas), Property Finance Authority, Inc., Single
Family Mortgage Revenue Bonds (GNMA Mortgage-Backed Securities
Program), Series 1992A, 8.700%, 12/01/18 (Alternative Minimum Tax) 6/02 at 103 Aaa 1,628,022
5,210,000 Harris County, Texas, Toll Road Senior Lien Revenue Refunding Bonds,
Series 1992A, 6.500%, 8/15/17 (Pre-refunded to 8/15/02) 8/02 at 102 AAA 5,816,496
1,600,000 Harris County, Texas, Toll Road Senior Lien Revenue Refunding Bonds,
Series 1992B, 6.625%, 8/15/17 1/99 at 101 AAA 1,620,512
3,145,000 Rio Grande Valley Health Facilities Development Corporation (Texas),
Hospital Revenue Bonds (Valley Baptist Medical Center Project),
Series 1992A, 6.375%, 8/01/22 8/02 at 102 AAA 3,452,801
- ------------------------------------------------------------------------------------------------------------------------------------
Utah - 0.3%
1,490,000 State Board of Regents of the State of Utah, Weber State University,
Student Facilities System Revenue Bonds, Series 1992,
6.250%, 4/01/10 (Pre-refunded to 4/01/02) 4/02 at 100 AAA 1,612,180
- ------------------------------------------------------------------------------------------------------------------------------------
Washington - 2.3%
1,085,000 North Franklin School District No. J51-162, Franklin and Adams
Counties, Washington, Unlimited Tax General Obligation Bonds,
Series 1992, 6.700%, 12/01/10 (Pre-refunded to 12/01/02) 12/02 at 100 AAA 1,208,950
Puyallup School District No. 3, Pierce County, Washington, Unlimited
Tax General Obligation and Refunding Bonds, 1992 Series A:
2,000,000 6.650%, 12/01/07 (Pre-refunded to 12/01/02) 12/02 at 100 AAA 2,223,120
4,750,000 6.700%, 12/01/09 (Pre-refunded to 12/01/02) 12/02 at 100 AAA 5,288,840
1,325,000 City of Richland, Washington, Electric Revenue Bonds, 1992,
6.700%, 11/01/11 (Pre-refunded to 11/01/02) 11/02 at 100 AAA 1,472,565
</TABLE>
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<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
West Virginia - 1.5%
$ 6,000,000 Mason County, West Virginia, Pollution Control Revenue Bonds
(Appalachian Power Company Project), Series I, 6.850%, 6/01/22 6/02 at 102 AAA $6,641,100
- ------------------------------------------------------------------------------------------------------------------------------------
$ 387,625,000 Total Investments - (cost $399,242,939) - 98.2% 442,188,021
=============
Temporary Investments in Short-Term Municipal Securities - 0.4%
$ 1,900,000 Geisinger Authority Health System, Series 1998B, Variable Rate
============ Demand Bonds, 3.300%, 8/15/28+ VMIG-1 1,900,000
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.4% 6,378,006
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $450,466,027
====================================================================================================================================
</TABLE>
All of the bonds in the portfolio, excluding temporary investments in short-term
municipal securities, are either covered by Original Issue Insurance, Secondary
Market Insurance, or are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities, any of which ensure the timely
payment of principal and interest.
* 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.
+ The security has a maturity of more than one year, but has variable rate and
demand features which qualify it as a short-term security. The rate disclosed is
that currently in effect. This rate changes periodically based on market
conditions or a specified market index.
See accompanying notes to financial statements.
S-62
<PAGE> 106
Portfolio of Investments
Nuveen Insured Premium Income Municipal Fund 2 (NPX)
October 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alabama - 2.1%
$ 10,000,000 The Health Care Authority of the City of Huntsville, Health Care
Facilities Revenue Bonds, Series 1994-A, 4.650%, 6/01/24 6/04 at 110 AAA $10,267,800
2,500,000 City of Mobile, Alabama, General Obligation Refunding Warrants,
Series 1996, 5.750%, 2/15/16 2/06 at 102 AAA 2,706,425
1,600,000 City of Northport (Alabama), General Obligation Warrants,
Series 1996-B, 5.700%, 3/01/21 3/06 at 102 AAA 1,719,312
2,000,000 City of Scottsboro (Alabama), General Obligation School Warrants,
Series 1996-B, 5.750%, 7/01/14 7/06 at 102 AAA 2,189,620
- ------------------------------------------------------------------------------------------------------------------------------------
Alaska - 0.9%
3,940,000 Alaska Housing Finance Corporation, Mortgage Revenue Bonds,
1996 Series A, 6.050%, 12/01/17 6/06 at 102 AAA 4,217,731
3,000,000 Municipality of Anchorage, Alaska, 1989 General Obligation Refunding
Water Bonds, 6.250%, 6/01/23 6/99 at 100 AAA 3,050,730
- ------------------------------------------------------------------------------------------------------------------------------------
California - 6.5%
6,450,000 California Housing Finance Agency, Multi-Unit Rental Housing Revenue
Bonds, 1992 Series A, 6.625%, 2/01/24 (Alternative Minimum Tax) 2/03 at 102 Aa2 6,823,520
6,500,000 California Housing Finance Agency, Multifamily Housing Revenue
Bonds III, 1997 Series A, 5.950%, 8/01/28 (Alternative Minimum Tax) 2/07 at 102 AAA 6,867,185
2,500,000 California Housing Finance Agency, Home Mortgage Revenue Bonds,
1996 Series D, 6.150%, 8/01/28 (Alternative Minimum Tax) 8/07 at 102 AAA 2,691,375
10,355,000 State of California Various Purpose General Obligation Bonds,
11.000%, 8/01/03 No Opt. Call AAA 13,602,121
3,000,000 M-S-R Public Power Agency, California, San Juan Project Revenue Bonds,
Series F, 6.000%, 7/01/20 7/03 at 102 AAA 3,296,850
3,500,000 Northern California Power Agency, Hydroelectric Project Number One
Revenue Bonds, 1993 Refunding Series A, 5.500%, 7/01/16 7/03 at 102 AAA 3,663,590
6,850,000 County of Orange, California, 1996 Recovery Certificates of
Participation, Series A, 6.000%, 7/01/26 7/06 at 102 AAA 7,690,358
San Leandro Housing Finance Corporation, Mortgage Revenue
Refunding Bonds, Series 1993A (FHA-Insured Mortgage Loan-Ashland
Village Apartments Section 8 Assisted Project):
1,735,000 6.550%, 1/01/12 1/02 at 102 AAA 1,835,630
5,100,000 6.650%, 1/01/25 1/02 at 102 AAA 5,395,137
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado - 1.3%
9,425,000 Town of Castle Rock, Colorado, Multifamily Housing Revenue Bonds
(The Pines at Castle Rock Project (Phase II), 1996 Series A,
6.200%, 12/01/28 (Alternative Minimum Tax) 12/06 at 101 AAA 10,057,889
- ------------------------------------------------------------------------------------------------------------------------------------
District of Columbia - 3.7%
5,000,000 District of Columbia (Washington, D.C.), General Obligation Refunding
Bonds, Series 1993B, 5.500%, 6/01/12 No Opt. Call AAA 5,432,200
5,000,000 District of Columbia, Hospital Improvement and Refunding Revenue
Bonds (Children's Hospital Issue), Series 1992A, 6.250%, 7/15/19 7/02 at 102 AAA 5,445,650
245,000 District of Columbia (Washington D.C.), General Obligation Refunding
Bonds, 1994 Series A-1, 6.500%, 6/01/09 No Opt. Call AAA 291,707
4,755,000 District of Columbia (Washington, D.C.), General Obligation Refunding
Bonds, Series 1994A, 6.500%, 6/01/09 No Opt. Call AAA 5,559,641
3,775,000 District of Columbia Housing Finance Agency, Collateralized Single
Family Mortgage Revenue Bonds, Series 1990C-4, 6.350%, 12/01/24
(Alternative Minimum Tax) 6/03 at 102 AAA 3,982,021
4,030,000 District of Columbia Housing Finance Agency, Mortgage Revenue
Refunding Bonds, Series 1993A (FHA-Insured Mortgage Loan-Southview
Apartments II Section 8 Assisted Project), 6.000%, 1/01/25 7/03 at 102 AAA 4,186,404
4,885,000 Washington Convention Center Authority (Washington, D.C.), Senior
Lien Dedicated Tax Revenue Bonds, Series 1998, 5.000%, 10/01/18 10/08 at 101 AAA 4,827,162
</TABLE>
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<PAGE> 107
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Florida - 2.0%
$ 16,425,000 Miami - Dade County, Florida, Subordinate Special Obligation Bonds,
Series 1997B, 5.000%, 10/01/37 4/08 at 102 AAA $16,298,856
- ------------------------------------------------------------------------------------------------------------------------------------
Georgia - 0.5%
645,000 Housing Authority of Fulton County, Georgia, Single Family Mortgage
Revenue Refunding Bonds (GNMA Mortgage-Backed Securities Program),
Series 1996A, 6.200%, 9/01/27 (Alternative Minimum Tax) 9/06 at 102 AAA 686,454
3,000,000 Municipal Electric Authority of Georgia, Power Revenue Bonds, Series EE,
6.000%, 1/01/22 1/04 at 102 AAA 3,299,010
- ------------------------------------------------------------------------------------------------------------------------------------
Illinois - 24.6%
2,500,000 City of Aurora, Kane, DuPage, Kendall and Will Counties, Illinois,
General Obligation Corporate Purpose Bonds, Series 1996,
5.800%, 1/01/14 (Pre-refunded to 1/01/05) 1/05 at 100 AAA 2,748,725
1,500,000 City of Chicago, General Obligation Bonds, Series 1995, 6.125%, 1/01/16 7/05 at 102 AAA 1,672,800
City of Chicago, Chicago Midway Airport Revenue Bonds, 1994 Series A:
1,100,000 6.100%, 1/01/08 (Alternative Minimum Tax) 1/04 at 102 AAA 1,203,378
2,750,000 6.250%, 1/01/14 (Alternative Minimum Tax) 1/04 at 102 AAA 3,025,990
9,000,000 City of Chicago, Chicago-O'Hare International Airport, International
Terminal Special Revenue Bonds, Series 1992, 6.750%, 1/01/18
(Alternative Minimum Tax) 1/02 at 102 AAA 9,835,740
8,235,000 City of Chicago (Illinois), Chicago-O'Hare International Airport,
General Airport Second Lien Revenue Refunding Bonds,
1994 Series A, 6.375%, 1/01/15 1/05 at 102 AAA 9,218,835
1,735,000 City of Chicago Sales Tax Revenue Bonds, Series 1997, 6.000%, 1/01/08 No Opt. Call AAA 1,959,943
City of Chicago Tax Increment Allocation Bonds (Central Loop
Redevelopment Project), Series 1997A:
6,000,000 5.250%, 6/01/06 No Opt. Call AAA 6,451,800
12,250,000 5.250%, 6/01/07 No Opt. Call AAA 13,182,470
The County of Cook, Illinois, General Obligation Bonds,
Series 1992A, 6.500%:
14,815,000 6.500%, 11/15/12 (Pre-refunded to 11/15/02) 11/02 at 102 AAA 16,624,949
30,000,000 6.600%, 11/15/22 (Pre-refunded to 11/15/02) 11/02 at 102 AAA 33,776,700
3,000,000 Community College District No. 508, Cook County, Illinois,
Certificates of Participation, 8.750%, 1/01/06 No Opt. Call AAA 3,847,500
2,000,000 Illinois Development Finance Authority, Mortgage Revenue Refunding
Bonds, Series 1997A (FHA-Insured Mortgage Loans Section 8 Assisted
Projects), 5.750%, 7/01/18 7/07 at 102 Aaa 2,104,120
Illinois Development Finance Authority, School District Program
Revenue Bonds, Series 1995 (Indian Prairie Community Unit School
District Number 204 Project):
3,635,000 7.750%, 12/30/03 No Opt. Call AAA 4,298,424
4,340,000 7.750%, 12/30/04 No Opt. Call AAA 5,241,592
1,950,000 Illinois Health Facilities Authority, Health Facilities Refunding
Revenue Bonds (SSM Health Care), Series 1992AA, 6.550%, 6/01/14 No Opt. Call AAA 2,334,540
Illinois Health Facilities Authority (Lutheran General HealthSystem),
Revenue Bonds, Series 1993A:
4,355,000 6.125%, 4/01/12 No Opt. Call AAA 4,847,855
5,000,000 6.250%, 4/01/18 No Opt. Call AAA 5,593,250
5,000,000 Illinois Health Facilities Authority, FHA-Insured Mortgage Revenue
Bonds, Series 1996 (Sinai Health System), 6.000%, 2/15/24 2/06 at 102 AAA 5,525,500
3,765,000 Illinois Housing Development Authority, Housing Development Bonds,
1993 Series A, 6.000%, 7/01/18 1/04 at 102 A+ 3,922,452
1,770,000 Illinois Health Facilities Authority, Revenue Bonds, Series 1991
(Elmhurst Memorial Hospital), 6.625%, 1/01/22 1/02 at 102 AAA 1,930,628
4,000,000 The Illinois State Toll Highway Authority, Toll Highway Priority
Revenue Bonds, 1992 Series A, 6.200%, 1/01/16 1/03 at 102 AAA 4,372,480
13,825,000 School District Number 46, Kane, Cook and DuPage Counties, Illinois
(Elgin School District Number U-46), School Bonds, Series 1997,
7.800%, 1/01/12 No Opt. Call Aaa 18,252,871
2,600,000 Community Unit School District Number 115, Kendall and Kane Counties,
Illinois (Yorkville), School Bonds, Series 1996, 7.000%, 1/01/07 No Opt. Call AAA 3,082,040
4,035,000 Community Consolidated School District Number 41 (Lake Villa),
Lake County, Illinois, General Obligation School Bonds, Series 1997,
8.750%, 11/01/14 No Opt. Call AAA 5,808,584
4,035,000 Community High School District No. 157, McHenry and Lake Counties,
Illinois, (Richmond-Burton), General Obligation School Bonds,
Series 1998, 9.000%, 12/01/17 No Opt. Call AAA 6,001,699
</TABLE>
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<PAGE> 108
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illinois (continued)
$ 6,000,000 Metropolitan Pier and Exposition Authority (Illinois), Dedicated
State Tax Revenue Bonds (McCormick Place Expansion), Series A 1993,
6.500%, 6/15/07 (Pre-refunded to 6/15/03) 6/03 at 102 AAA $6,783,060
Metropolitan Pier and Exposition Authority (Illinois), McCormick
Place Expansion Project Bonds, Series 1992A:
6,335,000 6.500%, 6/15/22 (Pre-refunded to 6/15/03) 6/03 at 102 AAA 7,161,781
165,000 6.500%, 6/15/22 6/03 at 102 AAA 183,625
3,680,000 City of Peoria, City of Moline and City of Freeport, Illinois,
Collateralized Single Family Mortgage Revenue Bonds, Series 1995A,
7.600%, 4/01/27 (Alternative Minimum Tax) 10/05 at 105 AAA 4,209,589
- ------------------------------------------------------------------------------------------------------------------------------------
Indiana - 2.6%
1,000,000 Fort Wayne South Side School Building Corp., First Mortgage Bonds,
Series 1994, Allen County, Indiana, 6.125%, 1/15/12
(Pre-refunded to 1/15/04) 1/04 at 102 AAA 1,119,990
Indiana Health Facility Financing Authority, Hospital Revenue Bonds,
Series 1997A (Sisters of St. Francis Health Services, Inc. Project):
2,170,000 5.500%, 11/01/06 No Opt. Call AAA 2,368,533
2,005,000 5.500%, 11/01/07 No Opt. Call AAA 2,191,645
2,220,000 Indiana Municipal Power Agency, Power Supply System Revenue Bonds,
1993 Series A, 6.125%, 1/01/19 1/03 at 102 AAA 2,420,422
2,000,000 Indiana Transportation Finance Authority, Highway Revenue Refunding
Bonds, Series 1996B, 6.000%, 12/01/06 No Opt. Call AAA 2,265,820
9,770,000 Northwest Allen Building Corporation, First Mortgage Bonds, Series 1995
Allen County, Indiana, 5.500%, 6/01/15 6/05 at 102 AAA 10,305,982
- ------------------------------------------------------------------------------------------------------------------------------------
Kansas - 0.6%
1,970,000 City of Olathe, Kansas and Labette County, Kansas, Collateralized
Single Family Mortgage Refunding Revenue Bonds, Series A-I,
8.100%, 8/01/23 (Alternative Minimum Tax) 2/05 at 105 Aaa 2,221,884
2,330,000 Sedgwick County, Kansas and Shawnee County, Kansas, Collateralized
Single Family Mortgage Refunding Revenue Bonds, Series A-II,
8.050%, 5/01/24 (Alternative Minimum Tax) 11/04 at 105 Aaa 2,622,811
- ------------------------------------------------------------------------------------------------------------------------------------
Kentucky - 1.9%
15,000,000 County of Jefferson, Kentucky, Health System Revenue Bonds, Series 1998
(Alliant Health System, Inc.), 5.125%, 10/01/18(DD) 10/08 at 101 AAA 15,052,500
- ------------------------------------------------------------------------------------------------------------------------------------
Maine - 0.7%
3,250,000 Finance Authority of Maine, Electric Rate Stabilization Revenue
Refunding Bonds, Series 1998A (Penobscot Energy Recovery Company, LP),
5.000%, 7/01/18 7/08 at 102 AAA 3,235,668
1,745,000 Maine Turnpike Authority, Turnpike Revenue Bonds, Series 1994,
7.500%, 7/01/09 No Opt. Call AAA 2,214,370
- ------------------------------------------------------------------------------------------------------------------------------------
Maryland - 0.5%
3,575,000 Maryland Transportation Authority, Special Obligation Revenue Bonds,
Baltimore/Washington International Airport Projects, Series 1994-A
(Qualified Airport Bonds), 6.400%, 7/01/19 (Alternative Minimum Tax) 7/04 at 102 AAA 3,811,057
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts - 2.5%
5,000,000 Massachusetts Housing Finance Agency, Housing Project Revenue,
6.150%, 10/01/15 4/03 at 102 AAA 5,299,500
8,300,000 Massachusetts Housing Finance Agency, Single Family Housing
Revenue Bonds, Series 48, 6.350%, 6/01/26 (Alternative Minimum Tax) 6/06 at 102 AAA 8,902,829
5,000,000 Massachusetts Housing Finance Authority, Single Family Housing Revenue
Bonds, Series 53, 6.150%, 12/01/29 (Alternative Minimum Tax) 6/07 at 102 AAA 5,344,850
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan - 3.3%
4,425,000 Central Michigan University Board of Trustees, General Revenue
Bonds, Series 1998, 5.000%, 10/01/27 10/08 at 100 AAA 4,368,139
10,000,000 Michigan State Housing Development Authority, Rental Housing Revenue
Bonds, 1997 Series A, 6.000%, 4/01/16 (Alternative Minimum Tax) 4/07 at 102 AAA 10,695,000
10,000,000 County of Monroe, Michigan, Pollution Control Revenue Bonds (The Detroit
Edison Company Project), Series CC-1992, 6.550%, 9/01/24
(Alternative Minimum Tax) 9/03 at 103 AAA 11,123,500
</TABLE>
S-65
<PAGE> 109
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minnesota - 0.8%
$ 4,425,000 Minnesota Housing Finance Agency, Rental Housing Bonds, 1995 Series D
(Non-AMT), 5.950%, 2/01/18 2/05 at 102 AAA $4,681,473
1,850,000 Minnesota Housing Finance Agency, Single Family Mortgage Bonds,
1996 Series H, 6.000%, 1/01/21 1/06 at 102 AA 1,941,557
- ------------------------------------------------------------------------------------------------------------------------------------
Missouri - 3.0%
1,000,000 The Industrial Development Authority of the City of Hazelwood, Missouri,
Multifamily Housing Revenue Refunding Bonds (GNMA Collateralized - The
Lakes Apartments Project), Series 1996, 6.000%, 9/20/16 9/06 at 102 AAA 1,066,760
8,000,000 City of Kansas City, Missouri, General Improvement Airport Refunding
Revenue Bonds, Series 1995, 6.750%, 9/01/09 9/05 at 101 AAA 9,307,600
4,500,000 Land Clearance For Redevelopment Authority of Kansas City, Missouri,
Lease Revenue Bonds (Municipal Auditorium and Muehlebach Hotel
Redevelopment Project), Series 1995A, 5.900%, 12/01/18 12/05 at 102 AAA 4,914,495
1,000,000 Kansas City Municipal Assistance Corporation, Leasehold Revenue
Capital Improvement Bonds (Kansas City, Missouri, Lessee),
Series 1996B, 5.750%, 1/15/14 1/06 at 101 AAA 1,085,660
1,030,000 Missouri Housing Development Commission, Multifamily Housing
Revenue Bonds (Brookstone Village Apartments Project),
1996 Series A, 6.000%, 12/01/16 (Alternative Minimum Tax) 12/06 at 102 AAA 1,091,501
3,415,000 Health and Educational Facilities Authority of the State of Missouri,
Health Facilities Revenue Bonds (Health Midwest), Series 1992B,
6.250%, 2/15/22 2/02 at 102 AAA 3,705,617
2,700,000 The Industrial Development Authority of the County of St. Louis,
Missouri, Multifamily Housing Revenue Refunding Bonds (GNMA
Collateralized - South Summit Apartments Project), Series 1997A,
6.050%, 4/20/27 4/07 at 102 AAA 2,892,483
- ------------------------------------------------------------------------------------------------------------------------------------
Nevada - 3.4%
2,905,000 Clark County, Nevada, General Obligation - Limited Tax (Additionally
Secured with Pledged Revenues), Airport Bonds, Series June 1, 1991,
10.000%, 6/01/01 No Opt. Call AAA 3,354,955
5,000,000 Clark County, Nevada, Industrial Development Revenue Bonds (Nevada Power
Company Project), Series 1992A, 6.700%, 6/01/22
(Alternative Minimum Tax) 6/02 at 102 AAA 5,483,100
Clark County School District, Nevada, General Obligation
(Limited Tax), School Improvement Bonds, Series May 1, 1995A:
7,295,000 7.250%, 6/15/03 No Opt. Call AAA 8,324,252
8,320,000 7.250%, 6/15/04 No Opt. Call AAA 9,673,997
- ------------------------------------------------------------------------------------------------------------------------------------
New York - 13.1%
Long Island Power Authority, Electric System General Revenue Bonds,
Series 1998A:
25,000,000 5.000%, 12/01/18 6/08 at 101 AAA 25,097,250
20,000,000 5.250%, 12/01/26 6/08 at 101 AAA 20,496,800
4,090,000 Metropolitan Transportation Authority, Commuter Facilities Revenue
Bonds, Series 1994A, 8.000%, 7/01/07 No Opt. Call AAA 5,200,721
5,000,000 Metropolitan Transportation Authority, Transit Facilities Revenue Bonds,
Series K, 6.300%, 7/01/06 No Opt. Call AAA 5,726,150
4,985,000 Metropolitan Transportation Authority, Transit Facilities Revenue Bonds,
Series O, 8.000%, 7/01/07 No Opt. Call AAA 6,338,776
4,000,000 The City of New York, General Obligation Bonds, Fiscal 1995 Series E,
8.000%, 8/01/05 No Opt. Call AAA 4,918,320
5,000,000 The City of New York General Obligation Bonds, Fiscal 1997 Series E,
6.000%, 8/01/08 8/06 at 101 1/2 AAA 5,617,700
The City of New York General Obligation Bonds, Fiscal 1993 Series A, 5.750%:
320,000 5.750%, 8/01/10 (Pre-refunded to 8/01/02) 8/02 at 101 1/2 AAA 347,222
2,180,000 5.750%, 8/01/10 8/02 at 101 1/2 AAA 2,348,318
5,230,000 Dormitory Authority of the State of New York, Maimonides Medical Center,
FHA-Insured Mortgage Hospital Revenue Bonds, Series 1996A,
5.750%, 8/01/14 2/06 at 102 AAA 5,700,962
4,000,000 Dormitory Authority of the State of New York, St. John's University,
Insured Revenue Bonds, Series 1998, 5.250%, 7/01/25 7/08 at 101 AAA 4,099,760
New York State Medical Care Facilities Finance Agency, New York
Hospital FHA-Insured Mortgage Revenue Bonds, 1994 Series A:
3,000,000 6.750%, 8/15/14 (Pre-refunded to 2/15/05) 2/05 at 102 AAA 3,506,010
2,500,000 6.800%, 8/15/24 (Pre-refunded to 2/15/05) 2/05 at 102 AAA 2,928,275
6,150,000 New York State Medical Care Facilities Finance Agency, Mental Health Services
Facilities Improvement Revenue Bonds, 1995 Series C, 6.000%, 8/15/15 2/05 at 102 AAA 6,744,890
</TABLE>
S-66
<PAGE> 110
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York (continued)
$ 3,000,000 New York State Thruway Authority, Highway and Bridge Trust Fund Bonds,
Series 1995B, 6.000%, 4/01/05 No Opt. Call AAA $3,332,130
1,070,000 City of Niagara Falls, Niagara County, New York, Public Improvement Serial
Bonds, Series 1994, 7.500%, 3/01/09 No Opt. Call AAA 1,361,971
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio - 2.8%
City of Cleveland, Ohio, Waterworks Improvement First Mortgage
Revenue Bonds, Series F, 1992:
1,915,000 6.250%, 1/01/15 (Pre-refunded to 1/01/02) 1/02 at 102 AAA 2,097,078
85,000 6.250%, 1/01/15 1/02 at 102 AAA 91,909
5,000,000 Fairfield City School District, County of Butler, Ohio, School
Improvement Bonds, Series 1995, 6.000%, 12/01/20 12/05 at 100 AAA 5,471,150
2,250,000 Hamilton County, Ohio, Sewer System Improvement and Refunding Revenue
Bonds, 1993 Series A (The Metropolitan Sewer District of Greater
Cincinnati), 5.450%, 12/01/09 No Opt. Call AAA 2,489,783
5,805,000 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 5,972,126
5,500,000 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 6,355,965
- ------------------------------------------------------------------------------------------------------------------------------------
Oklahoma - 2.5%
8,425,000 McGee Creek Authority (Oklahoma), Water Revenue Bonds, Series 1992,
6.000%, 1/01/23 No Opt. Call AAA 9,722,113
6,000,000 Norman Regional Hospital Authority (Norman, Oklahoma), Hospital Revenue
Bonds, Series 1991, 6.900%, 9/01/21 (Pre-refunded to 9/01/01) 9/01 at 102 AAA 6,636,000
3,500,000 Oklahoma Turnpike System, Second Senior Revenue Bonds, Series 1998B,
5.250%, 1/01/28 1/09 at 100 AAA 3,564,645
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania - 4.1%
3,755,000 Allegheny County Residential Finance Authority, Single Family Mortgage
Revenue Bonds, 1996 Series AA, 6.450%, 5/01/28
(Alternative Minimum Tax) 11/06 at 102 Aaa 4,032,607
6,000,000 Cambria County Industrial Development Authority (Pennsylvania), Pollution
Control Revenue Refunding Bonds, 1995 Series A (Pennsylvania Electric
Company Project), 5.800%, 11/01/20 11/05 at 102 AAA 6,494,220
4,750,000 Lehigh County Industrial Development Authority, Pollution Control Revenue
Refunding Bonds, 1992 Series A (Pennsylvania Power and Light Company
Project), 6.400%, 11/01/21 11/02 at 102 AAA 5,251,695
1,000,000 Luzerne County Industrial Development Authority, Exempt Facilities
Revenue Refunding Bonds, 1994 Series A (Pennsylvania Gas and Water
Company Project), 7.000%, 12/01/17 (Alternative Minimum Tax) 12/04 at 102 AAA 1,150,770
2,680,000 The School District of Philadelphia, Pennsylvania, General Obligation
Refunding Bonds, Series A of 1995, 6.250%, 9/01/08 No Opt. Call AAA 3,096,552
University of Pittsburgh - of the Commonwealth System of Higher
Education, University Capital Project Bonds (Pennsylvania), 1992
Series A:
1,395,000 6.125%, 6/01/21 (Pre-refunded to 6/01/02) 6/02 at 102 AAA 1,533,440
4,105,000 6.125%, 6/01/21 6/02 at 102 AAA 4,466,938
5,750,000 York County Solid Waste and Refuse Authority (Commonwealth of
Pennsylvania), Solid Waste System Refunding Revenue Bonds (County
Guaranteed), Series of 1997, 5.500%, 12/01/07 No Opt. Call AAA 6,339,260
- ------------------------------------------------------------------------------------------------------------------------------------
Puerto Rico - 2.0%
13,000,000 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds,
Series W, 7.000%, 7/01/07 No Opt. Call AAA 15,795,260
- ------------------------------------------------------------------------------------------------------------------------------------
South Carolina - 0.9%
6,500,000 Piedmont Municipal Power Agency (South Carolina), Electric Revenue Bonds,
1992 Refunding Series, 6.300%, 1/01/22 (Pre-refunded to 1/01/03) 1/03 at 102 AAA 7,243,860
- ------------------------------------------------------------------------------------------------------------------------------------
Tennessee - 0.2%
1,500,000 Knoxville's Community Development Corporation, Multifamily Mortgage
Revenue Bonds (GNMA Mortgage-Backed Security Program-Morningside Gardens
Project) Series 1993, 6.200%, 7/20/28 7/03 at 101 AAA 1,571,790
</TABLE>
S-67
<PAGE> 111
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas - 1.4%
State of Texas, Veteran's Housing Assistance Bonds, Series 1993,
General Obligation Bonds:
$ 8,295,000 6.800%, 12/01/23 (Alternative Minimum Tax) 12/03 at 102 AAA $8,981,660
1,655,000 6.800%, 12/01/23 (Alternative Minimum Tax) 12/03 at 102 AA 1,788,145
- ------------------------------------------------------------------------------------------------------------------------------------
Utah - 0.5%
3,600,000 State Board of Regents of the State of Utah, Student Loan Revenue Bonds,
Series 1993B, 5.900%, 11/01/13 (Alternative Minimum Tax) 11/03 at 102 Aaa 3,812,328
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia - 0.3%
2,250,000 Virginia Housing Development Authority, Multifamily Housing Revenue Bonds,
Series B, 6.050%, 5/01/17 (Alternative Minimum Tax) 5/08 at 102 AAA 2,412,270
- ------------------------------------------------------------------------------------------------------------------------------------
Washington - 6.3%
2,500,000 City of Tacoma, Washington, Sewer Revenue Bonds, 1995 Series B,
6.375%, 12/01/15 12/05 at 100 AAA 2,816,300
8,100,000 Washington Health Care Facilities Authority, Revenue Bonds, Series 1992
(Virginia Mason Obligated Group, Seattle), 6.300%, 2/15/17 2/03 at 102 AAA 8,868,042
6,130,000 Washington Health Care Facilities Authority, Revenue Bonds, Series 1992
(Swedish Hospital Medical Center, Seattle), 6.300%, 11/15/22
(Pre-refunded to 11/15/02) 11/02 at 102 AAA 6,828,330
3,750,000 Washington Public Power Supply System, Nuclear Project No. 1 Refunding
Revenue Bonds, Series 1993B, 5.600%, 7/01/15 7/03 at 102 AAA 3,924,225
10,500,000 Washington Public Power Supply System, Nuclear Project No. 1 Refunding
Revenue Bonds, Series 1996A (Bonneville Power Administration),
5.750%, 7/01/11 7/06 at 102 AAA 11,502,645
2,000,000 Washington Public Power Supply System, Nuclear Project No. 1 Refunding
Revenue Bonds, Series 1997A, 5.125%, 7/01/14 7/07 at 102 AAA 2,039,400
Washington Public Power Supply System, Nuclear Project No. 3 Refunding
Revenue Bonds, Series 1989A:
6,295,000 5.600%, 7/01/17 7/03 at 102 AAA 6,521,305
5,535,000 6.000%, 7/01/18 (Pre-refunded to 7/01/99) 7/99 at 100 AAA 5,647,471
1,465,000 Yakima School District No. 7, Yakima County, Washington, Unlimited Tax
General Obligation Bonds, Series 1995, 6.250%, 12/01/07 No Opt. Call AAA 1,650,220
- ------------------------------------------------------------------------------------------------------------------------------------
West Virginia - 2.8%
20,000,000 The County Commission of Pleasants County, West Virginia, Pollution
Control Revenue Bonds (Monongahela Power Company Pleasants Station
Project), 1995 Series C, 6.150%, 5/01/15 5/05 at 102 AAA 22,183,999
- ------------------------------------------------------------------------------------------------------------------------------------
Wisconsin - 1.0%
2,000,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds,
Series 1992 (Children's Hospital of Wisconsin, Inc. Project),
6.500%, 8/15/10 (Pre-refunded to 8/15/02) 8/02 at 102 AAA 2,231,319
5,000,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds,
Series 1995 (Mercy Health System Corporation), 6.125%, 8/15/13 8/05 at 102 AAA 5,527,399
- ------------------------------------------------------------------------------------------------------------------------------------
$ 710,305,000 Total Investments - (cost $734,136,902) - 98.8% 784,252,722
=============
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.2% 9,608,856
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $793,861,578
====================================================================================================================
</TABLE>
All of the bonds in the portfolio are either covered by Original Issue
Insurance, Secondary Market Insurance, or are backed by an escrow or trust
containing sufficient U.S. government or U.S. government agency securities, any
of which ensure the timely payment of principal and interest.
* 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.
(DD) Security purchased on a delayed delivery basis (note 1).
See accompanying notes to financial statements.
S-68
<PAGE> 112
<TABLE>
Statement of Net Assets
October 31, 1998
<CAPTION>
Insured Insured Premier Insured
Quality Opportunity Insured Income Premium Income 2
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments in municipal securities,
at market value (note 1) $848,625,493 $1,877,624,142 $442,188,021 $784,252,722
Temporary investments in short-term municipal securities,
at amortized cost, which approximates market value (note 1)2,100,000 10,900,000 1,900,000 --
Cash 233,160 51,026 37,578 --
Receivables:
Interest 15,825,315 36,652,932 8,053,438 15,480,890
Investments sold 230,481 2,396,130 150,000 14,500,348
Other assets 29,921 66,047 17,576 24,721
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 867,044,370 1,927,690,277 452,346,613 814,258,681
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities
Cash overdraft -- -- -- 2,090,059
Payable for investments purchased -- 26,880,201 -- 15,037,548
Accrued expenses:
Management fees (note 6) 459,876 987,138 243,817 423,793
Other 420,075 683,951 150,091 498,471
Preferred share dividends payable 104,275 183,809 47,560 94,270
Common share dividends payable 2,880,793 6,366,443 1,439,118 2,252,962
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,865,019 35,101,542 1,880,586 20,397,103
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets (note 7) $863,179,351 $1,892,588,735 $450,466,027 $793,861,578
====================================================================================================================================
Preferred shares, at liquidation value $260,000,000 $ 600,000,000 $140,000,000 $268,900,000
====================================================================================================================================
Preferred shares outstanding 10,400 24,000 5,600 10,756
====================================================================================================================================
Common shares outstanding 37,657,429 80,587,879 19,188,247 37,239,037
====================================================================================================================================
Net asset value per Common share outstanding (net assets less Preferred shares
at liquidation value, divided by Common shares
outstanding) $ 16.02 $ 16.04 $ 16.18 $ 14.10
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
S-69
<PAGE> 113
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1998
Insured Insured Premier Insured
Quality Opportunity Insured Income Premium Income 2
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income (note 1) $51,360,720 $111,523,378 $25,867,304 $41,732,808
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 5,352,056 11,494,612 2,835,848 4,915,697
Preferred shares - auction fees 628,629 1,500,000 349,999 672,250
Preferred shares - dividend disbursing agent fees 36,712 59,999 19,998 50,001
Shareholders' servicing agent fees and expenses 123,850 194,523 48,722 71,909
Custodian's fees and expenses 109,252 207,864 71,300 105,602
Directors'/Trustees' fees and expenses (note 6) 7,918 17,391 4,140 7,239
Professional fees 21,458 24,613 20,148 21,829
Shareholders' reports - printing and mailing expenses 192,621 410,450 100,973 182,501
Stock exchange listing fees 32,748 68,007 24,262 32,547
Portfolio insurance expense 121,940 236,890 -- 27,453
Investor relations expense 73,107 150,947 36,126 61,980
Other expenses 42,867 88,032 26,325 41,391
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 6,743,158 14,453,328 3,537,841 6,190,399
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 44,617,562 97,070,050 22,329,463 35,542,409
- ------------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions
(notes 1 and 4) 6,071,593 4,892,106 980,248 5,306,267
Net change in unrealized appreciation or
depreciation of investments 7,097,066 17,252,534 6,160,462 14,400,072
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain from investments 13,168,659 22,144,640 7,140,710 19,706,339
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $57,786,221 $119,214,690 $29,470,173 $55,248,748
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
S-70
<PAGE> 114
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Insured Quality Insured Opportunity
- ---------------------------------------------------------------------------------------------------------------------------------
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>
Operations
Net investment income $ 44,617,562 $ 45,571,378 $ 97,070,050 $ 98,183,669
Net realized gain (loss) from investment transactions
(notes 1 and 4) 6,071,593 448,311 4,892,106 (765,609)
Net change in unrealized appreciation
or depreciation of investments 7,097,066 10,103,347 17,252,534 23,097,394
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 57,786,221 56,123,036 119,214,690 120,515,454
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Common shareholders (35,204,129) (36,606,433) (77,561,303) (78,482,463)
Preferred shareholders (9,554,564) (9,532,872) (20,642,256) (20,702,910)
From accumulated net realized gains
from investment transactions:
Common shareholders (453,849) (2,596,924) -- (1,903,809)
Preferred shareholders (19,266) (659,152) -- (488,200)
- ---------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (45,231,808) (49,395,381) (98,203,559) (101,577,382)
- ---------------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions (note 2)
Net proceeds from Common shares issued to shareholders due to
reinvestment of distributions 2,263,160 2,330,125 9,806,987 5,101,250
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 14,817,573 9,057,780 30,818,118 24,039,322
Net assets at beginning of year 848,361,778 839,303,998 1,861,770,617 1,837,731,295
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $863,179,351 $848,361,778 $1,892,588,735 $1,861,770,617
=================================================================================================================================
Balance of undistributed net investment income
at end of year $ 607,620 $ 748,751 $ 1,000,488 $ 2,133,997
=================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
S-71
<PAGE> 115
Statement of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
Premier Insured Income Insured Premium Income 2
- ------------------------------------------------------------------------------------------------------------------------------
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>
Operations
Net investment income $ 22,329,463 $ 22,687,584 $ 35,542,409 $ 37,191,148
Net realized gain (loss) from investment transactions
(notes 1 and 4) 980,248 647,328 5,306,267 6,081,917
Net change in unrealized appreciation or
depreciation of investments 6,160,462 6,330,640 14,400,072 14,037,201
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 29,470,173 29,665,552 55,248,748 57,310,266
- ------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Common shareholders (17,721,831) (17,900,403) (27,350,824) (27,035,440)
Preferred shareholders (4,817,384) (4,895,368) (9,249,566) (9,390,887)
From accumulated net realized gains
from investment transactions:
Common shareholders (400,607) -- -- --
Preferred shareholders (110,068) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (23,049,890) (22,795,771) (36,600,390) (36,426,327)
- ------------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions (note 2)
Net proceeds from Common shares issued to shareholders due to
reinvestment of distributions 872,626 168,892 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 7,292,909 7,038,673 18,648,358 20,883,939
Net assets at beginning of year 443,173,118 436,134,445 775,213,220 754,329,281
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $450,466,027 $443,173,118 $793,861,578 $775,213,220
==============================================================================================================================
Balance of undistributed net investment
income at end of year $ 295,556 $ 505,308 $ 715,168 $ 1,773,149
==============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
S-72
<PAGE> 116
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 Insured Quality Municipal Fund, Inc.
(NQI), Nuveen Insured Municipal Opportunity Fund, Inc. (NIO), Nuveen Premier
Insured Municipal Income Fund, Inc. (NIF) and Nuveen Insured Premium Income
Municipal Fund 2 (NPX).
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/Trustees. 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, Insured Opportunity and Insured Premium Income 2 had
outstanding when-issued and delayed delivery purchase commitments of $20,498,995
and $15,037,548, respectively. There were no such outstanding purchase
commitments in either of the other Funds.
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 $.01 per Common share. 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, if any, 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 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-73
<PAGE> 117
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,
except for Insured Quality Series F which has lengthened its current dividend
period from seven days to five years. The number of Preferred shares
outstanding, by Series and in total, at October 31, 1998, is as follows:
<TABLE>
<CAPTION>
Premier Insured
Insured Insured Insured Premium
Quality Opportunity Income Income 2
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of shares:
Series M 2,600 4,000 -- 2,080
Series T 2,600 4,000 -- 2,200
Series W 2,600 4,000 -- 2,080
Series Th -- 4,000 2,800 2,200
Series Th2 -- 4,000 -- --
Series F 2,600 4,000 2,800 2,196
- ---------------------------------------------------------------------------------------------------------
Total 10,400 24,000 5,600 10,756
=========================================================================================================
</TABLE>
Insurance
The Funds invest in municipal securities which are either covered by insurance
or are backed by an escrow or trust account containing sufficient U.S.
government or U.S. government agency securities, both of which ensure the timely
payment of principal and interest. Each insured municipal security is covered by
Original Issue Insurance, Secondary Market Insurance or Portfolio Insurance.
Such insurance does not guarantee the market value of the municipal securities
or the value of the Funds' shares. Original Issue Insurance and Secondary Market
Insurance remain in effect as long as the municipal securities covered thereby
remain outstanding and the insurer remains in business, regardless of whether
the Funds ultimately dispose of such municipal securities. Consequently, the
market value of the municipal securities covered by Original Issue Insurance or
Secondary Market Insurance may reflect value attributable to the insurance.
Portfolio Insurance is effective only while the municipal securities are held by
the Funds. Accordingly, neither the prices used in determining the market value
of the underlying municipal securities nor the net asset value of the Funds'
shares include value, if any, attributable to the Portfolio Insurance. Each
policy of the Portfolio Insurance does, however, give the Funds the right to
obtain permanent insurance with respect to the municipal security covered by the
Portfolio Insurance policy at the time of its sale.
Derivative Financial Instruments
The Funds may invest 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.
S-74
<PAGE> 118
2. Fund Shares
Transactions in Common shares were as follows:
<TABLE>
<CAPTION>
Insured Quality Insured Opportunity
- ----------------------------------------------------------------------------------------------------------
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 140,631 150,998 606,605 324,092
==========================================================================================================
<CAPTION>
Premier Insured Income Insured Premium Income 2
- ----------------------------------------------------------------------------------------------------------
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 54,102 10,669 -- --
==========================================================================================================
</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>
Premier Insured
Insured Insured Insured Premium
Quality Opportunity Income Income 2
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dividend per share $.0765 $.0790 $.0750 $.0605
=========================================================================================================
</TABLE>
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the fiscal year ended October
31, 1998, were as follows:
<TABLE>
<CAPTION>
Premier Insured
Insured Insured Insured Premium
Quality Opportunity Income Income 2
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases:
Investments in municipal securities $132,375,226 $237,987,109 $45,783,278 $254,232,375
Temporary municipal investments 84,610,000 127,200,000 27,600,000 132,150,000
Sales and Maturities:
Investments in municipal securities 134,100,294 214,493,687 47,608,241 236,318,289
Temporary municipal investments 85,410,000 117,700,000 25,700,000 132,150,000
=========================================================================================================
</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, Insured Premium Income 2 had unused capital loss
carryforwards of $16,029,037 available for federal income tax purposes to be
applied against future capital gains, if any. If not applied, $1,918,696 of the
carryforward will expire in the year 2002, $12,029,555 will expire in the year
2003 and $2,080,786 will expire in the year 2004.
S-75
<PAGE> 119
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
at October 31, 1998, were as follows:
<TABLE>
<CAPTION>
Premier Insured
Insured Insured Insured Premium
Quality Opportunity Income Income 2
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross unrealized:
appreciation $71,155,290 $165,793,813 $43,029,882 $50,132,941
depreciation (15,164) -- (84,800) (17,121)
- ---------------------------------------------------------------------------------------------------------
Net unrealized appreciation $71,140,126 $165,793,813 $42,945,082 $50,115,820
=========================================================================================================
</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 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:
<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/Trustees who are affiliated with
the Adviser or to their officers, all of whom receive remuneration for their
services to the Funds from the Adviser.
7. Composition of Net Assets At October 31, 1998, net assets consisted of:
<TABLE>
<CAPTION>
Premier Insured
Insured Insured Insured Premium
Quality Opportunity Income Income 2
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred shares, $25,000 stated value per share,
at liquidation value $260,000,000 $ 600,000,000 $140,000,000 $268,900,000
Common shares, $.01 par value per share 376,574 805,879 191,882 372,390
Paid-in surplus 525,010,838 1,120,862,058 266,053,774 489,883,197
Balance of undistributed net investment income 607,620 1,000,488 295,556 715,168
Accumulated net realized gain (loss) from
investment transactions 6,044,193 4,126,497 979,733 (16,124,997)
Net unrealized appreciation of investments 71,140,126 165,793,813 42,945,082 50,115,820
- -----------------------------------------------------------------------------------------------------------------
Net assets $863,179,351 $1,892,588,735 $450,466,027 $793,861,578
=================================================================================================================
Authorized shares:
Common 200,000,000 200,000,000 200,000,000 Unlimited
Preferred 1,000,000 1,000,000 1,000,000 Unlimited
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 120
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>
Premier Insured
Insured Insured Insured Premium
Quality Opportunity Income Income 2
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education and Civic Organizations 2% 1% 1% 2%
Health Care 19 16 12 9
Housing/Multifamily 4 3 6 9
Housing/Single Family 13 12 6 6
Tax Obligation/General 8 4 4 17
Tax Obligation/Limited 8 5 10 12
Transportation 5 5 3 8
U.S. Guaranteed 24 34 40 15
Utilities 16 15 17 20
Water and Sewer 1 5 1 2
- ----------------------------------------------------------------------------------------------------------
100% 100% 100% 100%
========================================================================================================
</TABLE>
All of the 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. Such insurance or escrow, however, does not guarantee the
market value of the municipal securities or the value of any of the Funds'
shares.
All of the temporary investments in short-term municipal securities have credit
enhancements (letters of credit, guarantees or insurance) issued by third party
domestic or foreign banks or other institutions.
For additional information regarding each investment security, refer to the
Portfolio of Investments of each Fund.
S-77
<PAGE> 121
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>
Insured Quality
Year Ended 10/31:
1998 $15.68 $1.18 $ .36 $ 1.54
1997 15.50 1.22 .28 1.50
1996 15.79 1.24 (.12) 1.12
1995 14.50 1.27 1.32 2.59
1994 16.58 1.27 (2.04) (.77)
Insured Opportunity
Year Ended 10/31:
1998 15.78 1.21 .28 1.49
1997 15.54 1.23 .28 1.51
1996 15.60 1.24 .02 1.26
1995 14.04 1.25 1.60 2.85
1994 16.24 1.24 (2.18) (.94)
Premier Insured Income
Year Ended 10/31:
1998 15.84 1.16 .38 1.54
1997 15.49 1.19 .36 1.55
1996 15.53 1.19 (.03) 1.16
1995 14.05 1.20 1.51 2.71
1994 16.28 1.19 (2.21) (1.02)
Insured Premium Income 2
Year Ended 10/31:
1998 13.60 .95 .53 1.48
1997 13.04 1.00 .54 1.54
1996 13.03 .99 -- .99
1995 10.99 1.00 2.08 3.08
1994 14.29 .98 (3.16) (2.18)
</TABLE>
S-78
<PAGE> 122
<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>
Insured Quality
Year Ended 10/31:
1998 $ (.94) $(.25) $(.01) $-- $(1.20)
1997 (.98) (.25) (.07) (.02) (1.32)
1996 (.98) (.25) (.14) (.04) (1.41)
1995 (1.01) (.29) -- -- (1.30)
1994 (1.04) (.26) (.01) -- (1.31)
Insured Opportunity
Year Ended 10/31:
1998 (.97) (.26) -- -- (1.23)
1997 (.98) (.26) (.02) (.01) (1.27)
1996 (.98) (.26) (.06) (.02) (1.32)
1995 (.98) (.31) -- -- (1.29)
1994 (1.00) (.25) (.01) -- (1.26)
Premier Insured Income
Year Ended 10/31:
1998 (.92) (.25) (.02) (.01) (1.20)
1997 (.94) (.26) -- -- (1.20)
1996 (.94) (.26) -- -- (1.20)
1995 (.94) (.29) -- -- (1.23)
1994 (.96) (.25) -- -- (1.21)
Insured Premium Income 2
Year Ended 10/31:
1998 (.73) (.25) -- -- (.98)
1997 (.73) (.25) -- -- (.98)
1996 (.71) (.27) -- -- (.98)
1995 (.75) (.29) -- -- (1.04)
1994 (.78) (.20) -- -- (.98)
</TABLE>
S-79
<PAGE> 123
<TABLE>
<CAPTION>
Total Returns
--------------------------------
Organization and
Offering Costs and
Preferred Share Ending
Underwriting Net Asset Ending Based on Based on Net
Discounts Value Market Value Market Value* Asset Value*
<S> <C> <C> <C> <C> <C>
Insured Quality
Year Ended 10/31:
1998 $-- $16.02 $15.6250 6.13% 8.43%
1997 -- 15.68 15.6250 10.57 8.22
1996 -- 15.50 15.1250 8.54 5.49
1995 -- 15.79 15.0000 22.62 16.43
1994 -- 14.50 13.1250 (19.13) (6.43)
Insured Opportunity
Year Ended 10/31:
1998 -- 16.04 16.6250 12.03 7.99
1997 -- 15.78 15.7500 10.18 8.32
1996 -- 15.54 15.2500 9.77 6.50
1995 -- 15.60 14.8750 22.78 18.74
1994 -- 14.04 13.0000 (13.60) (7.59)
Premier Insured Income
Year Ended 10/31:
1998 -- 16.18 16.8750 14.06 8.35
1997 -- 15.84 15.6875 12.09 8.56
1996 -- 15.49 14.8750 9.23 5.93
1995 -- 15.53 14.5000 24.14 17.73
1994 -- 14.05 12.5000 (14.53) (8.06)
Insured Premium Income 2
Year Ended 10/31:
1998 -- 14.10 13.6875 16.35 9.28
1997 -- 13.60 12.4375 15.45 10.15
1996 -- 13.04 11.4380 6.95 5.70
1995 -- 13.03 11.3750 23.46 26.20
1994 (.14) 10.99 9.8750 (23.99) (18.24)
</TABLE>
S-80
<PAGE> 124
<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>
Insured Quality
Year Ended 10/31:
1998 $ 863,179 .79% 5.21% 16%
1997 848,362 .79 5.44 8
1996 839,304 .80 5.50 33
1995 849,583 .81 5.73 30
1994 801,482 .82 5.64 22
Insured Opportunity
Year Ended 10/31:
1998 1,892,589 .77 5.17 12
1997 1,861,771 .78 5.34 8
1996 1,837,731 .78 5.38 18
1995 1,841,780 .79 5.59 16
1994 1,717,023 .79 5.44 20
Premier Insured Income
Year Ended 10/31:
1998 450,466 .79 5.00 10
1997 443,173 .80 5.18 4
1996 436,134 .80 5.22 3
1995 436,920 .81 5.40 5
1994 408,690 .81 5.30 4
Insured Premium Income 2
Year Ended 10/31:
1998 793,862 .79 4.53 31
1997 775,213 .80 4.89 37
1996 754,329 .86 4.78 32
1995 427,908 .83 5.07 30
1994 385,692 .83 4.83 25
</TABLE>
* Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and changes in
stock price per share. Total Return on Net Asset Value is the combination of
reinvested dividend income, reinvested capital gains distributions, if any, and
changes in net asset value per share. 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-81
<PAGE> 125
Building a Better Portfolio Can Make You a Successful Investor
Nuveen Family of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals.
Growth
Nuveen Rittenhouse
Growth Fund
Growth and Income
European Value Fund
Growth and
Income Stock Fund
Balanced Stock
and Bond Fund
Balanced Municipal
and Stock Fund
Tax-Free Income
National Funds
Long-Term
Insured
Intermediate-Term
Limited-Term
State Funds
Arizona
California
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Missouri
New Jersey
New Mexico
New York
North Carolina
Ohio
Pennsylvania
Tennessee
Virginia
Wisconsin
Successful investors know that a well-diversified portfolio - one that balances
different types of investments, levels of risk and tax management - can be the
foundation for building and sustaining wealth. That's why Nuveen offers you and
your financial adviser a wide range of quality investments that can help you
build a better portfolio in the pursuit of your financial goals
Exchange-Traded Funds
Nuveen Exchange-Traded Funds offer investors actively managed portfolios of
investment-grade quality municipal bonds. The fund shares are listed and traded
on the New York and American stock exchanges. Exchange-traded funds provide the
investment convenience, price visibility and liquidity of common stocks.
MuniPreferred(R)
Nuveen MuniPreferred offers investors a AAA rated investment with an attractive
tax-free yield for the cash reserves portion of an investment portfolio.
MuniPreferred shares are backed 2-to-1 by the long-term portfolios of Nuveen
dual-class exchange-traded funds and are available for national as well as a
wide variety of state-specific portfolios.
Mutual Funds
Nuveen offers a family of equity, balanced and municipal bond funds featuring
Premier AdvisersSM including Institutional Capital Corporation, Rittenhouse
Financial Services, and Nuveen Advisory Corp. Each brings a specialized
expertise in a particular investment style or asset class, time-tested
investment strategies and a focus on consistent, long-term performance. With
Nuveen's Premier Adviser funds, you have all the advantages of a family of funds
plus the benefits of specialized investment expertise.
Private Asset Management
Rittenhouse Financial Services and Nuveen Asset Management offer comprehensive,
customized investment management solutions to investors with assets of $250,000
or more to invest. A range of actively managed growth, balanced and municipal
income-oriented portfolios are available, all based upon a disciplined
investment philosophy.
Defined Portfolios
Nuveen Defined Portfolios are fixed portfolios of quality securities that are a
convenient, attractive alternative to purchasing individual securities. They
provide low-cost diversification to reduce risk, while also offering
experienced, professional security selection and surveillance. In addition,
Nuveen Defined Portfolios provide daily liquidity at that day's net asset value
for quick access to your assets.
S-82
<PAGE> 126
Fund Information
Board of Directors/Trustees
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Custodian, Transfer Agent
and Shareholder Services
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
(800) 257-8787
Legal Counsel
Morgan, Lewis &
Bockius LLP
Washington, D.C.
Independent Auditors
Ernst & Young LLP
Chicago, IL
Year 2000
The concern that computer systems may have problems processing date-related
information in the year 2000 and beyond has challenged businesses and
organizations to thoroughly review all aspects of their operations. We have
undertaken just such an approach at Nuveen in preparation for the millennium.
Over the last 10 years, our trading, fund management and pricing systems at
Nuveen - the systems that directly affect our investors and their financial
advisers - have been updated or replaced to address the Year 2000 concerns.
We continue to work closely with our transfer agent, custodian and other service
partners to monitor readiness and address other remaining systems issues. Our
initial testing indicates we are on schedule, and we have targeted year-end 1998
to complete verification of vendor compliance and service partner readiness.
However, we can give no complete assurance at this time that the steps we have
taken will be sufficient to prevent any problems that would impact the Nuveen
Exchange-Traded Funds.
Each fund intends to repurchase shares of its own common or preferred stock in
the future at such times and in such amounts as is deemed advisable. No shares
were repurchased during the 12-month period ended October 31, 1998. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
S-83
<PAGE> 127
Serving Investors for Generations Photo of: John Nuveen, Sr.
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for risk-sensitive individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them maintain the lifestyle they currently enjoy.
The cornerstone of Nuveen's investment philosophy is a commitment to disciplined
long-term investment strategies focused on providing consistent, attractive
performance over time - with moderated risk. We emphasize quality securities
carefully chosen through in-depth research, and we follow those securities
closely over time to ensure that they continue to meet our exacting standards.
Whether your focus is long-term growth, dependable current income or sustaining
accumulated wealth, Nuveen offers a wide variety of products and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and income funds, along with our unit trusts and private asset
management, can form the foundation of a tax-efficient and risk-resistant
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you build and sustain your long-term financial
security. Or call us at (800) 257-8787 for more information, including a
prospectus where applicable. Please read that information carefully before you
invest.
LOGO:
NUVEEN 1898 1998
OUR SECOND CENTURY
helping investors sustain the wealth of a lifetime(tm).
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
S-84
<PAGE> 128
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> 129
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
A-2
<PAGE> 130
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:
A-3
<PAGE> 131
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
A note rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of such
information or based on other circumstances.
COMMERCIAL PAPER
An S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designation.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
A-4
<PAGE> 132
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.
A-5
<PAGE> 133
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.
A-6
<PAGE> 134
COMMERCIAL PAPER
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
A-7
<PAGE> 135
APPENDIX B
NUVEEN INSURED MUNICIPAL OPPORTUNITY FUND, INC.
STATEMENT ESTABLISHING AND FIXING THE RIGHTS
AND PREFERENCES OF
MUNICIPAL AUCTION RATE
CUMULATIVE PREFERRED STOCK ("MUNIPREFERRED(R)")
<PAGE> 136
NUVEEN INSURED MUNICIPAL OPPORTUNITY FUND, INC.
TABLE OF CONTENTS
Page
DEFINITIONS B-1
"AA" Composite Commercial Paper Rate B-1
Accountant's Confirmation B-2
Affiliate B-2
Agent Member B-2
Anticipation Notes B-2
Applicable Rate B-2
Articles B-2
Auction B-2
Auction Agency Agreement B-2
Auction Agent B-2
Auction Date B-2
Auction Procedures B-3
Available MuniPreferred B-3
Benchmark Rate B-3
Beneficial Owner B-3
Bid and Bids B-3
Bidder and Bidders B-3
Board of Directors B-3
Broker-Dealer B-3
Broker-Dealer Agreement B-3
Business Day B-3
Code B-3
Commercial Paper Dealers B-3
Common Stock B-3
Cure Date B-3
Date of Original Issue B-3
Deposit Securities B-4
Discounted Value B-4
Dividend Payment Date B-4
Dividend Period B-4
Existing Holder B-4
Failure to Deposit B-4
Federal Tax Rate Increase B-4
Fund B-5
Gross-up Payment B-5
Holder B-5
Hold Order and Hold Orders B-5
Independent Accountant B-5
Initial Rate Period B-5
Interest Equivalent B-5
Issue Type Category B-5
Kenny Index B-5
Late Charge B-5
Liquidation Preference B-5
Market Value B-5
Maximum Potential Gross-up Payment Liability B-5
Maximum Rate B-6
<PAGE> 137
Page
Moody's B-6
Moody's Discount Factor B-6
Moody's Eligible Asset B-7
Moody's Exposure Period B-7
Moody's Volatility Factor B-7
MuniPreferred B-7
MuniPreferred Basic Maintenance Amount B-7
MuniPreferred Basic Maintenance Cure Date B-8
MuniPreferred Basic Maintenance Report B-9
Municipal Obligations B-9
1940 Act B-9
1940 Act Cure Date B-9
1940 Act MuniPreferred Asset Coverage B-9
Notice of Redemption B-9
Notice of Special Rate Period B-9
Order and Orders B-9
Original Issue Insurance B-9
Other Issues B-9
Outstanding B-9
Permanent Insurance B-9
Person B-9
Portfolio Insurance B-10
Potential Beneficial Owner B-10
Potential Holder B-10
Preferred Stock B-10
Quarterly Valuation Date B-10
Rate Multiple B-10
Rate Period B-10
Rate Period Days B-10
Receivables for Municipal Obligations Sold B-10
Redemption Price B-10
Reference Rate B-11
Registration Statement B-11
S&P B-11
S&P Discount Factor B-11
S&P Eligible Asset B-11
S&P Exposure Period B-11
S&P Volatility Factor B-11
Secondary Market Insurance B-11
Securities Depository B-11
Sell Order and Sell Orders B-11
Special Rate Period B-11
Special Redemption Provisions B-11
Submission Deadline B-11
Submitted Bid and Submitted Bids B-12
Submitted Hold Order and Submitted Hold Orders B-12
Submitted Order and Submitted Orders B-12
Submitted Sell Order and Submitted Sell Orders B-12
Subsequent Rate Period B-12
Substitute Commercial Paper Dealer B-12
Substitute U.S. Government Securities Dealer B-12
Sufficient Clearing Bids B-12
Taxable Allocation B-12
Taxable Income B-12
<PAGE> 138
Page
Taxable Equivalent of the Short-Term Municipal Bond Rate B-12
Treasury Bill B-13
Treasury Bill Rate B-13
Treasury Note B-13
Treasury Note Rate B-13
U.S. Government Securities Dealer B-14
Valuation Date B-14
Volatility Factor B-14
Voting Period B-14
Winning Bid Rate B-14
PART I 15
1. Number of Authorized Shares. B-15
2. Dividends. B-15
(a) Ranking. B-15
(b) Cumulative Cash Dividends. B-15
(c) Dividends Cumulative From Date of Original Issue. B-15
(d) Dividend Payment Dates and Adjustment Thereof. B-15
(e) Dividend Rates and Calculation of Dividends. B-16
(i) Dividend Rates. B-16
(ii) Calculation of Dividends. B-17
(f) Curing a Failure to Deposit. B-18
(g) Dividend Payments by Fund to Auction Agent. B-18
(h) Auction Agent as Trustee of Dividend Payments by Fund. B-18
(i) Dividends Paid to Holders. B-18
(j) Dividends Credited Against Earliest Accumulated But
Unpaid Dividends. B-18
(k) Dividends Designated as Exempt-Interest Dividends. B-18
3. Gross-up Payments. B-19
(a) Minimum Rate Periods and Special Rate Periods of
28 Rate Period Days or Fewer. B-19
(b) Special Rate Periods of More Than 28 Rate Period Days. B-19
(c) No Gross-up Payments In the Event of a Reallocation. B-19
4. Designation of Special Rate Periods. B-19
(a) Length of and Preconditions for Special Rate Period. B-19
(b) Adjustment of Length of Special Rate Period. B-20
(c) Notice of Proposed Special Rate Period. B-20
(d) Notice of Special Rate Period. B-20
(e) Failure to Deliver Notice of Special Rate Period. B-21
5. Voting Rights. B-21
(a) One Vote Per Share of MuniPreferred. B-21
(b) Voting For Additional Directors. B-22
(i) Voting Period. B-22
(ii) Notice of Special Meeting. B-22
(iii) Terms of Office of Existing Directors. B-22
(iv) Terms of Office of Certain Directors to
Terminate Upon Termination of Voting
Period. B-23
(c) Holders of MuniPreferred To Vote On Certain Other
Matters. B-23
(i) Increases in Capitalization. B-23
(ii) 1940 Act Matters. B-24
(d) Board May Take Certain Actions Without Shareholder
Approval. B-24
(e) Voting Rights Set Forth Herein Are Sole Voting Rights. B-25
(f) No Preemptive Rights or Cumulative Voting. B-25
<PAGE> 139
Page
(g) Voting for Directors Sole Remedy for Fund's Failure
to Pay Dividends. B-25
(h) Holders Entitled to Vote. B-25
6. 1940 Act MuniPreferred Asset Coverage. B-25
7. MuniPreferred Basic Maintenance Amount. B-25
8. [Reserved] B-27
9. Restrictions on Dividends and Other Distributions. B-27
(a) Dividends on Preferred Stock Other Than MuniPreferred. B-27
(b) Dividends and Other Distributions With Respect to
Common Stock Under the 1940 Act. B-27
(c) Other Restrictions On Dividends and Other Distributions. B-27
10. Rating Agency Restrictions. B-28
11. Redemption. B-29
(a) Optional Redemption. B-29
(b) Mandatory Redemption. B-30
(c) Notice of Redemption. B-31
(d) No Redemption Under Certain Circumstances. B-31
(e) Absence of Funds Available for Redemption. B-31
(f) Auction Agent as Trustee of Redemption Payments by Fund. B-32
(g) Shares for Which Notice of Redemption Has Been Given Are
No Longer Outstanding. B-32
(h) Compliance With Applicable Law. B-32
(i) Only Whole Shares of MuniPreferred May Be Redeemed. B-32
12. Liquidation Rights. B-32
(a) Ranking. B-32
(b) Distributions Upon Liquidation. B-32
(c) Pro Rata Distributions. B-33
(d) Rights of Junior Stock. B-33
(e) Certain Events Not Constituting Liquidation. B-33
13. Miscellaneous. B-33
(a) Amendment of Appendix A to Add Additional Series. B-33
(b) Appendix A Incorporated By Reference. B-33
(c) No Fractional Shares. B-34
(d) Status of Shares of MuniPreferred Redeemed, Exchanged or
Otherwise Acquired by the Fund. B-34
(e) Board May Resolve Ambiguities. B-34
(f) Headings Not Determinative. B-34
(g) Notices. B-34
PART II B-35
1. Orders. B-35
2. Submission of Orders by Broker-Dealers to Auction Agent. B-36
3. Determination of Sufficient Clearing Bids, Winning Bid Rate
and Applicable Rate. B-38
4. Acceptance and Rejection of Submitted Bids and Submitted
Sell Orders and Allocation of Shares. B-39
5. Notification of Allocations. B-42
6. Auction Agent. B-42
7. Transfer of Shares of MuniPreferred. B-42
8. Global Certificate. B-43
Appendix A B-A-1
Section 1. Designation As To Series. B-A-1
Section 2. Number of Authorized Shares Per Series. B-A-2
<PAGE> 140
Page
Section 3. Exceptions to Certain Definitions. B-A-2
Section 4. Certain Definitions. B-A-2
S&P Discount Factor B-A-6
S&P Eligible Asset B-A-7
Secondary Market Insurance B-A-8
Section 5. Initial Rate Periods. B-A-8
Section 6. Date for Purposes of Paragraph (yyy) Contained Under
the Heading "Definitions" in this Statement. B-A-8
Section 7. Party Named for Purposes of the Definition of
"Rate Multiple" in this Statement. B-A-8
Section 8. Additional Definitions. B-A-8
Section 9. Dividend Payment Dates. B-A-8
Section 10. Amount for Purposes of Subparagraph (c)(i) of
Section 5 of Part I of this Statement. B-A-9
Section 11. Redemption Provisions Applicable to Initial
Rate Periods. B-A-9
Section 12. Applicable Rate for Purposes of Subparagraph(b)
(iii) of Section 3 of Part II of this Statement.
<PAGE> 141
NUVEEN INSURED MUNICIPAL 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 1 of Appendix A hereto are
as follows (each such series being referred to herein as a series of
MuniPreferred, and shares of all such series being referred to herein
individually as a share of MuniPreferred and collectively as shares of
MuniPreferred):
DEFINITIONS
Except as otherwise specifically provided in Section 3 of Appendix A
hereto, as used in Parts I and II of this Statement, the following terms shall
have the following meanings (with terms defined in the singular having
comparable meanings when used in the plural and vice versa), unless the context
otherwise requires:
(a) ""AA" Composite Commercial Paper Rate," on any date for any Rate
Period of shares of a series of MuniPreferred, shall mean (i) (A) in the
case of any Minimum Rate Period or any Special Rate Period of fewer than 49
Rate Period Days, the interest equivalent of the 30-day rate; provided,
however, that if such Rate Period is a Minimum Rate Period and the "AA"
Composite Commercial Paper Rate is being used to determine the Applicable
Rate for shares of such series when all of the Outstanding shares of such
series are subject to Submitted Hold Orders, then the interest equivalent
of the seven-day rate, and (B) in the case of any Special Rate Period of
(1) 49 or more but fewer than 70 Rate Period Days, the interest equivalent
of the 60-day rate; (2) 70 or more but fewer than 85 Rate Period Days, the
arithmetic average of the interest
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<PAGE> 142
equivalent of the 60-day and 90-day rates; (3) 85 or more but fewer than 99
Rate Period Days, the interest equivalent of the 90-day rate; (4) 99 or
more but fewer than 120 Rate Period Days, the arithmetic average of the
interest equivalent of the 90-day and 120-day rates; (5) 120 or more but
fewer than 141 Rate Period Days, the interest equivalent of the 120-day
rate; (6) 141 or more but fewer than 162 Rate Period Days, the arithmetic
average of the 120-day and 180-day rates; and (7) 162 or more but fewer
than 183 Rate Period Days, the interest equivalent of the 180-day rate, in
each case on commercial paper placed on behalf of issuers whose corporate
bonds are rated "AA" by S&P or the equivalent of such rating by S&P or
another rating agency, as made available on a discount basis or otherwise
by the Federal Reserve Bank of New York for the Business Day next preceding
such date; or (ii) in the event that the Federal Reserve Bank of New York
does not make available any such rate, then the arithmetic average of such
rates, as quoted on a discount basis or otherwise, by the Commercial Paper
Dealers to the Auction Agent for the close of business on the Business Day
next preceding such date. If any Commercial Paper Dealer does not quote a
rate required to determine the "AA" Composite Commercial Paper Rate, the
"AA" Composite Commercial Paper Rate shall be determined on the basis of
the quotation or quotations furnished by the remaining Commercial Paper
Dealer or Commercial Paper Dealers and any Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers selected by the Fund to
provide such rate or rates not being supplied by any Commercial Paper
Dealer or Commercial Paper Dealers, as the case may be, or, if the Fund
does not select any such Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers, by the remaining Commercial Paper Dealer or
Commercial Paper Dealers. For purposes of this definition, the "interest
equivalent" of a rate stated on a discount basis (a "discount rate") for
commercial paper of a given days' maturity shall be equal to the quotient
(rounded upwards to the next higher one-thousandth (.001) of 1%)of (A) the
discount rate divided by (B) the difference between (x) 1.00 and (y) a
fraction the numerator of which shall be the product of the discount rate
times the number of days in which such commercial paper matures and the
denominator of which shall be 360.
(b) "Accountant's Confirmation" shall have the meaning specified in
paragraph (c) of Section 7 of Part I of this Statement.
(c) "Affiliate" shall mean, for purposes of the definition of
"Outstanding," any Person known to the Auction Agent to be controlled by,
in control of or under common control with the Fund; provided, however,
that no Broker-Dealer controlled by, in control of or under common control
with the Fund shall be deemed to be an Affiliate nor shall any corporation
or any Person controlled by, in control of or under common control with
such corporation one of the directors, trustees or executive officers of
which is a director of the Fund be deemed to be an Affiliate solely because
such director, trustee or executive officer is also a director of the Fund.
(d) "Agent Member" shall mean a member of or participant in the
Securities Depository that will act on behalf of a Bidder.
(e) "Anticipation Notes" shall mean Tax Anticipation Notes (TANs),
Revenue Anticipation Notes (RANs), Tax and Revenue Anticipation Notes
(TRANs), Grant Anticipation Notes (GANs) that are rated by S&P and Bond
Anticipation Notes (BANs) that are rated by S&P.
(f) "Applicable Rate" shall have the meaning specified in
subparagraph (e)(i) of Section 2 of Part I of this Statement.
(g) "Articles" shall have the meaning specified on the first page of
this Statement.
(h) "Auction" shall mean each periodic implementation of the Auction
Procedures.
(i) "Auction Agency Agreement" shall mean the agreement between the
Fund and the Auction Agent which provides, among other things, that the
Auction Agent will follow the
B-2
<PAGE> 143
Auction Procedures for purposes of determining the Applicable Rate for
shares of a series of MuniPreferred so long as the Applicable Rate for
shares of such series is to be based on the results of an Auction.
(j) "Auction Agent" shall mean the entity appointed as such by a
resolution of the Board of Directors in accordance with Section 6 of Part
II of this Statement.
(k) "Auction Date," with respect to any Rate Period, shall mean the
Business Day next preceding the first day of such Rate Period.
(l) "Auction Procedures" shall mean the procedures for conducting
Auctions set forth in Part II of this Statement.
(m) "Available MuniPreferred" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(n) "Benchmark Rate" shall have the meaning specified in Section 12 of
Appendix A hereto.
(o) "Beneficial Owner," with respect to shares of a series of
MuniPreferred, means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the Auction Agent) as a
holder of shares of such series.
(p) "Bid" and "Bids" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement.
(q) "Bidder" and "Bidders" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement;
provided, however, that neither the Fund nor any affiliate thereof shall be
permitted to be a Bidder in an Auction, except that any Broker-Dealer that
is an affiliate of the Fund may be a Bidder in an Auction, but only if the
Orders placed by such Broker-Dealer are not for its own account.
(r) "Board of Directors" shall mean the Board of Directors of the Fund
or any duly authorized committee thereof.
(s) "Broker-Dealer" shall mean any broker-dealer, commercial bank or
other entity permitted by law to perform the functions required of a
Broker-Dealer in Part II of this Statement, that is a member of, or a
participant in, the Securities Depository or is an affiliate of such member
or participant, has been selected by the Fund and has entered into a
Broker-Dealer Agreement that remains effective.
(t) "Broker-Dealer Agreement" shall mean an agreement among the Fund,
the Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer
agrees to follow the procedures specified in Part II of this Statement.
(u) "Business Day" shall mean a day on which the New York Stock
Exchange is open for trading and which is neither a Saturday, Sunday nor
any other day on which banks in The City of New York, New York, are
authorized by law to close.
(v) "Code" means the Internal Revenue Code of 1986, as amended.
(w) "Commercial Paper Dealers" shall mean Lehman Commercial Paper
Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated or, in lieu of any thereof, their respective affiliates
or successors, if such entity is a commercial paper dealer.
B-3
<PAGE> 144
(x) "Common Stock" shall mean the common stock, par value $.01 per
share, of the Fund.
(y) "Cure Date" shall mean the MuniPreferred Basic Maintenance Cure
Date or the 1940 Act Cure Date, as the case may be.
(z) "Date of Original Issue," with respect to shares of a series of
MuniPreferred, shall mean the date on which the Fund initially issued such
shares.
(aa) "Deposit Securities" shall mean cash and Municipal Obligations
rated at least A-1+ or SP-1+ by S&P, except that, for purposes of
subparagraph (a)(v) of Section 11 of Part I of this Statement, such
Municipal Obligations shall be considered "Deposit Securities" only if they
are also rated P-1, MIG-1 or VMIG-1 by Moody's.
(bb) "Discounted Value," as of any Valuation Date, shall mean, (i)
with respect to an S&P Eligible Asset, the quotient of the Market Value
thereof divided by the applicable S&P Discount Factor and (ii) (a) with
respect to a Moody's Eligible Asset that is not currently callable as of
such Valuation Date at the option of the issuer thereof, the quotient of
the Market Value thereof divided by the applicable Moody's Discount Factor,
or (b) with respect to a Moody's Eligible Asset that is currently callable
as of such Valuation Date at the option of the issuer thereof, the quotient
of (1) the lesser of the Market Value or call price thereof, including any
call premium, divided by (2) the applicable Moody's Discount Factor.
(cc) [Reserved]
(dd) [Reserved]
(ee) "Dividend Payment Date," with respect to shares of a series of
MuniPreferred, shall mean any date on which dividends are payable on shares
of such series pursuant to the provisions of paragraph (d) of Section 2 of
Part I of this Statement.
(ff) "Dividend Period," with respect to shares of a series of
MuniPreferred, shall mean the period from and including the Date of
Original Issue of shares of such series to but excluding the initial
Dividend Payment Date for shares of such series and any period thereafter
from and including one Dividend Payment Date for shares of such series to
but excluding the next succeeding Dividend Payment Date for shares of such
series.
(gg) "Existing Holder," with respect to shares of a series of
MuniPreferred, shall mean a Broker-Dealer (or any such other Person as may
be permitted by the Fund) that is listed on the records of the Auction
Agent as a holder of shares of such series.
(hh) "Failure to Deposit," with respect to shares of a series of
MuniPreferred, shall mean a failure by the Fund to pay to the Auction
Agent, not later than 12:00 noon, New York City time, (A) on the Business
Day next preceding any Dividend Payment Date for shares of such series, in
funds available on such Dividend Payment Date in The City of New York, New
York, the full amount of any dividend (whether or not earned or declared)
to be paid on such Dividend Payment Date on any share of such series or (B)
on the Business Day next preceding any redemption date in funds available
on such redemption date for shares of such series in The City of New York,
New York, the Redemption Price to be paid on such redemption date for any
share of such series after notice of redemption is mailed pursuant to
paragraph (c) of Section 11 of Part I of this Statement; provided, however,
that the foregoing clause (B) shall not apply to the Fund's failure to pay
the Redemption Price in respect of shares of MuniPreferred when the related
Notice of Redemption provides that redemption of such shares is subject to
one or more conditions
B-4
<PAGE> 145
precedent and any such condition precedent shall not have been satisfied at
the time or times and in the manner specified in such Notice of Redemption.
(ii) "Federal Tax Rate Increase" shall have the meaning specified in
the definition of "Moody's Volatility Factor."
(jj) "Fund" shall mean the entity named on the first page of this
Statement, which is the issuer of the shares of MuniPreferred.
(kk) "Gross-up Payment" shall have the meaning specified in Section 4
of Appendix A hereto.
(ll) "Holder," with respect to shares of a series of MuniPreferred,
shall mean the registered holder of such shares as the same appears on the
stock books of the Fund.
(mm) "Hold Order" and "Hold Orders" shall have the respective
meanings specified in paragraph (a) of Section 1 of Part II of this
Statement.
(nn) "Independent Accountant" shall mean a nationally recognized
accountant, or firm of accountants, that is with respect to the Fund an
independent public accountant or firm of independent public accountants
under the Securities Act of 1933, as amended from time to time.
(oo) "Initial Rate Period," with respect to shares of a series of
MuniPreferred, shall have the meaning specified with respect to shares of
such series in Section 5 of Appendix A hereto.
(pp) "Interest Equivalent" means a yield on a 360-day basis of a
discount basis security which is equal to the yield on an equivalent
interest-bearing security.
(qq) "Issue Type Category," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.
(rr) "Kenny Index" shall have the meaning specified in the definition
of "Taxable Equivalent of the Short-Term Municipal Bond Rate."
(ss) "Late Charge" shall have the meaning specified in subparagraph
(e)(1)(B) of Section 2 of Part I of this Statement.
(tt) "Liquidation Preference," with respect to a given number of
shares of MuniPreferred, means $25,000 times that number.
(uu) "Market Value" of any asset of the Fund shall mean the market
value thereof determined by the pricing service designated from time to
time by the Board of Directors. Market Value of any asset shall include any
interest accrued thereon. The pricing service values portfolio securities
at the mean between the quoted bid and asked price or the yield equivalent
when quotations are readily available. Securities for which quotations are
not readily available are valued at fair value as determined by the pricing
service using methods which include consideration of: yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating; indications as to value from dealers; and general market
conditions. The pricing service may employ electronic data processing
techniques or a matrix system, or both, to determine valuations.
(vv) "Maximum Potential Gross-up Payment Liability," as of any
Valuation Date, shall mean the aggregate amount of Gross-up Payments that
would be due if the Fund were to
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<PAGE> 146
make Taxable Allocations, with respect to any taxable year, estimated based
upon dividends paid and the amount of undistributed realized net capital
gains and other taxable income earned by the Fund, as of the end of the
calendar month immediately preceding such Valuation Date, and assuming such
Gross-up Payments are fully taxable.
(ww) "Maximum Rate," for shares of a series of MuniPreferred on any
Auction Date for shares of such series, shall mean:
(i) in the case of any Auction Date which is not the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Fund pursuant to Section 4 of Part I of this
Statement, the product of (A) the Reference Rate on such Auction Date
for the next Rate Period of shares of such series and (B) the Rate
Multiple on such Auction Date, unless shares of such series have or
had a Special Rate Period (other than a Special Rate Period of 28 Rate
Period Days or fewer) and an Auction at which Sufficient Clearing Bids
existed has not yet occurred for a Minimum Rate Period of shares of
such series after such Special Rate Period, in which case the higher
of:
(A) the dividend rate on shares of such series for the
then-ending Rate Period; and
(B) the product of (1) the higher of (x) the Reference Rate
on such Auction Date for a Rate Period equal in length to the
then-ending Rate Period of shares of such series, if such
then-ending Rate Period was 364 Rate Period Days or fewer, or the
Treasury Note Rate on such Auction Date for a Rate Period equal
in length to the then-ending Rate Period of shares of such
series, if such then-ending Rate Period was more than 364 Rate
Period Days, and (y) the Reference Rate on such Auction Date for
a Rate Period equal in length to such Special Rate Period of
shares of such series, if such Special Rate Period was 364 Rate
Period Days or fewer, or the Treasury Note Rate on such Auction
Date for a Rate Period equal in length to such Special Rate
Period, if such Special Rate Period was more than 364 Rate Period
Days and (2) the Rate Multiple on such Auction Date; or
(ii) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Fund pursuant to Section 4 of Part I of this
Statement, the product of (A) the highest of (1) the Reference Rate on
such Auction Date for a Rate Period equal in length to the then-ending
Rate Period of shares of such series, if such then-ending Rate Period
was 364 Rate Period Days or fewer, or the Treasury Note Rate on such
Auction Date for a Rate Period equal in length to the then-ending Rate
Period of shares of such series, if such then-ending Rate Period was
more than 364 Rate Period Days, (2) the Reference Rate on such Auction
Date for the Special Rate Period for which the Auction is being held
if such Special Rate Period is 364 Rate Period Days or fewer or the
Treasury Note Rate on such Auction Date for the Special Rate Period
for which the Auction is being held if such Special Rate Period is
more than 364 Rate Period Days, and (3) the Reference Rate on such
Auction Date for Minimum Rate Periods and (B) the Rate Multiple on
such Auction Date.
(xx) [Reserved]
(yy) "Minimum Rate Period" shall mean any Rate Period consisting of 7
Rate Period Days.
(zz) "Moody's" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors.
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(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:
<TABLE>
<CAPTION>
Federal Volatility
Tax Rate Increase Factor
----------------- ----------
<S> <C>
5% 295%
10% 317%
15% 341%
20% 369%
25% 400%
30% 436%
35% 477%
40% 525%
</TABLE>
(eee) "MuniPreferred" shall have the meaning set forth on the first
page of this Statement.
(fff) "MuniPreferred Basic Maintenance Amount," as of any Valuation
Date, shall mean the dollar amount equal to the sum of (i)(A) the product
of the number of shares of MuniPreferred outstanding on such date
multiplied by $25,000 (plus the product of the number of shares of any
other series of Preferred Stock outstanding on such date multiplied by the
liquidation preference of such shares), plus any redemption premium
applicable to shares of MuniPreferred (or other Preferred Stock) then
subject to redemption; (B) the aggregate amount of dividends that will have
accumulated at the respective Applicable Rates (whether or not earned or
declared) to (but not including) the first respective Dividend Payment
Dates for shares of MuniPreferred outstanding that follow such Valuation
Date (plus the aggregate amount of dividends, whether or not earned or
declared, that will have accumulated in respect of other outstanding shares
of Preferred Stock to, but not including, the first respective dividend
payment dates for such other shares that follow such Valuation Date);
(C) the aggregate amount of
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dividends that would accumulate on shares of each series of MuniPreferred
outstanding from such first respective Dividend Payment Date therefor
through the 56th day after such Valuation Date, at the Maximum Rate
(calculated as if such Valuation Date were the Auction Date for the Rate
Period commencing on such Dividend Payment Date) for a Minimum Rate Period
of shares of such series to commence on such Dividend Payment Date,
assuming, solely for purposes of the foregoing, that if on such Valuation
Date the Fund shall have delivered a Notice of Special Rate Period to the
Auction Agent pursuant to Section 4(d)(i) of this Part I with respect to
shares of such series, such Maximum Rate shall be the higher of (a) the
Maximum Rate for the Special Rate Period of shares of such series to
commence on such Dividend Payment Date and (b) the Maximum Rate for a
Minimum Rate Period of shares of such series to commence on such Dividend
Payment Date, multiplied by the Volatility Factor applicable to a Minimum
Rate Period, or, in the event the Fund shall have delivered a Notice of
Special Rate Period to the Auction Agent pursuant to Section 4(d)(i) of
this Part I with respect to shares of such series designating a Special
Rate Period consisting of 56 Rate Period Days or more, the Volatility
Factor applicable to a Special Rate Period of that length (plus the
aggregate amount of dividends that would accumulate at the maximum dividend
rate or rates on any other shares of Preferred Stock outstanding from such
respective dividend payment dates through the 56th day after such Valuation
Date, as established by or pursuant to the respective statements
establishing and fixing the rights and preferences of such other shares of
Preferred Stock) (except that (1) if such Valuation Date occurs at a time
when a Failure to Deposit (or, in the case of shares of Preferred Stock
other than MuniPreferred, a failure similar to a Failure to Deposit) has
occurred that has not been cured, the dividend for purposes of calculation
would accumulate at the current dividend rate then applicable to the shares
in respect of which such failure has occurred and (2) for those days during
the period described in this subparagraph (C) in respect of which the
Applicable Rate in effect immediately prior to such Dividend Payment Date
will remain in effect (or, in the case of shares of Preferred Stock other
than MuniPreferred, in respect of which the dividend rate or rates in
effect immediately prior to such respective dividend payment dates will
remain in effect), the dividend for purposes of calculation would
accumulate at such Applicable Rate (or other rate or rates, as the case may
be) in respect of those days); (D) the amount of anticipated expenses of
the Fund for the 90 days subsequent to such Valuation Date; (E) the amount
of the Fund's Maximum Potential Gross-up Payment Liability in respect of
shares of MuniPreferred (and similar amounts payable in respect of other
shares of Preferred Stock pursuant to provisions similar to those contained
in Section 3 of Part I of this Statement) as of such Valuation Date; and
(F) any current liabilities as of such Valuation Date to the 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> 149
(hhh) "MuniPreferred Basic Maintenance Report" shall mean a report
signed by the President, Treasurer or any Senior Vice President or Vice
President of the Fund which sets forth, as of the related Valuation Date,
the assets of the Fund, the Market Value and the Discounted Value thereof
(seriatim and in aggregate), and the MuniPreferred Basic Maintenance
Amount.
(iii) "Municipal Obligations" shall mean "Municipal Obligations"
as defined in the Fund's registration statement on Form N-2 on file with
the Securities and Exchange Commission, as such registration statement may
be amended from time to time (the "Registration Statement").
(jjj) "1940 Act" shall mean the Investment Company Act of 1940, as
amended from time to time.
(kkk) "1940 Act Cure Date," with respect to the failure by the
Fund to maintain the 1940 Act MuniPreferred Asset Coverage (as required by
Section 6 of Part I of this Statement) as of the last Business Day of each
month, shall mean the last Business Day of the following month.
(lll) "1940 Act MuniPreferred Asset Coverage" shall mean asset
coverage, as defined in Section 18(h) of the 1940 Act, of at least 200%
with respect to all outstanding senior securities of the Fund which are
stock, including all outstanding shares of MuniPreferred (or such other
asset coverage as may in the future be specified in or under the 1940 Act
as the minimum asset coverage for senior securities which are stock of a
closed-end investment company as a condition of declaring dividends on its
common stock).
(mmm) "Notice of Redemption" shall mean any notice with respect to
the redemption of shares of MuniPreferred pursuant to paragraph (c) of
Section 11 of Part I of this Statement.
(nnn) "Notice of Special Rate Period" shall mean any notice with
respect to a Special Rate Period of shares of MuniPreferred pursuant to
subparagraph (d)(i) of Section 4 of Part I of this Statement.
(ooo) "Order" and "Orders" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(ppp) "Original Issue Insurance," if defined in Section 4 of
Appendix A hereto, shall have the meaning specified in that section.
(qqq) "Other Issues," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.
(rrr) "Outstanding" shall mean, as of any Auction Date with
respect to shares of a series of MuniPreferred, the number of shares of
such series theretofore issued by the Fund except, without duplication, (i)
any shares of such series theretofore cancelled or delivered to the Auction
Agent for cancellation or redeemed by the Fund, (ii) any shares of such
series as to which the Fund or any Affiliate thereof shall be an Existing
Holder and (iii) any shares of such series represented by any certificate
in lieu of which a new certificate has been executed and delivered by the
Fund.
(sss) "Permanent Insurance," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.
(ttt) "Person" shall mean and include an individual, a
partnership, a corporation, a trust, an unincorporated association, a joint
venture or other entity or a government or any agency or political
subdivision thereof.
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<PAGE> 150
(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 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
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Period Days but fewer than 183 Rate Period Days; and (iii) the Treasury
Bill Rate in the case of Special Rate Periods of more than 182 Rate Period
Days but fewer than 365 Rate Period Days.
(ffff) "Registration Statement" has the meaning specified in the
definition of "Municipal Obligations."
(gggg) "S&P" shall mean Standard & Poor's Corporation, a New York
corporation, and its successors.
(hhhh) "S&P Discount Factor" shall have the meaning specified in
Section 4 of Appendix A hereto.
(iiii) "S&P Eligible Asset" shall have the meaning specified in
Section 4 of Appendix A hereto.
(jjjj) "S&P Exposure Period" shall mean the maximum period of time
following a Valuation Date that the Fund has under this Statement to cure
any failure to maintain, as of such Valuation Date, the Discounted Value
for its portfolio at least equal to the MuniPreferred Basic Maintenance
Amount (as described in paragraph (a) of Section 7 of Part I of this
Statement).
(kkkk) "S&P Volatility Factor" shall mean, as of any Valuation Date,
a multiplicative factor equal to (i) 305% in the case of any Minimum Rate
Period or any Special Rate Period of 28 Rate Period Days or fewer; (ii)
268% in the case of any Special Rate Period of more than 28 Rate Period
Days but fewer than 183 Rate Period Days; and (iii) 204% in the case of any
Special Rate Period of more than 182 Rate Period Days.
(llll) "Secondary Market Insurance," if defined in Section 4 of
Appendix A hereto, shall have the meaning specified in that section.
(mmmm) "Securities Depository" shall mean The Depository Trust
Company and its successors and assigns or any other securities depository
selected by the Fund which agrees to follow the procedures required to be
followed by such securities depository in connection with shares of
MuniPreferred.
(nnnn) "Sell Order" and "Sell Orders" shall have the respective
meanings specified in paragraph (a) of Section 1 of Part II of this
Statement.
(oooo) "Special Rate Period," with respect to shares of a series of
MuniPreferred, shall have the meaning specified in paragraph (a) of
Section 4 of Part I of this Statement.
(pppp) "Special Redemption Provisions" shall have the meaning
specified in subparagraph (a)(i) of Section 11 of Part I of this
Statement.
(qqqq) "Submission Deadline" shall mean 1:30 P.M., New York City
time, on any Auction Date or such other time on any Auction Date by which
Broker-Dealers are required to submit Orders to the Auction Agent as
specified by the Auction Agent from time to time.
(rrrr) "Submitted Bid" and "Submitted Bids" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of
this Statement.
(ssss) "Submitted Hold Order" and "Submitted Hold Orders" shall have
the respective meanings specified in paragraph (a) of Section 3 of Part
II of this Statement.
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(tttt) "Submitted Order" and "Submitted Orders" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of
this Statement.
(uuuu) "Submitted Sell Order" and "Submitted Sell Orders" shall have
the respective meanings specified in paragraph (a) of Section 3 of Part
II of this Statement.
(vvvv) "Subsequent Rate Period," with respect to shares of a series
of MuniPreferred, shall mean the period from and including the first day
following the Initial Rate Period of shares of such series to but excluding
the next Dividend Payment Date for shares of such series and any period
thereafter from and including one Dividend Payment Date for shares of such
series to but excluding the next succeeding Dividend Payment Date for
shares of such series; provided, however, that if any Subsequent Rate
Period is also a Special Rate Period, such term shall mean the period
commencing on the first day of such Special Rate Period and ending on the
last day of the last Dividend Period thereof.
(wwww) "Substitute Commercial Paper Dealer" shall mean The First
Boston Company or Morgan Stanley & Co. Incorporated or their respective
affiliates or successors, if such entity is a commercial paper dealer;
provided, however, that none of such entities shall be a Commercial Paper
Dealer.
(xxxx) "Substitute U.S. Government Securities Dealer" shall mean The
First Boston Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated
or their respective affiliates or successors, if such entity is a U.S.
Government securities dealer; provided, however, that none of such entities
shall be a U.S. Government Securities Dealer.
(yyyy) "Sufficient Clearing Bids" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(zzzz) "Taxable Allocation" shall have the meaning specified in
Section 3 of Part I of this Statement.
(aaaaa) "Taxable Income" shall have the meaning specified in Section
12 of Appendix A hereto.
(bbbbb) "Taxable Equivalent of the Short-Term Municipal Bond Rate," on
any date for any Minimum Rate Period or Special Rate Period of 28 Rate
Period Days or fewer, shall mean 90% of the quotient of (A) the per annum
rate expressed on an interest equivalent basis equal to the Kenny S&P 30
day High Grade Index or any successor index (the "Kenny Index") (provided,
however, that any such successor index must be approved by Moody's (if
Moody's is then rating the shares of MuniPreferred) and S&P (if S&P is then
rating the shares of MuniPreferred)), made available for the Business Day
immediately preceding such date but in any event not later than 8:30 A.M.,
New York City time, on such date by Kenny S&P Evaluation Services or any
successor thereto, based upon 30-day yield evaluations at par of short-term
bonds the interest on which is excludable for regular Federal income tax
purposes under the Code of "high grade" component issuers selected by Kenny
S&P Evaluation Services or any such successor from time to time in its
discretion, which component issuers shall include, without limitation,
issuers of general obligation bonds, but shall exclude any bonds the
interest on which constitutes an item of tax preference under Section
57(a)(5) of the Code, or successor provisions, for purposes of the
"alternative minimum tax," divided by (B) 1.00 minus the maximum marginal
regular Federal individual income tax rate applicable to ordinary income or
the maximum marginal regular Federal corporate income tax rate applicable
to ordinary income (in each case expressed as a decimal), whichever is
greater; provided, however, that if the Kenny Index is not made so
available by 8:30 A.M., New York City time, on such date by Kenny S&P
Evaluation Services or any successor, the Taxable Equivalent of the
Short-Term Municipal Bond Rate shall mean the quotient of (A) the per annum
rate expressed on an interest equivalent basis equal to the most
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<PAGE> 153
recent Kenny Index so made available for any preceding Business Day,
divided by (B) 1.00 minus the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income (in
each case expressed as a decimal), whichever is greater.
(ccccc) "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.
(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.
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<PAGE> 154
(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.
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<PAGE> 155
PART I
1. Number of Authorized Shares.
The number of authorized shares constituting a series of MuniPreferred
shall be as set forth with respect to such series in Section 2 of Appendix A
hereto.
2. Dividends.
(a) Ranking. The shares of a series of MuniPreferred shall rank on a parity
with each other, with shares of any other series of MuniPreferred and with
shares of any other series of Preferred Stock as to the payment of dividends by
the Fund.
(b) Cumulative Cash Dividends. The Holders of shares of MuniPreferred of
any series shall be entitled to receive, when, as and if declared by the Board
of Directors, out of funds legally available therefor, cumulative cash dividends
at the Applicable Rate for shares of such series, determined as set forth in
paragraph (e) of this Section 2, and no more (except to the extent set forth in
Section 3 of this Part I), payable on the Dividend Payment Dates with respect to
shares of such series determined pursuant to paragraph (d) of this Section 2.
Holders of shares of MuniPreferred shall not be entitled to any dividend,
whether payable in cash, property or stock, in excess of full cumulative
dividends, as herein provided, on shares of MuniPreferred. No interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on shares of MuniPreferred which may be in arrears, and,
except to the extent set forth in subparagraph (e)(i) of this Section 2, no
additional sum of money shall be payable in respect of any such arrearage.
(c) Dividends Cumulative From Date of Original Issue. Dividends on shares
of MuniPreferred of any series shall accumulate at the Applicable Rate for
shares of such series from the Date of Original Issue thereof.
(d) Dividend Payment Dates and Adjustment Thereof. The Dividend Payment
Dates with respect to shares of a series of MuniPreferred shall be as set forth
with respect to shares of such series in Section 9 of Appendix A hereto;
provided, however, that:
(i) (A) in the case of a series of MuniPreferred designated as "Series
F MuniPreferred" or "Series M MuniPreferred" in Section 1 of Appendix A
hereto, if the Monday or Tuesday, as the case may be, on which dividends
would otherwise be payable on shares of such series is not a Business Day,
then such dividends shall be payable on such shares on the first Business
Day that falls after such Monday or Tuesday, as the case may be, and (B) in
the case of a series of MuniPreferred designated as "Series T
MuniPreferred," "Series W MuniPreferred" or "Series TH MuniPreferred" in
Section 1 of Appendix A hereto, if the Wednesday, Thursday or Friday, as
the case may be, on which dividends would otherwise be payable on shares of
such series is not a Business Day, then such dividends shall be payable on
such shares on the first Business Day that falls prior to such Wednesday,
Thursday or Friday, as the case may be; and
(ii) notwithstanding Section 9 of Appendix A hereto, the Fund in its
discretion may establish the Dividend Payment Dates in respect of any
Special Rate Period of shares of a series of MuniPreferred consisting of
more than 28 Rate Period Days; provided, however, that such dates shall be
set forth in the Notice of Special Rate Period relating to such Special
Rate Period, as delivered to the Auction Agent, which Notice of Special
Rate Period shall be filed with the Secretary of the Fund; and further
provided that (1) any such Dividend Payment Date shall be a Business Day
and (2) the last Dividend Payment Date in respect of such Special Rate
Period shall be the Business Day immediately following the last day
thereof, as such last day is determined in accordance with paragraph (b) of
Section 4 of this Part I.
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(e) Dividend Rates and Calculation of Dividends. (i) Dividend Rates. The
dividend rate on shares of MuniPreferred of any series during the period from
and after the Date of Original Issue of shares of such series to and including
the last day of the Initial Rate Period of shares of such series shall be equal
to the rate per annum set forth with respect to shares of such series under
"Designation" in Section 1 of Appendix A hereto. For 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:
(A) an Auction for any such Subsequent Rate Period is not held for any
reason other than as described below, the dividend rate on shares of such
series for such Subsequent Rate Period will be the Maximum Rate for shares
of such series on the Auction Date therefor;
(B) any Failure to Deposit shall have occurred with respect to shares
of such series during any Rate Period thereof (other than any Special Rate
Period consisting of more than 364 Rate Period Days or any Rate Period
succeeding any Special Rate Period consisting of more than 364 Rate Period
Days during which a Failure to Deposit occurred that has not been cured),
but, prior to 12:00 Noon, New York City time, on the third Business Day
next succeeding the date on which such Failure to Deposit occurred, such
Failure to Deposit shall have been cured in accordance with paragraph
(f) of this Section 2 and the Fund shall have paid to the Auction Agent a
late charge ("Late Charge") equal to the sum of (1) if such Failure to
Deposit consisted of the failure timely to pay to the Auction Agent the
full amount of dividends with respect to any Dividend Period of the shares
of such series, an amount computed by multiplying (x) 200% of the Reference
Rate for the Rate Period during which such Failure to Deposit occurs on the
Dividend Payment Date for such Dividend Period by (y) a fraction, the
numerator of which shall be the number of days for which such Failure to
Deposit has not been cured in accordance with paragraph (f) of this Section
2 (including the day such Failure to Deposit occurs and excluding the day
such Failure to Deposit is cured) and the denominator of which shall be
360, and applying the rate obtained against the aggregate Liquidation
Preference of the outstanding shares of such series and (2) if such Failure
to Deposit consisted of the failure timely to pay to the Auction Agent the
Redemption Price of the shares, if any, of such series for which Notice of
Redemption has been mailed by the Fund pursuant to paragraph (c) of Section
11 of this Part I, an amount computed by multiplying (x) 200% of the
Reference Rate for the Rate Period during which such Failure to Deposit
occurs on the redemption date by (y) a fraction, the numerator of which
shall be the number of days for which such Failure to Deposit is not cured
in accordance with paragraph (f) of this Section 2 (including the day such
Failure to Deposit occurs and excluding the day such Failure to Deposit is
cured) and the denominator of which shall be 360, and applying the rate
obtained against the aggregate Liquidation Preference of the outstanding
shares of such series to be redeemed, no Auction will be held in respect of
shares of such series for the 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;
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(C) any Failure to Deposit shall have occurred with respect to shares
of such series during any Rate Period thereof (other than any Special Rate
Period consisting of more than 364 Rate Period Days or any Rate Period
succeeding any Special Rate Period consisting of more than 364 Rate Period
Days during which a Failure to Deposit occurred that has not been cured),
and, prior to 12:00 Noon, New York City time, on the third Business Day
next succeeding the date on which such Failure to Deposit occurred, such
Failure to Deposit shall not have been cured in accordance with paragraph
(f) of this Section 2 or the Fund shall not have paid the applicable Late
Charge to the Auction Agent, no Auction will be held in respect of shares
of such series for the 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 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
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the Fund to make the required payment to the Auction Agent) with respect to any
Rate Period of shares of such series if, within the respective time periods
described in subparagraph (e)(i) of this Section 2, the Fund shall have paid to
the Auction Agent (A) all accumulated and unpaid dividends on shares of such
series and (B) without duplication, the Redemption Price for shares, if any, of
such series for which Notice of Redemption has been mailed by the Fund pursuant
to paragraph (c) of Section 11 of Part I of this Statement; provided, however,
that the foregoing clause (B) shall not apply to the Fund's failure to pay the
Redemption Price in respect of shares of MuniPreferred when the related
Redemption Notice provides that redemption of such shares is subject to one or
more conditions precedent and any such condition precedent shall not have been
satisfied at the time or times and in the manner specified in such Notice of
Redemption.
(g) Dividend Payments by Fund to Auction Agent. The Fund shall pay to the
Auction Agent, not later than 12:00 Noon, New York City time, on the Business
Day next preceding each Dividend Payment Date for shares of a series of
MuniPreferred, an aggregate amount of funds available on the next Business Day
in The City of New York, New York, equal to the dividends to be paid to all
Holders of shares of such series on such Dividend Payment Date.
(h) Auction Agent as Trustee of Dividend Payments by Fund. All moneys paid
to the Auction Agent for the payment of dividends (or for the payment of any
Late Charge) shall be held in trust for the payment of such dividends (and any
such Late Charge) by the Auction Agent for the benefit of the Holders specified
in paragraph (i) of this Section 2. Any moneys paid to the Auction Agent in
accordance with the foregoing but not applied by the Auction Agent to the
payment of dividends (and any such Late Charge) will, to the extent permitted by
law, be repaid to the Fund at the end of 90 days from the date on which such
moneys were so to have been applied.
(i) Dividends Paid to Holders. Each dividend on shares of MuniPreferred
shall be paid on the Dividend Payment Date therefor to the Holders thereof as
their names appear on the stock books of the Fund on the Business Day next
preceding such Dividend Payment Date.
(j) Dividends Credited Against Earliest Accumulated But Unpaid Dividends.
Any dividend payment made on shares of MuniPreferred shall first be credited
against the earliest accumulated but unpaid dividends due with respect to such
shares. Dividends in arrears for any past Dividend Period may be declared and
paid at any time, without reference to any regular Dividend Payment Date, to the
Holders as their names appear on the stock books of the Fund on such date, not
exceeding 15 days preceding the payment date thereof, as may be fixed by the
Board of Directors.
(k) Dividends Designated as Exempt-Interest Dividends. Dividends on shares
of MuniPreferred shall be designated as exempt-interest dividends up to the
amount of tax-exempt income of the Fund, to the extent permitted by, and for
purposes of, Section 852 of the Code.
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3. Gross-up Payments.
Holders of shares of MuniPreferred shall be entitled to receive, when, as
and if declared by the Board of Directors, out of funds legally available
therefor, dividends in an amount equal to the aggregate Gross-up Payments as
follows:
(a) Minimum Rate Periods and Special Rate Periods of 28 Rate Period
Days or Fewer. If, in the case of any Minimum Rate Period or any Special
Rate Period of 28 Rate Period Days or fewer, the Fund allocates any net
capital gains or other income taxable for Federal income tax purposes to a
dividend paid on shares of MuniPreferred without having given advance
notice thereof to the Auction Agent as provided in Section 5 of Part II of
this Statement (such allocation being referred to herein as a "Taxable
Allocation") solely by reason of the fact that such allocation is made
retroactively as a result of the redemption of all or a portion of the
outstanding shares of MuniPreferred or the liquidation of the Fund, the
Fund shall, prior to the end of the calendar year in which such dividend
was paid, provide notice thereof to the Auction Agent and direct the Fund's
dividend disbursing agent to send such notice with a Gross-up Payment to
each Holder of such shares that was entitled to such dividend payment
during such calendar year at such Holder's address as the same appears or
last appeared on the stock books of the Fund.
(b) Special Rate Periods of More Than 28 Rate Period Days. If, in the
case of any Special Rate Period of more than 28 Rate Period Days, the Fund
makes a Taxable Allocation to a dividend paid on shares of MuniPreferred,
the Fund shall, prior to the end of the calendar year in which such
dividend was paid, provide notice thereof to the Auction Agent and direct
the Fund's dividend disbursing agent to send such notice with a Gross-up
Payment to each Holder of shares that was entitled to such dividend payment
during such calendar year at such Holder's address as the same appears or
last appeared on the stock books of the Fund.
(c) No Gross-up Payments In the Event of a Reallocation. The Fund
shall not be required to make Gross-up Payments with respect to any net
capital gains or other taxable income determined by the Internal Revenue
Service to be allocable in a manner different from that allocated by the
Fund.
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
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day of such Special Rate Period is not (a) a Tuesday that is a Business Day in
the case of a series of MuniPreferred designated as "Series M MuniPreferred" in
Section 1 of Appendix A hereto, (b) a Wednesday that is a Business Day in the
case of a series of MuniPreferred designated as "Series T MuniPreferred" in
Section 1 of Appendix A hereto, (c) a Thursday that is a Business Day in the
case of a series of MuniPreferred designated as "Series W MuniPreferred" in
Section 1 of Appendix A hereto, (d) a Friday that is a Business Day in the case
of a series of MuniPreferred designated as "Series TH MuniPreferred" in Section
1 of Appendix A hereto, (e) a Monday that is a Business Day in the case of a
series of MuniPreferred designated as "Series F MuniPreferred" in Section 1 of
Appendix A hereto, then the Fund shall designate such Subsequent Rate Period as
a Special Rate Period consisting of the period commencing on the first day
following the end of the immediately preceding Rate Period and ending (a) on the
first Monday that is followed by a Tuesday that is a Business Day preceding what
would otherwise be such last day, in the case of Series M MuniPreferred, (b) on
the first Tuesday that is followed by a Wednesday that is a Business Day
preceding what would otherwise be such last day, in the case of Series T
MuniPreferred, (c) on the first Wednesday that is followed by a Thursday that is
a Business Day preceding what would otherwise be such last day, in the case of
Series W MuniPreferred, (d) on the first Thursday that is followed by a Friday
that is a Business Day preceding what would otherwise be such last day, in the
case of Series TH MuniPreferred, and (e) on the first Sunday that is followed by
a Monday that is a Business Day preceding what would otherwise be such last day,
in the case of Series F MuniPreferred.
(c) Notice of Proposed Special Rate Period. If the Fund proposes to
designate any succeeding Subsequent Rate Period of shares of a series of
MuniPreferred as a Special Rate Period pursuant to paragraph (a) of this Section
4, not less than 20 (or such lesser number of days as may be agreed to from time
to time by the Auction Agent) nor more than 30 days prior to the date the Fund
proposes to designate as the first day of such Special Rate Period (which shall
be such day that would otherwise be the first day of a Minimum Rate Period),
notice shall be (i) published or caused to be published by the Fund in a
newspaper of general circulation to the financial community in The City of New
York, New York, which carries financial news, and (ii) mailed by the Fund by
first-class mail, postage prepaid, to the Holders of shares of such series. Each
such notice shall state (A) that the Fund may exercise its option to designate a
succeeding Subsequent Rate Period of shares of such series as a Special Rate
Period, specifying the first day thereof and (B) that the Fund will, by 11:00
A.M., New York City time, on the second Business Day next preceding such date
(or by such later time or date, or both, as may be agreed to by the Auction
Agent) notify the Auction Agent of either (x) its determination, subject to
certain conditions, to exercise such option, in which case the Fund shall
specify the Special Rate Period designated, or (y) its determination not to
exercise such option.
(d) Notice of Special Rate Period. No later than 11:00 A.M., New York City
time, on the second Business Day next preceding the first day of any proposed
Special Rate Period of shares of a series of MuniPreferred as to which notice
has been given as set forth in paragraph (c) of this Section 4 (or such later
time or date, or both, as may be agreed to by the Auction Agent), the Fund shall
deliver to the Auction Agent either:
(i) a notice ("Notice of Special Rate Period") stating (A) that the
Fund has determined to designate the next succeeding Rate Period of shares
of such series as a Special Rate Period, specifying the same and the first
day thereof, (B) the Auction Date immediately prior to the first day of
such Special Rate Period, (C) that such Special Rate Period shall not
commence if (1) an Auction for shares of such series shall not be held on
such Auction Date for any reason or (2) an Auction for shares of such
series shall be held on such Auction Date but Sufficient Clearing Bids for
shares of such series shall not exist in such Auction, (D) the scheduled
Dividend Payment Dates for shares of such series during such Special Rate
Period and (E) the Special Redemption Provisions, if any, applicable to
shares of such series in respect of such Special Rate Period; such notice
to be accompanied by a MuniPreferred Basic Maintenance Report showing that,
as of the third Business Day next preceding such proposed Special Rate
Period, Moody's Eligible Assets (if Moody's is then rating such series) and
S&P Eligible Assets (if S&P is then rating such series) each have an
aggregate Discounted Value at least equal to the MuniPreferred Basic
Maintenance
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Amount as of such Business Day (assuming for purposes of the foregoing
calculation that (a) the Maximum Rate is the Maximum Rate on such Business
Day as if such Business Day were the Auction Date for the proposed Special
Rate Period, and (b) the Moody's Discount Factors applicable to Moody's
Eligible Assets are determined by reference to the first Exposure Period
longer than the Exposure Period then applicable to the Fund, as described
in the definition of Moody's Discount Factor herein); or
(ii) a notice stating that the Fund has determined not to exercise its
option to designate a Special Rate Period of shares of such series and that
the next succeeding Rate Period of shares of such series shall be a Minimum
Rate Period.
(e) Failure to Deliver Notice of Special Rate Period. If the Fund fails to
deliver either of the notices described in subparagraphs (d)(i) or (d)(ii) of
this Section 4 (and, in the case of the notice described in subparagraph (d)(i)
of this Section 4, a MuniPreferred Basic Maintenance Report to the effect set
forth in such subparagraph (if either Moody's or S&P is then rating the series
in question)) with respect to any designation of any proposed Special Rate
Period to the Auction Agent by 11:00 A.M., New York City time, on the second
Business Day next preceding the first day of such proposed Special Rate Period
(or by such later time or date, or both, as may be agreed to by the Auction
Agent), the Fund shall be deemed to have delivered a notice to the Auction Agent
with respect to such Special Rate Period to the effect set forth in subparagraph
(d)(ii) of this Section 4. In the event the Fund delivers to the Auction Agent a
notice described in subparagraph (d)(i) of this Section 4, it shall file a copy
of such notice with the Secretary of the Fund, and the contents of such notice
shall be binding on the Fund. In the event the Fund delivers to the Auction
Agent a notice described in subparagraph (d)(ii) of this Section 4, the Fund
will provide Moody's (if Moody's is then rating the series in question) and S&P
(if S&P is then rating the series in question) a copy of such notice.
5. Voting Rights.
(a) One Vote Per Share of MuniPreferred. Except as otherwise provided in
the Articles or as otherwise required by law, (i) each Holder of shares of
MuniPreferred shall be entitled to one vote for each share of MuniPreferred held
by such Holder on each matter submitted to a vote of shareholders of the Fund,
and (ii) the holders of outstanding shares of Preferred Stock, including each
share of MuniPreferred, and of shares of Common Stock shall vote together as a
single class; provided, however, that, at any meeting of the shareholders of the
Fund held for the election of directors, the holders of outstanding shares of
Preferred Stock, including MuniPreferred, represented in person or by proxy at
said meeting, shall be entitled, as a class, to the exclusion of the holders of
all other securities and classes of capital stock of the Fund, to elect two
directors of the Fund, each share of Preferred Stock, including each share of
MuniPreferred, entitling the holder thereof to one vote. Subject to paragraph
(b) of this Section 5, the holders of outstanding shares of Common Stock and
Preferred Stock, including MuniPreferred, voting together as a single class,
shall elect the balance of the directors.
(b) Voting For Additional Directors. (i) Voting Period. During any period
in which any one or more of the conditions described in subparagraphs (A) or (B)
of this subparagraph (b)(i) shall exist (such period being referred to herein as
a "Voting Period"), the number of directors constituting the Board of Directors
shall be automatically increased by the smallest number that, when added to the
two directors elected exclusively by the holders of shares of Preferred Stock,
including shares of MuniPreferred, would constitute a majority of the Board of
Directors as so increased by such smallest number; and the holders of shares of
Preferred Stock, including MuniPreferred, shall be entitled, voting as a class
on a one-vote-per-share basis (to the exclusion of the holders of all other
securities and classes of capital stock of the Fund), to elect such smallest
number of additional directors, together with the two directors that such
holders are in any event entitled to elect. A Voting Period shall commence:
(A) if at the close of business on any dividend payment date
accumulated dividends (whether or not earned or declared) on any
outstanding share of Preferred Stock, including
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MuniPreferred, equal to at least two full years' dividends shall be due and
unpaid and sufficient cash or specified securities shall not have been
deposited with the Auction Agent for the payment of such accumulated
dividends; or
(B) if at any time holders of shares of Preferred Stock are entitled
under the 1940 Act to elect a majority of the directors of the Fund.
Upon the termination of a Voting Period, the voting rights described in this
subparagraph (b)(i) shall cease, subject always, however, to the revesting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this subparagraph (b)(i).
(ii) Notice of Special Meeting. As soon as practicable after the accrual
of any right of the holders of shares of Preferred Stock to elect additional
directors as described in subparagraph (b)(i) of this Section 5, the Fund shall
notify the Auction Agent and the Auction Agent shall call a special meeting of
such holders, by mailing a notice of such special meeting to such holders, such
meeting to be held not less than 10 nor more than 20 days after the date of
mailing of such notice. If the Fund fails to send such notice to the Auction
Agent or if the Auction Agent does not call such a special meeting, it may be
called by any such holder on like notice. The record date for determining the
holders entitled to notice of and to vote at such special meeting shall be the
close of business on the fifth Business Day preceding the day on which such
notice is mailed. At any such special meeting and at each meeting of holders of
shares of Preferred Stock held during a Voting Period at which directors are to
be elected, such holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of capital stock of the Fund), shall
be entitled to elect the number of directors prescribed in subparagraph (b)(i)
of this Section 5 on a one-vote-per-share basis.
(iii) Terms of Office of Existing Directors. The terms of office of all
persons who are directors of the Fund at the time of a special meeting of
Holders and holders of other Preferred Stock to elect directors shall continue,
notwithstanding the election at such meeting by the Holders and such other
holders of the number of directors that they are entitled to elect, and the
persons so elected by the Holders and such other holders, together with the two
incumbent directors elected by the Holders and such other holders of Preferred
Stock and the remaining incumbent directors elected by the holders of the Common
Stock and Preferred Stock, shall constitute the duly elected directors of the
Fund.
(iv) Terms of Office of Certain Directors to Terminate Upon Termination of
Voting Period. Simultaneously with the termination of a Voting Period, the terms
of office of the additional directors elected by the Holders and holders of
other Preferred Stock pursuant to subparagraph (b)(i) of this Section 5 shall
terminate, the remaining directors shall constitute the directors of the Fund
and the voting rights of the Holders and such other holders to elect additional
directors pursuant to subparagraph (b)(i) of this Section 5 shall cease, subject
to the provisions of the last sentence of subparagraph (b)(i) of this Section 5.
(c) Holders of MuniPreferred To Vote On Certain Other Matters.
(i) Increases in Capitalization. So long as any shares of MuniPreferred are
outstanding, the Fund shall not, without the affirmative vote or consent of the
Holders of at least a majority of the shares of MuniPreferred outstanding at the
time, in person or by proxy, either in writing or at a meeting, voting as a
separate class: (a) authorize, create or issue any class or series of stock
ranking prior to or on a parity with shares of MuniPreferred with respect to the
payment of dividends or the distribution of assets upon dissolution, liquidation
or winding up of the affairs of the Fund, or authorize, create or issue
additional shares of any series of MuniPreferred (except that, notwithstanding
the foregoing, but subject to the provisions of paragraph (c) of Section 10 of
this Part I, the Board of Directors, without the vote or consent of the Holders
of MuniPreferred, may from time to time authorize and create, and the Fund may
from time to time issue, additional shares of any series of MuniPreferred or
classes or series of Preferred Stock ranking on a parity with shares of
MuniPreferred with respect to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up of the affairs of the Fund;
provided, however, that if Moody's or S&P is not then rating the shares of
MuniPreferred, the aggregate liquidation preference of all Preferred Stock of
the Fund
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outstanding after any such issuance, exclusive of accumulated and unpaid
dividends, may not exceed the amount set forth in Section 10 of Appendix A
hereto) or (b) amend, alter or repeal the provisions of the Articles, including
this Statement, whether by merger, consolidation or otherwise, so as to affect
any preference, right or power of such shares of MuniPreferred or the Holders
thereof; provided, however, that (i) none of the actions permitted by the
exception to (a) above will be deemed to affect such preferences, rights or
powers, (ii) a division of a share of MuniPreferred will be deemed to affect
such preferences, rights or powers only if the terms of such division adversely
affect the Holders of shares of MuniPreferred and (iii) the authorization,
creation and issuance of classes or series of stock ranking junior to shares of
MuniPreferred with respect to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up of the affairs of the Fund,
will be deemed to affect such preferences, rights or powers only if Moody's or
S&P is then rating shares of MuniPreferred and such issuance would, at the time
thereof, cause the Fund not to satisfy the 1940 Act MuniPreferred Asset Coverage
or the MuniPreferred Basic Maintenance Amount. So long as any shares of
MuniPreferred are outstanding, the Fund shall not, without the affirmative vote
or consent of the Holders of at least 66 2/3% of the shares of MuniPreferred
outstanding at the time, in person or by proxy, either in writing or at a
meeting, voting as a separate class, file a voluntary application for relief
under Federal bankruptcy law or any similar application under state law for so
long as the Fund is solvent and does not foresee becoming insolvent. To the
extent that shares of MuniPreferred constitute a series of stock under Minnesota
law and to the extent the Holders of such shares are empowered under the
Minnesota Business Corporation Act to vote as a class on the actions set forth
above in this subparagraph (c)(i), the Fund shall not approve any such action
without the affirmative vote or consent of the Holders of at least a majority of
the shares of MuniPreferred of such series outstanding at the time, in person or
by proxy, either in writing or at a meeting (voting as a separate class).
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(ii) 1940 Act Matters. Unless a higher percentage is provided for in the
Articles, (A) the affirmative vote of the Holders of at least a majority of the
shares of Preferred Stock, including MuniPreferred, outstanding at the time,
voting as a separate class, shall be required to approve any conversion of the
Fund from a closed-end to an open-end investment company and (B) the affirmative
vote of the Holders of a "majority of the outstanding shares of Preferred
Stock," including MuniPreferred, voting as a separate class, shall be required
to approve any plan of reorganization (as such term is used in the 1940 Act)
adversely affecting such shares. The affirmative vote of the Holders of a
"majority of the outstanding shares of Preferred Stock," including
MuniPreferred, voting as a separate class, shall be required to approve any
action not described in the first sentence of this Section 5(c)(ii) requiring a
vote of security holders of the Fund under Section 13(a) of the 1940 Act. For
purpose of the foregoing, "majority of the outstanding shares of Preferred
Stock" means (i) 67% or more of such shares present at a meeting, if the Holders
of more than 50% of such shares are present or represented by proxy, or (ii)
more than 50% of such shares, whichever is less. In the event a vote of Holders
of MuniPreferred is required pursuant to the provisions of Section 13(a) of the
1940 Act, the Fund shall, not later than ten Business Days prior to the date on
which such vote is to be taken, notify Moody's (if Moody's is then rating the
shares of MuniPreferred) and S&P (if S&P is then rating the shares of
MuniPreferred) that such vote is to be taken and the nature of the action with
respect to which such vote is to be taken. The Fund shall, not later than ten
Business Days after the date on which such vote is taken, notify Moody's (if
Moody's is then rating the shares of MuniPreferred) of the results of such vote.
(d) Board May Take Certain Actions Without Shareholder Approval. The Board
of Directors, without the vote or consent of the shareholders of the Fund, may
from time to time amend, alter or repeal any or all of the definitions of the
terms listed below, or any provision of this Statement viewed by Moody's or S&P
as a predicate for any such definition, and any such amendment, alteration or
repeal will not be deemed to affect the preferences, rights or powers of shares
of MuniPreferred or the Holders thereof; provided, however, that the Board of
Directors receives written confirmation from Moody's (such confirmation being
required to be obtained only in the event Moody's is rating the shares of
MuniPreferred and in no event being required to be obtained in the case of the
definitions of (x) Deposit Securities, Discounted Value, Receivables for
Municipal Obligations Sold, Issue Type Category and Other Issues as such terms
apply to S&P Eligible Assets and (y) S&P Discount Factor, S&P Eligible Asset,
S&P Exposure Period and S&P Volatility Factor) and S&P (such confirmation being
required to be obtained only in the event S&P is rating the shares of
MuniPreferred and in no event being required to be obtained in the case of the
definitions of (x) Discounted Value, Receivables for Municipal Obligations Sold,
Issue Type Category and Other Issues as such terms apply to Moody's Eligible
Assets, and (y) Moody's Discount Factor, Moody's Eligible Asset, Moody's
Exposure Period and Moody's Volatility Factor) that any such amendment,
alteration or repeal would not impair the ratings then assigned by Moody's or
S&P, as the case may be, to shares of MuniPreferred:
Deposit Securities Other Issues
Discounted Value Quarterly Valuation Date
Escrowed Bonds Receivables for Municipal
Issue Type Category Obligations Sold
Market Value S&P Discount Factor
Maximum Potential Gross-up
Payment Liability
MuniPreferred Basic Maintenance Amount
MuniPreferred Basic Maintenance Cure Date
MuniPreferred Basic Maintenance Report
Moody's Discount Factor
Moody's Eligible Asset
Moody's Exposure Period
Moody's Volatility Factor
1940 Act Cure Date
1940 Act MuniPreferred Asset Coverage
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S&P Eligible Asset
S&P Exposure Period
S&P Volatility Factor
Valuation Date
Volatility Factor
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<PAGE> 166
(e) Voting Rights Set Forth Herein Are Sole Voting Rights. Unless otherwise
required by law, the Holders of shares of MuniPreferred shall not have any
relative rights or preferences or other special rights other than those
specifically set forth herein.
(f) No Preemptive Rights or Cumulative Voting. The Holders of shares of
MuniPreferred shall have no preemptive rights or rights to cumulative voting.
(g) Voting for Directors Sole Remedy for Fund's Failure to Pay Dividends.
In the event that the Fund fails to pay any dividends on the shares of
MuniPreferred, the exclusive remedy of the Holders shall be the right to vote
for directors pursuant to the provisions of this Section 5.
(h) Holders Entitled to Vote. For purposes of determining any rights of the
Holders to vote on any matter, whether such right is created by this Statement,
by the other provisions of the Articles, by statute or otherwise, no Holder
shall be entitled to vote any share of MuniPreferred and no share of
MuniPreferred shall be deemed to be "outstanding" for the purpose of voting or
determining the number of shares required to constitute a quorum if, prior to or
concurrently with the time of determination of shares entitled to vote or shares
deemed outstanding for quorum purposes, as the case may be, the requisite Notice
of Redemption with respect to such shares shall have been mailed as provided in
paragraph (c) of Section 11 of this Part I and the Redemption Price for the
redemption of such shares shall have been deposited in trust with the Auction
Agent for that purpose. No share of MuniPreferred held by the Fund or any
affiliate of the Fund (except for shares held by a Broker-Dealer that is an
affiliate of the Fund for the account of its customers) shall have any voting
rights or be deemed to be outstanding for voting or other purposes.
6. 1940 Act MuniPreferred Asset Coverage.
The Fund shall maintain, as of the last Business Day of each month in
which any share of MuniPreferred is outstanding, the 1940 Act MuniPreferred
Asset Coverage.
7. MuniPreferred Basic Maintenance Amount.
(a) So long as shares of MuniPreferred are outstanding, the Fund shall
maintain, on each Valuation Date, and shall verify to its satisfaction that it
is maintaining on such Valuation Date, (i) S&P Eligible Assets having an
aggregate Discounted Value equal to or greater than the MuniPreferred Basic
Maintenance Amount (if S&P is then rating the shares of MuniPreferred) and (ii)
Moody's Eligible Assets having an aggregate Discounted Value equal to or greater
than the MuniPreferred Basic Maintenance Amount (if Moody's is then rating the
shares of MuniPreferred).
(b) On or before 5:00 P.M., New York City time, on the third Business Day
after a Valuation Date on which the Fund fails to satisfy the MuniPreferred
Basic Maintenance Amount, and on the third Business Day after the MuniPreferred
Basic Maintenance Cure Date with respect to such Valuation Date, the Fund shall
complete and deliver to S&P (if S&P is then rating the shares of MuniPreferred),
Moody's (if Moody's is then rating the shares of MuniPreferred) and the Auction
Agent (if either S&P or Moody's is then rating the shares of MuniPreferred) a
MuniPreferred Basic Maintenance Report as of the date of such failure or such
MuniPreferred Basic Maintenance Cure Date, as the case may be, which will be
deemed to have been delivered to the Auction Agent if the Auction Agent receives
a copy or telecopy, telex or other electronic transcription thereof and on the
same day the Fund mails to the Auction Agent for delivery on the next Business
Day the full MuniPreferred Basic Maintenance Report. The Fund shall also deliver
a MuniPreferred Basic Maintenance Report to (i) the Auction Agent (if either
Moody's or S&P is then rating the shares of MuniPreferred) as of (A) the
fifteenth day of each month (or, if such day is not a Business Day, the next
succeeding Business Day) and (B) the last Business Day of each month, (ii)
Moody's (if Moody's is then rating the shares of MuniPreferred) and S&P (if S&P
is then rating the shares of MuniPreferred) as of any Quarterly Valuation Date,
in each case on or before the third Business Day after such day, and (iii) S&P,
if and when requested for any Valuation Date, on or before the third Business
Day
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after such request. A failure by the Fund to deliver a MuniPreferred Basic
Maintenance Report pursuant to the preceding sentence shall be deemed to be
delivery of a MuniPreferred Basic Maintenance Report indicating the Discounted
Value for all assets of the Fund is less than the MuniPreferred Basic
Maintenance Amount, as of the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery of a MuniPreferred
Basic Maintenance Report in accordance with paragraph (b) of this Section 7
relating to a Quarterly Valuation Date, the Fund shall cause the Independent
Accountant to confirm in writing to S&P (if S&P is then rating the shares of
MuniPreferred), Moody's (if Moody's is then rating the shares of MuniPreferred)
and the Auction Agent (if either S&P or Moody's is then rating the shares of
MuniPreferred) (i) the mathematical accuracy of the calculations reflected in
such Report (and in any other MuniPreferred Basic Maintenance Report, randomly
selected by the Independent Accountant, that was delivered by the Fund during
the quarter ending on such Quarterly Valuation Date) and (ii) that, in such
Report (and in such randomly selected Report), the Fund determined in accordance
with this Statement whether the Fund had, at such Quarterly Valuation Date (and
at the Valuation Date addressed in such randomly-selected Report), S&P Eligible
Assets (if S&P is then rating the shares of MuniPreferred) of an aggregate
Discounted Value at least equal to the MuniPreferred Basic Maintenance Amount
and Moody's Eligible Assets (if Moody's is then rating the shares of
MuniPreferred) of an aggregate Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount (such confirmation being herein called
the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery of a MuniPreferred
Basic Maintenance Report in accordance with paragraph (b) of this Section 7
relating to any Valuation Date on which the Fund failed to satisfy the
MuniPreferred Basic Maintenance Amount, and relating to the MuniPreferred Basic
Maintenance Cure Date with respect to such failure to satisfy the MuniPreferred
Basic Maintenance Amount, the Fund shall cause the Independent Accountant to
provide to S&P (if S&P is then rating the shares of MuniPreferred), Moody's (if
Moody's is then rating the shares of MuniPreferred) and the Auction Agent (if
either S&P or Moody's is then rating the shares of MuniPreferred) an
Accountant's Confirmation as to such MuniPreferred Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to paragraph (c) or
(d) of this Section 7 shows that an error was made in the MuniPreferred Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation was required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all S&P Eligible Assets (if S&P is then
rating the shares of MuniPreferred) or Moody's Eligible Assets (if Moody's is
then rating the shares of MuniPreferred), as the case may be, of the Fund was
determined by the Independent Accountant, the calculation or determination made
by such Independent Accountant shall be final and conclusive and shall be
binding on the Fund, and the Fund shall accordingly amend and deliver the
MuniPreferred Basic Maintenance Report to S&P (if S&P is then rating the shares
of MuniPreferred), Moody's (if Moody's is then rating the shares of
MuniPreferred) and the Auction Agent (if either S&P or Moody's is then rating
the shares of MuniPreferred) promptly following receipt by the Fund of such
Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business Day
after the Date of Original Issue of any shares of MuniPreferred, the Fund shall
complete and deliver to S&P (if S&P is then rating the shares of MuniPreferred)
and Moody's (if Moody's is then rating the shares of MuniPreferred) a
MuniPreferred Basic Maintenance Report as of the close of business on such Date
of Original Issue. Within five Business Days of such Date of Original Issue, the
Fund shall cause the Independent Accountant to confirm in writing to S&P (if S&P
is then rating the shares of MuniPreferred) (i) the mathematical 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
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<PAGE> 168
less than or equal to 105%, the Fund shall complete and deliver to S&P (if S&P
is then rating the shares of MuniPreferred) or Moody's (if Moody's is then
rating the shares of MuniPreferred), as the case may be, a MuniPreferred Basic
Maintenance Report as of the date of either such event.
8. [Reserved]
9. Restrictions on Dividends and Other Distributions.
(a) Dividends on Preferred Stock Other Than MuniPreferred. Except as set
forth in the next sentence, no dividends shall be declared or paid or set apart
for payment on the shares of any class or series of stock ranking, as to the
payment of dividends, on a parity with shares of MuniPreferred for any period
unless full cumulative dividends have been or contemporaneously are declared and
paid on the shares of each series of MuniPreferred through its most recent
Dividend Payment Date. When dividends are not paid in full upon the shares of
each series of MuniPreferred through its most recent Dividend Payment Date or
upon the shares of any other class or series of stock ranking on a parity as to
the payment of dividends with shares of MuniPreferred through their most recent
respective dividend payment dates, all dividends declared upon shares of
MuniPreferred and any other such class or series of stock ranking on a parity as
to the payment of dividends with shares of MuniPreferred shall be declared pro
rata so that the amount of dividends declared per share on shares of
MuniPreferred and such other class or series of stock shall in all cases bear to
each other the same ratio that accumulated dividends per share on the shares of
MuniPreferred and such other class or series of stock bear to each other (for
purposes of this sentence, the amount of dividends declared per share of
MuniPreferred shall be based on the Applicable Rate for such share for the
Dividend Periods during which dividends were not paid in full).
(b) Dividends and Other Distributions With Respect to Common Stock Under
the 1940 Act. The Board of Directors shall not declare any dividend (except a
dividend payable in shares of Common Stock), or declare any other distribution,
upon shares of Common Stock, or purchase shares of Common Stock, unless in every
such case the shares of Preferred Stock have, at the time of any such
declaration or purchase, an asset coverage (as defined in and determined
pursuant to the 1940 Act) of at least 200% (or such other asset coverage as may
in the future be specified in or under the 1940 Act as the minimum asset
coverage for senior securities which are stock of a closed-end investment
company as a condition of declaring dividends on its common stock) after
deducting the amount of such dividend, distribution or purchase price, as the
case may be.
(c) Other Restrictions On Dividends and Other Distributions. For so long as
any share of MuniPreferred is outstanding, and except as set forth in paragraph
(a) of this Section 9 and paragraph (c) of Section 12 of this Part I, (A) the
Fund shall not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or in
options, warrants or rights to subscribe for or purchase, Common Stock or other
stock, if any, ranking junior to the shares of MuniPreferred as to the payment
of dividends and the distribution of assets upon dissolution, liquidation or
winding up) in respect of the Common Stock or any other stock of the Fund
ranking junior to or on a parity with the shares of MuniPreferred as to the
payment of dividends or the distribution of assets upon dissolution, liquidation
or winding up, or call for redemption, redeem, purchase or otherwise acquire for
consideration any shares of Common Stock or any other such junior stock (except
by conversion into or exchange for stock of the Fund ranking junior to the
shares of MuniPreferred as to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up), or any such parity stock
(except by conversion into or exchange for stock of the Fund ranking junior to
or on a parity with MuniPreferred as to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up), unless (i)
full cumulative dividends on shares of each series of MuniPreferred through its
most recently ended Dividend Period shall have been paid or shall have been
declared and sufficient funds for the payment thereof deposited with the Auction
Agent and (ii) the Fund has redeemed the full number of shares of MuniPreferred
required to be redeemed by any provision for mandatory redemption pertaining
thereto, and (B) the Fund shall not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or in options, warrants or rights to subscribe for or purchase,
Common Stock or other stock, if any, ranking junior to shares of MuniPreferred
as to the
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<PAGE> 169
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 or paying dividends if (i) the
MuniPreferred Basic Maintenance Amount would continue to be satisfied after
giving effect to such borrowing and (ii) such borrowing (A) is privately
arranged with a bank or other person and is evidenced by a promissory note
or other evidence of indebtedness that is not intended to be publicly
distributed or (B) is for "temporary purposes," is evidenced by a
promissory note or other evidence of indebtedness and is in an amount not
exceeding 5 per centum of the value of the total assets of the Fund at the
time of the borrowing; for purposes of the foregoing, "temporary purpose"
means that the borrowing is to be repaid within sixty days and is not to be
extended or renewed;
(c) issue additional shares of any series of MuniPreferred or any
class or series of stock ranking prior to or on a parity with shares of
MuniPreferred with respect to the payment of dividends or the distribution
of assets upon dissolution, liquidation or winding up of the Fund, or
reissue any shares of MuniPreferred previously purchased or redeemed by the
Fund;
(d) engage in any short sales of securities;
(e) lend securities;
(f) merge or consolidate into or with any other corporation;
(g) change the pricing service (currently J.J. Kenny) referred to in
the definition of Market Value; or
(h) enter into reverse repurchase agreements.
11. Redemption.
(a) Optional Redemption. (i) Subject to the provisions of subparagraph (v)
of this paragraph (a), shares of MuniPreferred of any series may be redeemed, at
the option of the Fund, as a whole or from time to time in part, on the second
Business Day preceding any Dividend Payment Date for shares of such series, out
of funds legally available therefor, at a redemption price per share equal to
the sum of $25,000 plus an amount equal to accumulated but unpaid dividends
thereon (whether or not earned or declared) to (but not including) the date
fixed for redemption; provided, however, that (1) shares of a series
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<PAGE> 170
of MuniPreferred may not be redeemed in part if after such partial
redemption fewer than 500 shares of such series remain outstanding; (2) unless
otherwise provided in Section 11 of Appendix A hereto, shares of a series of
MuniPreferred are redeemable by the Fund during the Initial Rate Period thereof
only on the second Business Day next preceding the last Dividend Payment Date
for such Initial Rate Period; and (3) subject to subparagraph (ii) of this
paragraph (a), the Notice of Special Rate Period relating to a Special Rate
Period of shares of a series of MuniPreferred, as delivered to the Auction Agent
and filed with the Secretary of the Fund, may provide that shares of such series
shall not be redeemable during the whole or any part of such Special Rate Period
(except as provided in subparagraph (iv) of this paragraph (a)) or shall be
redeemable during the whole or any part of such Special Rate Period only upon
payment of such redemption premium or premiums as shall be specified therein
("Special Redemption Provisions").
(ii) A Notice of Special Rate Period relating to shares of a series of
MuniPreferred for a Special Rate Period thereof may contain Special Redemption
Provisions only if the Fund's Board of Directors, after consultation with the
Broker-Dealer or Broker-Dealers for such Special Rate Period of shares of such
series, determines that such Special Redemption Provisions are in the best
interest of the Fund.
(iii) If fewer than all of the outstanding shares of a series of
MuniPreferred are to be redeemed pursuant to subparagraph (i) of this paragraph
(a), the number of shares of such series to be redeemed shall be determined by
the Board of Directors, and such shares shall be redeemed pro rata from the
Holders of shares of such series in proportion to the number of shares of such
series held by such Holders.
(iv) Subject to the provisions of subparagraph (v) of this paragraph (a),
shares of any series of MuniPreferred may be redeemed, at the option of the
Fund, as a whole but not in part, out of funds legally available therefor, on
the first day following any Dividend Period thereof included in a Rate Period
consisting of more than 364 Rate Period Days if, on the date of determination of
the Applicable Rate for shares of such series for such Rate Period, such
Applicable Rate equalled or exceeded on such date of determination the Treasury
Note Rate for such Rate Period, at a redemption price per share equal to the sum
of $25,000 plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed for
redemption.
(v) The Fund may not on any date mail a Notice of Redemption pursuant to
paragraph (c) of this Section 11 in respect of a redemption contemplated to be
effected pursuant to this paragraph (a) unless on such date (a) the Fund has
available Deposit Securities with maturity or tender dates not later than the
day preceding the applicable redemption date and having a value not less than
the amount (including any applicable premium) due to Holders of shares of
MuniPreferred by reason of the redemption of such shares on such redemption date
and (b) the Discounted Value of Moody's Eligible Assets (if Moody's is then
rating the shares of MuniPreferred) and the Discounted Value of S&P Eligible
Assets (if S&P is then rating the shares of MuniPreferred) each at least equal
the MuniPreferred Basic Maintenance Amount, and would at least equal the
MuniPreferred Basic Maintenance Amount immediately subsequent to such redemption
if such redemption were to occur on such date. For purposes of determining in
clause (b) of the preceding sentence whether the Discounted Value of Moody's
Eligible Assets at least equals the MuniPreferred Basic Maintenance Amount, the
Moody's Discount Factors applicable to Moody's Eligible Assets shall be
determined by reference to the first Exposure Period longer than the Exposure
Period then applicable to the Fund, as described in the definition of Moody's
Discount Factor herein.
(b) Mandatory Redemption. The Fund shall redeem, at a redemption price
equal to $25,000 per share plus accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed by the
Board of Directors for redemption, certain of the shares of MuniPreferred, if
the Fund fails to have either Moody's Eligible Assets with a Discounted Value or
S&P Eligible Assets with a Discounted Value greater than or equal to the
MuniPreferred Basic Maintenance Amount or fails to maintain the 1940 Act
MuniPreferred Asset Coverage, in accordance with the requirements of the rating
agency or agencies then rating the shares of MuniPreferred, and such failure is
not cured on or before the MuniPreferred Basic Maintenance Cure Date or the 1940
Act Cure Date, as the case may be. The number of shares of MuniPreferred to be
redeemed shall be equal to the lesser of (i) the minimum number of shares
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<PAGE> 171
of MuniPreferred, together with all shares of other Preferred Stock subject to
redemption or retirement, the redemption of which, if deemed to have occurred
immediately prior to the opening of business on the Cure Date, would have
resulted in the Fund's having both Moody's Eligible Assets with a Discounted
Value and S&P Eligible Assets with a Discounted Value greater than or equal to
the MuniPreferred Basic Maintenance Amount or maintaining the 1940 Act
MuniPreferred Asset Coverage, as the case may be, on such Cure Date (provided,
however, that if there is no such minimum number of shares of MuniPreferred and
shares of other Preferred Stock the redemption or retirement of which would have
had such result, all shares of MuniPreferred and Preferred Stock then
outstanding shall be redeemed), and (ii) the maximum number of shares of
MuniPreferred, together with all shares of other Preferred Stock subject to
redemption or retirement, that can be redeemed out of funds expected to be
legally available therefor. In determining the shares of MuniPreferred required
to be redeemed in accordance with the foregoing, the Fund shall allocate the
number required to be redeemed to satisfy the MuniPreferred Basic Maintenance
Amount or the 1940 Act MuniPreferred Asset Coverage, as the case may be, pro
rata among shares of MuniPreferred and other Preferred Stock (and, then, pro
rata among each series of MuniPreferred) subject to redemption or retirement.
The Fund shall effect such redemption on the date fixed by the Fund therefor,
which date shall not be earlier than 20 days nor later than 40 days after such
Cure Date, except that if the Fund does not have funds legally available for the
redemption of all of the required number of shares of MuniPreferred and shares
of other Preferred Stock which are subject to redemption or retirement or the
Fund otherwise is unable to effect such redemption on or prior to 40 days after
such Cure Date, the Fund shall redeem those shares of MuniPreferred and shares
of other Preferred Stock which it was unable to redeem on the earliest
practicable date on which it is able to effect such redemption. If fewer than
all of the outstanding shares of a series of MuniPreferred are to be redeemed
pursuant to this paragraph (b), the number of shares of such series to be
redeemed shall be redeemed pro rata from the Holders of shares of such series in
proportion to the number of shares of such series held by such Holders.
(c) Notice of Redemption. If the Fund shall determine or be required to
redeem shares of a series of MuniPreferred pursuant to paragraph (a) or (b) of
this Section 11, it shall mail a Notice of Redemption with respect to such
redemption by first class mail, postage prepaid, to each Holder of the shares of
such series to be redeemed, at such Holder's address as the same appears on the
stock books of the Fund on the record date established by the Board of
Directors. Such Notice of Redemption shall be so mailed not less than 20 nor
more than 45 days prior to the date fixed for redemption. Each such Notice of
Redemption shall state: (i) the redemption date; (ii) the number of shares of
MuniPreferred to be redeemed and the series thereof; (iii) the CUSIP number for
shares of such series; (iv) the Redemption Price; (v) the place or places where
the certificate(s) for such shares (properly endorsed or assigned for transfer,
if the Board of Directors shall so require and the Notice of Redemption shall so
state) are to be surrendered for payment of the Redemption Price; (vi) that
dividends on the shares to be redeemed will cease to accumulate on such
redemption date; and (vii) the provisions of this Section 11 under which such
redemption is made. If fewer than all shares of a series of MuniPreferred held
by any Holder are to be redeemed, the Notice of Redemption mailed to such Holder
shall also specify the number of shares of such series to be redeemed from such
Holder. The Fund may provide in any Notice of Redemption relating to a
redemption contemplated to be effected pursuant to paragraph (a) of this Section
11 that such redemption is subject to one or more conditions precedent and that
the Fund shall not be required to effect such redemption unless each such
condition shall have been satisfied at the time or times and in the manner
specified in such Notice of Redemption.
(d) No Redemption Under Certain Circumstances. Notwithstanding the
provisions of paragraphs (a) or (b) of this Section 11, if any dividends on
shares of a series of MuniPreferred (whether or not earned or declared) are in
arrears, no 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.
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(e) Absence of Funds Available for Redemption. To the extent that any
redemption for which Notice of Redemption has been mailed is not made by reason
of the absence of legally available funds therefor, such redemption shall be
made as soon as practicable to the extent such funds become available. Failure
to redeem shares of MuniPreferred shall be deemed to exist at any time after the
date specified for redemption in a Notice of Redemption when the Fund shall have
failed, for any reason whatsoever, to deposit in trust with the Auction Agent
the Redemption Price with respect to any shares for which such Notice of
Redemption has been mailed; provided, however, that the foregoing shall not
apply in the case of the Fund's failure to deposit in trust with the Auction
Agent the Redemption Price with respect to any shares where (1) the Notice of
Redemption relating to such redemption provided that such redemption was subject
to one or more conditions precedent and (2) any such condition precedent shall
not have been satisfied at the time or times and in the manner specified in such
Notice of Redemption. Notwithstanding the fact that the Fund may not have
redeemed shares of MuniPreferred for which a Notice of Redemption has been
mailed, dividends may be declared and paid on shares of MuniPreferred and shall
include those shares of MuniPreferred for which a Notice of Redemption has been
mailed.
(f) Auction Agent as Trustee of Redemption Payments by Fund. All moneys
paid to the Auction Agent for payment of the Redemption Price of shares of
MuniPreferred called for redemption shall be held in trust by the Auction Agent
for the benefit of Holders of shares so to be redeemed.
(g) Shares for Which Notice of Redemption Has Been Given Are No Longer
Outstanding. Provided a Notice of Redemption has been mailed pursuant to
paragraph (c) of this Section 11, upon the deposit with the Auction Agent (on
the Business Day next preceding the date fixed for redemption thereby, in funds
available on the next Business Day in The City of New York, New York) of funds
sufficient to redeem the shares of MuniPreferred that are the subject of such
notice, dividends on such shares shall cease to accumulate and such shares shall
no longer be deemed to be outstanding for any purpose, and all rights of the
Holders of the shares so called for redemption shall cease and terminate, except
the right of such Holders to receive the Redemption Price, but without any
interest or other additional amount, except as provided in subparagraph (e)(i)
of Section 2 of this Part I and in Section 3 of this Part I. Upon surrender in
accordance with the Notice of Redemption of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Board of Directors
shall so require and the Notice of Redemption shall so state), the Redemption
Price shall be paid by the Auction Agent to the Holders of shares of
MuniPreferred subject to redemption. In the case that fewer than all of the
shares represented by any such certificate are redeemed, a new certificate shall
be issued, representing the unredeemed shares, without cost to the Holder
thereof. The Fund shall be entitled to receive from the Auction Agent, promptly
after the date fixed for redemption, any cash deposited with the Auction Agent
in excess of (i) the aggregate Redemption Price of the shares of MuniPreferred
called for redemption on such date and (ii) all other amounts to which Holders
of shares of MuniPreferred called for redemption may be entitled. Any funds so
deposited that are unclaimed at the end of 90 days from such redemption date
shall, to the extent permitted by law, be repaid to the Fund, after which time
the Holders of shares of MuniPreferred so called for redemption may look only to
the Fund for payment of the Redemption Price and all other amounts to which they
may be entitled. The Fund shall be entitled to receive, from time to time after
the date fixed for redemption, any interest on the funds so deposited.
(h) Compliance With Applicable Law. In effecting any redemption pursuant to
this Section 11, the Fund shall use its best efforts to comply with all
applicable conditions precedent to effecting such redemption under the 1940 Act
and Minnesota law, but shall effect no redemption except in accordance with the
1940 Act and Minnesota law.
(i) Only Whole Shares of MuniPreferred May Be Redeemed. In the case of any
redemption pursuant to this Section 11, only whole shares of MuniPreferred shall
be redeemed, and in the event that any provision of the Articles would require
redemption of a fractional share, the Auction Agent shall be authorized to round
up so that only whole shares are redeemed.
12. Liquidation Rights.
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(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 with
respect to the distribution of assets upon dissolution, liquidation or winding
up of the affairs of the Fund shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the Holders of the shares of
MuniPreferred shall not be entitled to share therein.
(e) Certain Events Not Constituting Liquidation. Neither the sale of all or
substantially all the property or business of the Fund, nor the merger or
consolidation of the Fund into or with any other corporation nor the merger or
consolidation of any other corporation into or with the Fund shall be a
dissolution, liquidation or winding up, whether voluntary or involuntary, for
the purposes of this Section 12.
13. Miscellaneous.
(a) Amendment of Appendix A to Add Additional Series. Subject to the
provisions of paragraph (c) of Section 10 of this Part I, the Board of Directors
may, by resolution duly adopted, without shareholder approval (except as
otherwise provided by this Statement or required by applicable law), amend
Appendix A hereto to (1) reflect any amendments hereto which the Board of
Directors is entitled to adopt pursuant to the terms of this Statement without
shareholder approval and (2) add additional series of MuniPreferred or
additional shares of a series of MuniPreferred (and terms relating thereto) to
the series and shares of MuniPreferred theretofore described thereon. Each such
additional series and all such additional shares shall be governed by the terms
of this Statement.
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(b) Appendix A Incorporated By Reference. Appendix A hereto is incorporated
in and made a part of this Statement by reference thereto.
(c) No Fractional Shares. No fractional shares of MuniPreferred shall be
issued.
(d) Status of Shares of MuniPreferred Redeemed, Exchanged or Otherwise
Acquired by the Fund. Shares of MuniPreferred which are redeemed, exchanged or
otherwise acquired by the Fund shall return to the status of authorized and
unissued shares of Preferred Stock without designation as to series. Upon the
redemption, exchange or other acquisition by the Fund of all outstanding shares
of a series of MuniPreferred, all provisions of the Articles relating to such
series (including, without limitation, all provisions of this Statement relating
to such series) shall cease to be of further effect and shall cease to be part
of the Articles. Upon the occurrence of any such event, the Board of Directors
shall have the power, pursuant to Minnesota Statutes Section 302A.135,
Subdivision 5 or any successor provision and without shareholder action, to
cause restated articles of incorporation of the Fund or other appropriate
documents to be prepared and filed with the Secretary of State of the State of
Minnesota which reflect such removal from the Articles of all such provisions
relating to such series or, if appropriate, the cancellation of this Statement,
or both.
(e) Board May Resolve Ambiguities. To the extent permitted by applicable
law, the Board of Directors may interpret or adjust the provisions of this
Statement to resolve any inconsistency or ambiguity or to remedy any formal
defect, and may amend this Statement with respect to any series of MuniPreferred
prior to the issuance of shares of such series.
(f) Headings Not Determinative. The headings contained in this Statement
are for convenience of reference only and shall not affect the meaning or
interpretation of this Statement.
(g) Notices. All notices or communications, unless otherwise specified in
the By-Laws of the Fund or this Statement, shall be sufficiently given if in
writing and delivered in person or mailed by first-class mail, postage prepaid.
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PART II
1. Orders. (a) Prior to the Submission Deadline on each Auction Date for
shares of a series of MuniPreferred:
(i) each Beneficial Owner of shares of such series may submit to its
Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such series held
by such Beneficial Owner which such Beneficial Owner desires to
continue to hold without regard to the Applicable Rate for shares of
such series for the next succeeding Rate Period of such shares;
(B) the number of Outstanding shares, if any, of such series held
by such Beneficial Owner which such Beneficial Owner offers to sell if
the Applicable Rate for shares of such series for the next succeeding
Rate Period of shares of such series shall be less than the rate per
annum specified by such Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such series held
by such Beneficial Owner which such Beneficial Owner offers to sell
without regard to the Applicable Rate for shares of such series for
the next succeeding Rate Period of shares of such series;
and
(ii) one or more Broker-Dealers, using lists of Potential Beneficial
Owners, shall in good faith for the purpose of conducting a competitive
Auction in a commercially reasonable manner, contact Potential Beneficial
Owners (by telephone or otherwise), including Persons that are not
Beneficial Owners, on such lists to determine the number of shares, if any,
of such series which each such Potential Beneficial Owner offers to
purchase if the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series shall not be less than the
rate per annum specified by such Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or Potential
Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction Agent,
of information referred to in clause (i)(A), (i)(B), (i)(C) or (ii) of this
paragraph (a) is hereinafter referred to as an "Order" and collectively as
"Orders" and each Beneficial Owner and each Potential Beneficial Owner placing
an Order with a Broker-Dealer, and such Broker-Dealer placing an Order with the
Auction Agent, is hereinafter referred to as a "Bidder" and collectively as
"Bidders"; an Order containing the information referred to in clause (i)(A) of
this paragraph (a) is hereinafter referred to as a "Hold Order" and collectively
as "Hold Orders"; an Order containing the information referred to in clause
(i)(B) or (ii) of this paragraph (a) is hereinafter referred to as a "Bid" and
collectively as "Bids"; and an Order containing the information referred to in
clause (i)(C) of this paragraph (a) is hereinafter referred to as a "Sell Order"
and collectively as "Sell Orders."
(b)(i) A Bid by a Beneficial Owner or an Existing Holder of shares of a
series of MuniPreferred subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in such
Bid if the Applicable Rate for shares of such series determined on such
Auction Date shall be less than the rate specified therein;
(B) such number or a lesser number of Outstanding shares of such
series to be determined as set forth in clause (iv) of paragraph (a) of
Section 4 of this Part II if the Applicable
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Rate for shares of such series determined on such Auction Date shall be
equal to the rate specified therein; or
(C) the number of Outstanding shares of such series specified in such
Bid if the rate specified therein shall be higher than the Maximum Rate for
shares of such series, or such number or a lesser number of Outstanding
shares of such series to be determined as set forth in clause (iii) of
paragraph (b) of Section 4 of this Part II if the rate specified therein
shall be higher than the Maximum Rate for shares of such series and
Sufficient Clearing Bids for shares of such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of shares of
a series of MuniPreferred subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in such
Sell Order; or
(B) such number or a lesser number of Outstanding shares of such
series as set forth in clause (iii) of paragraph (b) of Section 4 of this
Part II if Sufficient Clearing Bids for shares of such series do not exist;
provided, however, that a Broker-Dealer that is an Existing Holder with respect
to shares of a series of MuniPreferred shall not be liable to any Person for
failing to sell such shares pursuant to a Sell Order described in the proviso to
paragraph (c) of Section 2 of this Part II if (1) such shares were transferred
by the Beneficial Owner thereof without compliance by such Beneficial Owner or
its transferee Broker-Dealer (or other transferee person, if permitted by the
Fund) with the provisions of Section 7 of this Part II or (2) such Broker-Dealer
has informed the Auction Agent pursuant to the terms of its Broker-Dealer
Agreement that, according to such Broker-Dealer's records, such Broker-Dealer
believes it is not the Existing Holder of such shares.
(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:
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(A) the number of shares, if any, of such series subject to any
Hold Order of such Existing Holder;
(B) the number of shares, if any, of such series subject to any
Bid of such Existing Holder and the rate specified in such Bid; and
(C) the number of shares, if any, of such series subject to any
Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of shares of such
series, the rate and number of shares of such series specified in such
Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent shall round such rate up to
the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding shares of
MuniPreferred of a series held by any Existing Holder is not submitted to the
Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a
Hold Order to have been submitted by or on behalf of such Existing Holder
covering the number of Outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent; provided,
however, that if an Order or Orders covering all of the Outstanding shares of
such series held by any Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline for an Auction relating to a Special Rate
Period consisting of more than 28 Rate Period Days, the Auction Agent shall deem
a Sell Order to have been submitted by or on behalf of such Existing Holder
covering the number of outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the Auction
Agent covering in the aggregate more than the number of Outstanding shares of
MuniPreferred of a series subject to an Auction held by such Existing Holder,
such Orders shall be considered valid in the following order of priority:
(i) all Hold Orders for shares of such series shall be considered
valid, but only up to and including in the aggregate the number of
Outstanding shares of such series held by such Existing Holder, and if the
number of shares of such series subject to such Hold Orders exceeds the
number of Outstanding shares of such series held by such Existing Holder,
the number of shares subject to each such Hold Order shall be reduced pro
rata to cover the number of Outstanding shares of such series held by such
Existing Holder;
(ii) (A) any Bid for shares of such series shall be considered valid
up to and including the excess of the number of Outstanding shares of such
series held by such Existing Holder over the number of shares of such
series subject to any Hold Orders referred to in clause (i) above;
(B) subject to subclause (A), if more than one Bid of an Existing
Holder for shares of such series is submitted to the Auction Agent
with the same rate and the number of Outstanding shares of such series
subject to such Bids is greater than such excess, such Bids shall be
considered valid up to and including the amount of such excess, and
the number of shares of such series subject to each Bid with the same
rate shall be reduced pro rata to cover the number of shares of such
series equal to such excess;
(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
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(D) in any such event, the number, if any, of such Outstanding
shares of such series subject to any portion of Bids considered not
valid in whole or in part under this clause (ii) shall be treated as
the subject of a Bid for shares of such series by or on behalf of a
Potential Holder at the rate therein specified; and
(iii) all Sell Orders for shares of such series shall be considered
valid up to and including the excess of the number of Outstanding shares of
such series held by such Existing Holder over the sum of shares of such
series subject to valid Hold Orders referred to in clause (i) above and
valid Bids referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of a series of
MuniPreferred is submitted to the Auction Agent by or on behalf of any Potential
Holder, each such Bid submitted shall be a separate Bid with the rate and number
of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to
the Submission Deadline on any Auction Date, shall be irrevocable.
3. Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate. (a) Not earlier than the Submission Deadline on each Auction
Date for shares of a series of MuniPreferred, the Auction Agent shall assemble
all valid Orders submitted or deemed submitted to it by the Broker-Dealers in
respect of shares of such series (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to individually as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order" and collectively as "Submitted Hold
Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders") and shall determine for such series:
(i) the excess of the number of Outstanding shares of such series over
the number of Outstanding shares of such series subject to Submitted Hold
Orders (such excess being hereinafter referred to as the "Available
MuniPreferred" of such series);
(ii) from the Submitted Orders for shares of such series whether:
(A) the number of Outstanding shares of such series subject to
Submitted Bids of Potential Holders specifying one or more rates equal
to or lower than the Maximum Rate for shares of such series;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series subject to
Submitted Bids of Existing Holders specifying one or more rates higher
than the Maximum Rate for shares of such series; and
(C) the number of Outstanding shares of such series subject to
Submitted Sell Orders
(in the event such excess or such equality exists (other than because the
number of shares of such series in subclauses (B) and (C) above is zero
because all of the Outstanding shares of such series are subject to
Submitted Hold Orders), such Submitted Bids in subclause (A) above being
hereinafter referred to collectively as "Sufficient Clearing Bids" for
shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series exist, the
lowest rate specified in such Submitted Bids (the "Winning Bid Rate" for
shares of such series) which if:
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(A)(I) each such Submitted Bid of Existing Holders specifying
such lowest rate and (II) all other such Submitted Bids of Existing
Holders specifying lower rates were rejected, thus entitling such
Existing Holders to continue to hold the shares of such series that
are subject to such Submitted Bids; and
(B)(I) each such Submitted Bid of Potential Holders specifying
such lowest rate and (II) all other such Submitted Bids of Potential
Holders specifying lower rates were accepted;
would result in such Existing Holders described in subclause (A) above
continuing to hold an aggregate number of Outstanding shares of such series
which, when added to the number of Outstanding shares of such series to be
purchased by such Potential Holders described in subclause (B) above, would
equal not less than the Available MuniPreferred of such series.
(b) Promptly after the Auction Agent has made the determinations pursuant
to paragraph (a) of this Section 3, the Auction Agent shall advise the Fund of
the Maximum Rate for shares of the series of MuniPreferred for which an Auction
is being held on the Auction Date and, based on such determination, the
Applicable Rate for shares of such series for the next succeeding Rate Period
thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series exist, that
the Applicable Rate for all shares of such series for the next succeeding
Rate Period thereof shall be equal to the Winning Bid Rate for shares of
such series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do not
exist (other than because all of the Outstanding shares of such series are
subject to Submitted Hold Orders), that the Applicable Rate for all shares
of such series for the next succeeding Rate Period thereof shall be equal
to the Maximum Rate for shares of such series; or
(iii) if all of the Outstanding shares of such series are subject to
Submitted Hold Orders, that the Applicable Rate for all shares of such
series for the next succeeding Rate Period thereof shall be as set forth in
Section 12 of Appendix A hereto.
4. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares. Existing Holders shall continue to hold the shares of
MuniPreferred that are subject to Submitted Hold Orders, and, based on the
determinations made pursuant to paragraph (a) of Section 3 of this Part II, the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected by the
Auction Agent and the Auction Agent shall take such other action as set forth
below:
(a) If Sufficient Clearing Bids for shares of a series of MuniPreferred
have been made, all Submitted Sell Orders with respect to shares of such series
shall be accepted and, subject to the provisions of paragraphs (d) and (e) of
this Section 4, Submitted Bids with respect to shares of such series shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids with respect to shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is higher than the Winning Bid Rate for shares of
such series shall be accepted, thus requiring each such Existing Holder to
sell the shares of MuniPreferred subject to such Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be rejected, thus entitling each such Existing Holder to
continue to hold the shares of MuniPreferred subject to such Submitted
Bids;
(iii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be accepted;
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(iv) each Existing Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of such
series shall be rejected, thus entitling such Existing Holder to continue
to hold the shares of MuniPreferred subject to such Submitted Bid, unless
the number of Outstanding shares of MuniPreferred subject to all such
Submitted Bids shall be greater than the number of shares of MuniPreferred
("remaining shares") in the excess of the Available MuniPreferred of such
series over the number of shares of MuniPreferred subject to Submitted Bids
described in clauses (ii) and (iii) of this paragraph (a), in which event
such Submitted Bid of such Existing Holder shall be rejected in part, and
such Existing Holder shall be entitled to continue to hold shares of
MuniPreferred subject to such Submitted Bid, but only in an amount equal to
the number of shares of MuniPreferred of such series obtained by
multiplying the number of remaining shares by a fraction, the numerator of
which shall be the number of Outstanding shares of MuniPreferred held by
such Existing Holder subject to such Submitted Bid and the denominator of
which shall be the aggregate number of Outstanding shares of MuniPreferred
subject to such Submitted Bids made by all such Existing Holders that
specified a rate equal to the Winning Bid Rate for shares of such series;
and
(v) each Potential Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of such
series shall be accepted but only in an amount equal to the number of
shares of such series obtained by multiplying the number of shares in the
excess of the Available MuniPreferred of such series over the number of
shares of MuniPreferred subject to Submitted Bids described in clauses
(ii) through (iv) of this paragraph (a) by a fraction, the numerator of
which shall be the number of Outstanding shares of MuniPreferred subject to
such Submitted Bid and the denominator of which shall be the aggregate
number of Outstanding shares of MuniPreferred subject to such Submitted
Bids made by all such Potential Holders that specified a rate equal to the
Winning Bid Rate for shares of such series.
(b) If Sufficient Clearing Bids for shares of a series of MuniPreferred
have not been made (other than because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), subject to the provisions of
paragraph (d) of this Section 4, Submitted Orders for shares of such series
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids for shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be rejected, thus entitling such Existing
Holders to continue to hold the shares of MuniPreferred subject to such
Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for shares of such series
specifying any rate that is higher than the Maximum Rate for shares of such
series and the Submitted Sell Orders for shares of such series of each
Existing Holder shall be accepted, thus entitling each Existing Holder that
submitted or on whose behalf was submitted any such Submitted Bid or
Submitted Sell Order to sell the shares of such series subject to such
Submitted Bid or Submitted Sell Order, but in both cases only in an amount
equal to the number of shares of such series obtained by multiplying the
number of shares of such series subject to Submitted Bids described in
clause (ii) of this paragraph (b) by a fraction, the numerator of which
shall be the number of Outstanding shares of such series held by such
Existing Holder subject to such Submitted Bid or Submitted Sell Order and
the denominator of which shall be the aggregate number of Outstanding
shares of such series subject to all such Submitted Bids and Submitted Sell
Orders.
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(c) If all of the Outstanding shares of a series of MuniPreferred are
subject to Submitted Hold Orders, all Submitted Bids for shares of such series
shall be rejected.
(d) If, as a result of the procedures described in clause (iv) or (v) of
paragraph (a) or clause (iii) of paragraph (b) of this Section 4, any Existing
Holder would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of a series of
MuniPreferred on any Auction Date, the Auction Agent shall, in such manner as
it shall determine in its sole discretion, round up or down the number of shares
of MuniPreferred of such series to be purchased or sold by any Existing Holder
or Potential Holder on such Auction Date as a result of such procedures so that
the number of shares so purchased or sold by each Existing Holder or Potential
Holder on such Auction Date shall be whole shares of MuniPreferred.
(e) If, as a result of the procedures described in clause (v) of
paragraph (a) of this Section 4, any Potential Holder would be entitled or
required to purchase less than a whole share of a series of MuniPreferred on any
Auction Date, the Auction Agent shall, in such manner as it shall determine in
its sole discretion, allocate shares of MuniPreferred of such series for
purchase among Potential Holders so that only whole shares of MuniPreferred of
such series are purchased on such Auction Date as a result of such procedures by
any Potential Holder, even if such allocation results in one or more Potential
Holders not purchasing shares of MuniPreferred of such series on such Auction
Date.
(f) Based on the results of each Auction for shares of a series of
MuniPreferred, the Auction Agent shall determine the aggregate number of shares
of such series to be purchased and the aggregate number of shares of such series
to be sold by Potential Holders and Existing Holders and, with respect to each
Potential Holder and Existing Holder, to the extent that such aggregate number
of shares to be purchased and such aggregate number of shares to be sold differ,
determine to which other Potential Holder(s) or Existing Holder(s) they shall
deliver, or from which other Potential Holder(s) or Existing Holder(s) they
shall receive, as the case may be, shares of MuniPreferred of such series.
Notwithstanding any provision of the Auction Procedures or the Settlement
Procedures to the contrary, in the event an Existing Holder or Beneficial Owner
of shares of a series of MuniPreferred with respect to whom a Broker-Dealer
submitted a Bid to the Auction Agent for such shares that was accepted in whole
or in part, or submitted or is deemed to have submitted a Sell Order for such
shares that was accepted in whole or in part, fails to instruct its Agent Member
to deliver such shares against payment therefor, partial deliveries of shares of
MuniPreferred that have been made in respect of Potential Holders' or Potential
Beneficial Owners' Submitted Bids for shares of such series that have been
accepted in whole or in part shall constitute good delivery to such Potential
Holders and Potential Beneficial Owners.
(g) Neither the Fund nor the Auction Agent nor any affiliate of either
shall have any responsibility or liability with respect to the failure of an
Existing Holder, a Potential Holder, a Beneficial Owner, a Potential Beneficial
Owner or its respective Agent Member to deliver shares of MuniPreferred of any
series or to pay for shares of MuniPreferred of any series sold or purchased
pursuant to the Auction Procedures or otherwise.
5. Notification of Allocations. Whenever the Fund intends to include any
net capital gains or other income taxable for Federal income tax purposes in
any dividend on shares of MuniPreferred, the Fund shall, in the case of a
Minimum Rate Period or a Special Rate Period of 28 Rate Period Days or fewer,
and may, in the case of any other Special Rate Period, notify the Auction Agent
of the amount to be so included not later than the Dividend Payment Date next
preceding the Auction Date on which the Applicable Rate for such dividend is to
be established. Whenever the Auction Agent receives such notice from the Fund,
it will be required in turn to notify each Broker-Dealer, who, on or prior to
such Auction Date, in accordance with its Broker-Dealer Agreement, will be
required to notify its Beneficial Owners and Potential Beneficial Owners of
shares of MuniPreferred believed by it to be interested in submitting an Order
in the Auction to be held on such Auction Date.
6. Auction Agent. For so long as any shares of MuniPreferred are
outstanding, the Auction Agent, duly appointed by the Fund to so act, shall be
in each case a commercial bank, trust company or
B-41
<PAGE> 182
other financial institution independent of the Fund and its affiliates
(which however, may engage or have engaged in business transactions with the
Fund or its affiliates) and at no time shall the Fund or any of its affiliates
act as the Auction Agent in connection with the Auction Procedures. If the
Auction Agent resigns or for any reason its appointment is terminated during any
period that any shares of MuniPreferred are outstanding, the Board of Directors
shall use its best efforts promptly thereafter to appoint another qualified
commercial bank, trust company or financial institution to act as the Auction
Agent. The Auction Agent's registry of Existing Holders of shares of a series of
MuniPreferred shall be conclusive and binding on the Broker-Dealers. A
Broker-Dealer may inquire of the Auction Agent between 3:00 p.m. on the Business
Day preceding an Auction for shares of a series of MuniPreferred and 9:30 a.m.
on the Auction Date for such Auction to ascertain the number of shares of such
series in respect of which the Auction Agent has determined such Broker-Dealer
to be an Existing Holder. If such Broker-Dealer believes it is the Existing
Holder of fewer shares of such series than specified by the Auction Agent in
response to such Broker-Dealer's inquiry, such Broker-Dealer may so inform the
Auction Agent of that belief. Such Broker-Dealer shall not, in its capacity as
Existing Holder of shares of such series, submit Orders in such Auction in
respect of shares of such series covering in the aggregate more than the number
of shares of such series specified by the Auction Agent in response to such
Broker-Dealer's inquiry.
7. Transfer of Shares of MuniPreferred. Unless otherwise permitted by the
Fund, a Beneficial Owner or an Existing Holder may sell, transfer or otherwise
dispose of shares of MuniPreferred only in whole shares and only pursuant to a
Bid or Sell Order placed with the Auction Agent in accordance with the
procedures described in this Part II or to a Broker-Dealer; provided, however,
that (a) a sale, transfer or other disposition of shares of MuniPreferred from a
customer of a Broker-Dealer who is listed on the records of that Broker-Dealer
as the holder of such shares to that Broker-Dealer or another customer of that
Broker-Dealer shall not be deemed to be a sale, transfer or other disposition
for purposes of this Section 7 if such Broker-Dealer remains the Existing Holder
of the shares so sold, transferred or disposed of immediately after such sale,
transfer or disposition and (b) in the case of all transfers other than pursuant
to Auctions, the Broker-Dealer (or other Person, if permitted by the Fund) to
whom such transfer is made shall advise the Auction Agent of such transfer.
8. Global Certificate. Prior to the commencement of a Voting Period,
(i) all of the shares of a series of MuniPreferred outstanding from time to time
shall be represented by one global certificate registered in the 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 INSURED MUNICIPAL OPPORTUNITY FUND, INC., has
caused these presents to be signed in its name and on its behalf by its Vice
President and attested by its Assistant Secretary, and the said officers of the
Fund further acknowledged said instrument to be the corporate act of the Fund,
and stated under penalty of perjury that to the best of their knowledge,
information and belief the matters and facts therein set forth with respect to
approval are true in all material respects, all on October 1, 1996.
NUVEEN INSURED MUNICIPAL
OPPORTUNITY FUND, INC.
By
Gifford R. Zimmerman
Vice President and Secretary
B-42
<PAGE> 183
ATTEST:
Alan G. Berkshire
Vice President and Assistant Secretary
B-43
<PAGE> 184
NUVEEN INSURED MUNICIPAL OPPORTUNITY FUND, INC.
Appendix A
Section 1. Designation As To Series.
Series M: A series of 4,000 shares of Preferred Stock, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Stock, Series M." Each share of Series M
MuniPreferred shall be issued on December 20, 1991; have an Applicable Rate for
its Initial Rate Period equal to 4.75% per annum; have an initial Dividend
Payment Date of January 7, 1992; and have such other preferences, limitations
and relative voting rights, in addition to those required by applicable law or
set forth in the Articles applicable to Preferred Stock of the Fund, as set
forth in Part I and Part II of this Statement. The Series M MuniPreferred shall
constitute a separate series of Preferred Stock of the Fund, and each share of
Series M MuniPreferred shall be identical except as provided in Section 11 of
Part I of this Statement.
Series T: A series of 4,000 shares of Preferred Stock, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Stock, Series T." Each share of Series T
MuniPreferred shall be issued on December 20, 1991; have an Applicable Rate for
its Initial Rate Period equal to 4.75% per annum; have an initial Dividend
Payment Date of January 8, 1992; and have such other preferences, limitations
and relative voting rights, in addition to those required by applicable law or
set forth in the Articles applicable to Preferred Stock of the Fund, as set
forth in Part I and Part II of this Statement. The Series T MuniPreferred shall
constitute a separate series of Preferred Stock of the Fund, and each share of
Series T MuniPreferred shall be identical except as provided in Section 11 of
Part I of this Statement.
Series W: A series of 4,000 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 W
MuniPreferred shall be issued on February 28, 1992; have an Applicable Rate for
its Initial Rate Period equal to 3.25% per annum; have an initial Dividend
Payment Date of March 5, 1992; and have such other preferences, limitations and
relative voting rights, in addition to those required by applicable law or set
forth in the Articles applicable to Preferred Stock of the Fund, as set forth in
Part I and Part II of this Statement. The Series W MuniPreferred shall
constitute a separate series of Preferred Stock of the Fund, and each share of
Series W MuniPreferred shall be identical except as provided in Section 11 of
Part I of this Statement.
Series W2: 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 W2." Each share of Series W2
MuniPreferred shall be issued on April 27, 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 II of this Statement. The Series W2 MuniPreferred shall constitute a
separate series of Preferred Stock of the Fund, and each share of Series W2
MuniPreferred shall be identical except as provided in Section 11 of Part I of
this Statement.
Series TH1: A series of 4,000 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 TH1." Each share of Series TH1
MuniPreferred shall be issued on December 20, 1991; have an Applicable Rate for
its Initial Rate Period equal to 4.75% per annum; have an initial Dividend
Payment Date of January 10, 1992; and have such other preferences, limitations
and relative voting rights, in addition to those required by applicable law or
set forth in the Articles applicable to Preferred Stock of the Fund, as set
forth in Part I and Part II of this Statement. The Series TH1 MuniPreferred
shall constitute a separate series of Preferred Stock of the Fund, and each
share of Series TH1 MuniPreferred shall be identical except as provided in
Section 11 of Part I of this Statement.
Series TH2: A series of 4,000 shares of Preferred Stock, par value of $.01
per share, liquidation preference $25,000 per share, is hereby designated
"Municipal Auction Rate Cumulative Preferred Stock, Series TH2." Each share of
Series TH2 MuniPreferred shall be issued on February 28, 1992; have an
Applicable Rate for its Initial Rate Period equal to 3.25% per annum; have an
initial Dividend Payment Date of March 9, 1992; and have such other preferences,
limitations and relative voting rights, in addition to those required by
applicable law or set forth in the Articles applicable to Preferred Stock of the
Fund, as set forth in Part I and Part II of this Statement. The Series TH2
MuniPreferred shall constitute a separate
B-A-1
<PAGE> 185
series of Preferred Stock of the Fund, and each share of Series TH2
MuniPreferred shall be identical except as provided in Section 11 of Part I of
this Statement.
Series F: A series of 4,000 shares of Preferred Stock, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Stock, Series F." Each share of Series F
MuniPreferred shall be issued on February 28, 1992; have an Applicable Rate for
its Initial Rate Period equal to 3.25% per annum; have an initial Dividend
Payment Date of March 9, 1992; and have such other preferences, limitations and
relative voting rights, in addition to those required by applicable law or set
forth in the Articles applicable to Preferred Stock of the Fund, as set forth in
Part I and Part II of this Statement. The Series F MuniPreferred shall
constitute a separate series of Preferred Stock of the Fund, and each share of
Series F MuniPreferred shall be identical except as provided in Section 11 of
Part I of this Statement.
Section 2. Number of Authorized Shares Per Series.
The number of authorized shares constituting Series M MuniPreferred is
4,000; Series T MuniPreferred is 4,000; Series W MuniPreferred is 4,000; Series
W2 is 10,000; Series TH1 MuniPreferred is 4,000; Series TH2 MuniPreferred is
4,000; and Series F MuniPreferred is 4,000.
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.
"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 (i) (A) in the event such Municipal Obligation is covered
by an Original Issue Insurance policy or a Portfolio Insurance policy which
does not provide the Fund with the option to obtain Permanent Insurance
B-A-2
<PAGE> 186
with respect to such Municipal Obligation, or is not covered by bond
insurance, the Moody's or S&P rating on such Municipal Obligation, (B) in
the event such Municipal Obligation is covered by a Secondary Market
Insurance Policy, the Moody's insurance claims-paying ability rating of the
issuer of the policy, or (C) in the event such Municipal Obligation is
covered by a Portfolio Insurance policy which provides the Fund with the
option to obtain Permanent Insurance with respect to such Municipal
Obligation, at the Fund's option, the Moody's or S&P rating on such
Municipal Obligation or the Moody's insurance claims-paying ability rating
of the issuer of the Portfolio Insurance policy and (ii) the shortest
Exposure Period set forth opposite such rating that is the same length as
or is longer than the Moody's Exposure Period, in accordance with the table
set forth below:
<TABLE>
<CAPTION>
Rating Category
(V)MIG SP-1
Exposure Period Aaa* Aa* A* Baa* Other** -1*** +***
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but
greater than
seven weeks 154 164 173 205 235 137 149
9 weeks or less but
greater than
eight weeks 158 169 179 209 242 138 150
</TABLE>
* Moody's rating.
** Municipal Obligations not rated by Moody's but rated BBB by S&P.
*** Municipal Obligations rated MIG-1 or VMIG-1 or, if not rated by Moody's,
rated SP-1+ by S&P, which do not mature or have a demand feature at par
exercisable in 30 days and which do not have a long-term rating.
If the Moody's Discount Factor used to discount a particular Municipal
Obligation is determined by reference to the insurance claims-paying
ability rating of the insurer of such Municipal Obligation, such Moody's
Discount Factor will be increased by an amount equal to 50% of the
difference between (i) the percentage set forth in the above table under
the applicable rating category, and (ii) the percentage set forth in the
above table under the rating category that is one rating category below the
applicable rating category. Notwithstanding the foregoing, (i) the Moody's
Discount Factor for short-term Municipal Obligations will be 115%, so long
as such Municipal Obligations are rated at least MIG-1, VMIG-1 or P-1 by
Moody's and mature or have a demand feature at par exercisable in 30 days
or less or 125% as long as such Municipal Obligations are rated at least
A-1+/AA or SP-1+/AA by S&P and mature or have a demand feature at par
exercisable in 30 days or less and (ii) no Moody's Discount Factor will be
applied to cash or to Receivables for Municipal Obligations Sold.
"Moody's Eligible Asset" shall mean cash, Receivables for Municipal
Obligations Sold or a Municipal Obligation that (i) pays interest in cash,
(ii) is publicly rated Baa or higher by Moody's or, if not rated by Moody's
but rated by S&P, is rated at least BBB by S&P (provided, however, that for
purposes of determining the Moody's Discount Factor applicable to any such
S&P-rated Municipal Obligation, such Municipal Obligation (excluding any
short-term Municipal Obligation) shall be deemed to have a Moody's rating
which is one full rating category lower than its S&P rating), (iii) does
not have its Moody's rating suspended by Moody's, and (iv) is part of an
issue of Municipal Obligations of at least $10,000,000. Municipal
Obligations issued by any one issuer and rated BBB by S&P may comprise no
more than 4% of total Moody's Eligible Assets; such BBB-rated Municipal
Obligations, if any, together with any Municipal Obligations issued by the
same issuer and rated Baa by Moody's or A by S&P, may comprise no more than
6% of total Moody's Eligible Assets; such BBB, Baa and A-rated Municipal
Obligations, if any, together with any Municipal Obligations issued by the
same issuer and rated A by Moody's or AA by S&P, may
B-A-3
<PAGE> 187
comprise no more than 10% of total Moody's Eligible Assets; and such BBB,
Baa, A and AA-rated Municipal Obligations, if any, together with any
Municipal Obligations issued by the same issuer and rated Aa by Moody's or
AAA by S&P, may comprise no more than 20% of total Moody's Eligible Assets.
For purposes of the foregoing sentence, any Municipal Obligation backed by
the guaranty, letter of credit or insurance issued by a third party shall
be deemed to be issued by such third party if the issuance of such third
party credit is the sole determinant of the rating on such Municipal
Obligation. Municipal Obligations issued by issuers located within a single
state or territory and rated BBB by S&P may comprise no more than 12% of
total Moody's Eligible Assets; such BBB-rated Municipal Obligations, if
any, together with any Municipal Obligations issued by issuers located
within the same state or territory and rated Baa by Moody's or A by S&P,
may comprise no more than 20% of total Moody's Eligible Assets; such BBB,
Baa and A-rated Municipal Obligations, if any, together with any Municipal
Obligations issued by issuers located within the same state or territory
and rated A by Moody's or AA by S&P, may comprise no more than 40% of total
Moody's Eligible Assets; and such BBB, Baa, A and AA-rated Municipal
Obligations, if any, together with any Municipal Obligations issued by
issuers located within the same state or territory and rated Aa by Moody's
or AAA by S&P, may comprise no more than 60% of total Moody's Eligible
Assets. For purposes of applying the foregoing requirements, a Municipal
Obligation shall be deemed to be rated BBB by S&P if rated BBB-, BBB or
BBB+ by S&P, Moody's Eligible Assets shall be calculated without including
cash, and Municipal Obligations rated MIG-1, VMIG-1 or P-1 or, if not rated
by Moody's, rated A-1+/AA or SP-1+/AA by S&P, shall be considered to have a
long-term rating of A. When the Fund sells a Municipal Obligation and
agrees to repurchase such Municipal Obligation at a future date, such
Municipal Obligation shall be valued at its Discounted Value for purposes
of determining Moody's Eligible Assets, and the amount of the repurchase
price of such Municipal Obligation shall be included as a liability for
purposes of calculating the MuniPreferred Basic Maintenance Amount. When
the Fund purchases a Moody's Eligible Asset and agrees to sell it at a
future date, such Eligible Asset shall be valued at the amount of cash to
be received by the Fund upon such future date, provided that the
counterparty to the transaction has a long-term debt rating of at least A2
from Moody's and the transaction has a term of no more than 30 days,
otherwise such Eligible Asset shall be valued at the Discounted Value of
such Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset to the extent it is (i) subject to any material
lien, mortgage, pledge, security interest or security agreement of any kind
(collectively, "Liens"), except for (a) Liens which are being contested in
good faith by appropriate proceedings and which Moody's has indicated to
the Fund will not affect the status of such asset as a Moody's Eligible
Asset, (b) Liens for taxes that are not then due and payable or that can be
paid thereafter without penalty, (c) Liens to secure payment for services
rendered or cash advanced to the Fund by Nuveen Advisory Corp., The Chase
Manhattan Bank, N.A. 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.
For purposes of determining as of any Valuation Date whether the Fund
has Moody's 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 Moody's 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 a Moody's Discount Factor determined by reference to the
insurance claims-paying ability rating of the issuer of such Portfolio
Insurance policy.
"Original Issue Insurance" shall mean "Original Issue Insurance" as
defined in the Fund's Registration Statement.
B-A-4
<PAGE> 188
"Permanent Insurance" shall mean "Permanent Insurance" as defined in
the Fund's Registration Statement.
"Portfolio Insurance" shall mean "Portfolio Insurance" as defined in
the Fund's Registration Statement.
"Rate Multiple," for shares of a series of MuniPreferred on any
Auction Date for shares of such series, shall mean the percentage,
determined as set forth below, based on the prevailing rating of shares of
such series in effect at the close of business on the Business Day next
preceding such Auction Date:
<TABLE>
<CAPTION>
Prevailing Rating Percentage
----------------- ----------
<S> <C>
"aa3"/AA- or higher 110%
"a3"/A- 125%
"baa3"/BBB- 150%
"ba3"/BB- 200%
Below "ba3"/BB- 150%
</TABLE>
provided, however, that in the event the Fund has notified the Auction
Agent of its intent to allocate income taxable for Federal income tax
purposes to shares of such series prior to the Auction establishing the
Applicable Rate for shares of such series, the applicable percentage in the
foregoing table shall be divided by the quantity 1 minus the maximum
marginal regular Federal individual income tax rate applicable to ordinary
income or the maximum marginal regular Federal corporate income tax rate
applicable to ordinary income, whichever is greater.
For purposes of this definition, the "prevailing rating" of shares of
a series of MuniPreferred shall be (i) "aa3"/AA- or higher if such shares
have a rating of "aa3" or better by Moody's and AA- or better by S&P or the
equivalent of such ratings by such agencies or a substitute rating agency
or substitute rating agencies selected as provided below, (ii) if not
"aa3"/AA- or higher, then "a3"/A- if such shares have a rating of "a3" or
better by Moody's and A- or better by S&P or the equivalent of such ratings
by such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, (iii) if not "aa3"/AA- or higher or
"a3"/A-, then "baa3"/BBB- if such shares have a rating of "baa3" or better
by Moody's and BBB- or better by S&P or the equivalent of such ratings by
such agencies or a substitute rating agency or substitute rating agencies
selected as provided below, (iv) if not "aa3"/AA- or higher, "a3"/A- or
"baa3"/BBB-, then "ba3"/BB- if such shares have a rating of "ba3" or better
by Moody's and BB- or better by S&P or the equivalent of such ratings by
such agencies or a substitute rating agency or substitute rating agencies
selected as provided below, and (v) if not "aa3"/AA- or higher, "a3"/A-,
"baa3"/BBB-, or "ba3"/BB-, then Below "ba3"/BB-; provided, however, that if
such shares are rated by only one rating agency, the prevailing rating will
be determined without reference to the rating of any other rating agency.
The Fund shall take all reasonable action necessary to enable either S&P or
Moody's to provide a rating for shares of MuniPreferred. If neither S&P nor
Moody's shall make such a rating available, the party set forth in Section
7 of Appendix A or its successor shall select at least one nationally
recognized statistical rating organization (as that term is used in the
rules and regulations of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended from time to time) to act as a
substitute rating agency in respect of shares of the series of
MuniPreferred set forth opposite such party's name in Section 7 of Appendix
A and the Fund shall take all reasonable action to enable such rating
agency to provide a rating for such shares.
"S&P Discount Factor" shall mean, for purposes of determining the
Discounted Value of any S&P Eligible Asset, the percentage determined by
reference to (i) (A) in the event such Municipal Obligation is covered by
an Original Issue Insurance policy or a Portfolio Insurance policy which
does not provide the Fund with the option to obtain Permanent Insurance
with respect to such
B-A-5
<PAGE> 189
Municipal Obligation, or is not covered by bond insurance, the S&P or Moody's
rating on such Municipal Obligation, (B) in the event such Municipal Obligation
is covered by a Secondary Market Insurance policy, the S&P insurance
claims-paying ability rating of the issuer of the policy, or (C) in the event
such Municipal Obligation is covered by a Portfolio Insurance policy which
provides the Fund with the option to obtain Permanent Insurance with respect to
such Municipal Obligation, at the Fund's option, the S&P or Moody's rating on
such Municipal Obligation or the S&P insurance claims-paying ability rating of
the issuer of the Portfolio Insurance policy and (ii) the shortest Exposure
Period set forth opposite such rating that is the same length as or is longer
than the S&P Exposure Period, in accordance with the table set forth below:
<TABLE>
<CAPTION>
Rating Category
- -----------------------------------------------------------------------
Exposure Period AAA* AA* A* BBB*
- -------------------------------------------------------------------------------
<S> <S> <S> <S> <S>
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.
</TABLE>
Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
Municipal Obligations will be 115%, so long as such Municipal Obligations are
rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable
within 30 days or less, or 125% if such Municipal Obligations are not rated by
S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's; provided, however, that any
such Moody's-rated short-term Municipal Obligations which have demand features
exercisable within 30 days or less must be backed by a letter of credit,
liquidity facility or guarantee from a bank or other financial institution with
a short-term rating of at least A-1+ from S&P; and further provided that such
Moody's-rated short-term Municipal Obligations may comprise no more than 50% of
short-term Municipal Obligations that qualify as S&P Eligible Assets; (ii) no
S&P Discount Factor will be applied to cash or to Receivables for Municipal
Obligations Sold. For purposes of the foregoing, Anticipation Notes rated SP-1+
or, if not rated by S&P, rated MIG-1 or VMIG-1 by Moody's, which do not mature
or have a demand feature at par exercisable in 30 days and which do not have a
long-term rating, shall be considered to be short-term Municipal Obligations.
"S&P Eligible Asset" shall mean cash (excluding any cash irrevocably
deposited by the Fund for the payment of any liabilities within the meaning of
MuniPreferred Basic Maintenance Amount), Receivables for Municipal Obligations
Sold or a Municipal Obligation owned by the Fund that (i) is interest bearing
and pays interest at least semi-annually; (ii) is payable with respect to
principal and interest in U.S. Dollars (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 such 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 it's Moody's
rating); (iii) is publicly rated BBB or higher by S&P or, if not rated by S&P
but rated by Moody's, is rated at least A by Moody's; (iv) is not part of a
private placement of Municipal Obligations; and (v) is part of an issue of
Municipal Obligations with an original issue size of at least $20 million or, if
of an issue with an original issue size below $20 million (but in no event below
$10 million), is issued by an issuer with a total of at least $50 million of
securities outstanding. Solely for purposes of this definition, the term
"Municipal Obligation" means any obligation the interest on which is exempt from
regular Federal income taxation and which is issued by any of the fifty United
States, the District of Columbia or any of the territories of the United States,
their
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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 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) Long-Term Municipal Obligations 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 Periods.
The Initial Rate Period for shares of Series M MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
January 7, 1992.
The Initial Rate Period for shares of Series T MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
January 8, 1992.
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
March 5, 1992.
The Initial Rate Period for shares of Series W2 MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
May , 1999.
The Initial Rate Period for shares of Series TH1 MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
January 10, 1992.
The Initial Rate Period for shares of Series TH2 MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
March 6, 1992.
The Initial Rate Period for shares of Series F MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
March 9, 1992.
Section 6. Date for Purposes of Paragraph (yyy) Contained Under the Heading
"Definitions" in this Statement.
February 29, 1992 for Series M MuniPreferred, Series T MuniPreferred and
Series TH1 MuniPreferred, May 31, 1992 for Series W MuniPreferred, Series TH2
MuniPreferred and Series F MuniPreferred, and May 31, 1999 for Series W2
MuniPreferred.
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Section 7. Party Named for Purposes of the Definition of "Rate Multiple" in
this Statement.
Party: Series of MuniPreferred:
<TABLE>
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated Series M
Smith Barney Shearson Inc. Series T
Merrill Lynch, Pierce, Fenner & Smith Incorporated Series W
Salomon Smith Barney Inc. Series W2
Lehman Brothers, Inc. Series TH1
Merrill Lynch, Pierce, Fenner & Smith Incorporated Series TH2
Lehman Brothers, Inc. Series F
</TABLE>
Section 8. Additional Definitions.
Not applicable.
Section 9. Dividend Payment Dates.
Except as otherwise provided in paragraph (d) of Section 2 of Part I of
this Statement, dividends shall be payable on shares of:
Series M MuniPreferred on Tuesday, January 7, 1992, and on each Tuesday
thereafter;
Series T MuniPreferred on Wednesday, January 8, 1992, and on each Wednesday
thereafter;
Series W MuniPreferred on Thursday, March 5, 1992, and on each Thursday
thereafter;
Series W2 MuniPreferred on Thursday, May ___, 1999, and on each Thursday
thereafter.
Series TH1 MuniPreferred on Friday, January 10, 1992, and on each Friday
thereafter;
Series TH2 MuniPreferred on Friday, March 6, 1992, and on each Friday
thereafter;
Series F MuniPreferred on Monday, March 9, 1992, and on each Monday
thereafter.
Section 10. Amount for Purposes of Subparagraph (c)(i) of Section 5 of Part I of
this Statement.
$600,000,000
Section 11. Redemption Provisions Applicable to Initial Rate Periods.
Not applicable.
Section 12. Applicable Rate for Purposes of Subparagraph(b)(iii) of Section 3 of
Part II of this Statement.
For 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
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corporate income tax rate applicable to ordinary income, whichever is greater;
provided, however, that if the Fund has notified the Auction Agent of its intent
to allocate to shares of such series in such Rate Period any net capital gains
or other income taxable for Federal income tax purposes ("Taxable Income"), the
Applicable Rate for shares of such series for such Rate Period will be (i) if
the Taxable Yield Rate (as defined below) is greater than the Benchmark Rate,
then the Benchmark Rate, or (ii) if the Taxable Yield Rate is less than or equal
to the Benchmark Rate, then the rate equal to the sum of (x) the lesser of the
Kenny Index (if such Rate Period consists of fewer than 183 Rate Period Days) or
the product of the Benchmark Rate multiplied by the factor set forth in the
preceding clause (B) and (y) the product of the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax applicable to ordinary income, whichever is
greater, multiplied by the Taxable Yield Rate. For purposes of the foregoing,
Taxable Yield Rate means the rate determined by (a) dividing the amount of
Taxable Income available for distribution per such share of MuniPreferred by the
number of days in the Dividend Period in respect of which such Taxable Income is
contemplated to be distributed, (b) multiplying the amount determined in (a)
above by 365 (in the case of a Dividend Period of 7 Rate Period Days) or 360 (in
the case of any other Dividend Period), and (c) dividing the amount determined
in (b) above by $25,000.
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APPENDIX C:
DESCRIPTION OF INSURERS
Set forth below is information about the various municipal bond insurers with
whom the Nuveen Insured Municipal Opportunity Fund, Inc. currently maintains
specific insurance policies for particular municipal bonds or policies of
portfolio insurance.
AMBAC ASSURANCE CORPORATION ("AMBAC ASSURANCE")
Ambac Assurance Corporation ("Ambac Assurance") is a Wisconsin-domiciled stock
insurance corporation regulated by the Office of the Commissioner of Insurance
of the State of Wisconsin and licensed to do business in 50 states, the District
of Columbia, the Territory of Guam and the Commonwealth of Puerto Rico, with
admitted assets of approximately $3,290,000,000 (unaudited) and statutory
capital of approximately $1,920,000,000 (unaudited) as of December 31, 1998.
Statutory capital consists of Ambac Assurance's policyholders' surplus and
statutory contingency reserve. Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc., Moody's Investors Service and Fitch IBCA, Inc.
have assigned a triple-A financial strength rating to Ambac Assurance.
Ambac Assurance has obtained a ruling from the Internal Revenue Service to the
effect that the insuring of an obligation by Ambac Assurance will not affect the
treatment for federal income tax purposes of interest on such obligation and
that insurance proceeds representing maturing interest paid by Ambac Assurance
under policy provisions substantially identical to those contained in its
municipal bond insurance policy shall be treated for federal income tax purposes
in the same manner as if such payments were made by the issuer of the bonds.
Ambac Assurance makes no representation regarding the bonds or the advisability
of investing in the bonds and makes no representation regarding, nor has it
participated in the preparation of, the Official Statement other than the
information supplied by Ambac Assurance and presented under the heading "Ambac
Assurance Corporation."
FINANCIAL SECURITY ASSURANCE INC. ("FINANCIAL SECURITY")
Financial Security is a monoline insurance company incorporated under the laws
of the State of New York. Financial Security is licensed to engage in the
financial guaranty insurance business in all 50 states, the District of Columbia
and Puerto Rico.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprise Holdings, Inc.,
XL Capital Ltd., MediaOne Group, Inc., and The Tokio Marine and Fire Insurance
Co., Ltd. No shareholder is obligated to pay any debts of or any claims against
Financial Security. Financial Security is domiciled in the State of New York and
is subject to regulation by the State of New York Insurance Department. As of
December 31, 1998, the total policyholders' surplus and contingency reserves and
the total unearned premium
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reserve, respectively, of Financial Security and its consolidated subsidiaries
were, in accordance with statutory accounting principles, approximately
$1,037,710,000 (audited) and $595,900,000 (audited), the total shareholders'
equity and the total unearned premium reserve, respectively, of Financial
Security and its consolidated subsidiaries were, in accordance with generally
accepted accounting principles, approximately $1,104,591,000 (audited) and
$504,603,000 (audited). Copies of Financial Security's financial statements may
be obtained by writing to Financial Security at 350 Park Avenue, New York, New
York 10022, Attention: Communications Department. Financial Security's telephone
number is (212) 826-0100. Financial Security's financial statements are included
as exhibits to the Annual Reports on Form 10-K and Quarterly Reports on Form
10-Q filed with the Securities and Exchange Commission by Holdings and may be
reviewed at Holdings' website:www.fsa.com.
MBIA INSURANCE CORPORATION ("MBIA")
The Insurer is the principal operating subsidiary of MBIA Inc., a New York Stock
Exchange listed company. MBIA Inc. is not obligated to pay the debts of or
claims against the Insurer. The Insurer is domiciled in the State of New York
and licensed to do business in and subject to regulation under the laws of all
50 states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United
States and the Territory of Guam. The Insurer has two European branches, one in
the Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the Insurer, changes in control and
transactions among affiliates. Additionally, the Insurer is required to maintain
contingency reserves on its liabilities in certain amounts and for certain
periods of time.
As of December 31, 1997 the Insurer had admitted assets of $5.3 billion
(audited), total liabilities of $3.5 billion (audited), and total capital and
surplus of $1.8 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of September 30, 1998, the Insurer had admitted assets of $6.3
billion (unaudited), total liabilities of $4.1 billion (unaudited), and total
capital and surplus of $2.2 billion (unaudited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities.
Furthermore, copies of the Insurer's year end financial statements prepared in
accordance with statutory accounting practices are available without charge from
the Insurer. A copy of the Annual Report on Form 10-K of MBIA Inc. is available
from the Insurer or the Securities and Exchange Commission. The address of the
Insurer is 113 King Street, Armonk, New York 10504. The telephone number of the
Insurer is (914) 273-4545.
The Insurer's policy of portfolio insurance unconditionally and irrevocably
guarantees to Nuveen Insured Municipal Opportunity Fund, Inc. the full and
complete payment required to be made
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by or on behalf of the issuer to the applicable paying agent or its successor of
an amount equal to (i) the principal of (either at the stated maturity or by
advancement of maturity pursuant to a mandatory sinking fund payment) and
interest on, the Municipal Obligations as such payments shall become due but
shall not be so paid (except that in the event of any acceleration of the due
date of such principal by reason of mandatory or optional redemption or
acceleration resulting from default or otherwise, other than any advancement of
maturity pursuant to a mandatory sinking fund payment, the payments guaranteed
by the Insurer's policy shall be made in such amounts and at such times as such
payments of principal would have been due had there not been any such
acceleration) and (ii) the reimbursement of any such payment which is
subsequently recovered from the Fund pursuant to a final judgment by a court of
competent jurisdiction that such payment constitutes an avoidable preference to
the Fund within the meaning of any applicable bankruptcy law (a "Preference").
The Insurer's policy does not insure against loss of any prepayment premium
which may at any time be payable with respect to any Municipal Obligation. The
Insurer's policy does not, under any circumstance, insure against loss relating
to: (i) optional or mandatory redemptions (other than mandatory sinking fund
redemptions); (ii) any payments to be made on an accelerated basis; (iii)
payments of the purchase price of Municipal Obligations upon tender thereof; or
(iv) any Preference relating to (i) through (iii) above. The Insurer's policy
also does not insure against nonpayment of principal of or interest on the
Municipal Obligations resulting from the insolvency, negligence or any other act
or omission of any paying agent for the Municipal Obligations.
With respect to small issue industrial development bonds and pollution control
revenue bonds covered by the policy, the Insurer guarantees the full and
complete payments required to be made by or on behalf of an issuer of such bonds
if there occurs pursuant to the terms of the bonds an event which results in the
loss of the tax-exempt status of interest on such bonds, including principal,
interest or premium payments payable thereon, if any, as and when required to be
made by or on behalf of the issuer pursuant to the terms of such bonds.
When the Insurer receives from the paying agent or the Fund, (1) telephonic or
telegraphic notice (subsequently confirmed in writing by registered or certified
mail), or (2) written notice by registered or certified mail, that a required
payment of any insured amount which is then due has not been made, the Insurer
on the due date of such payment or within one business day after receipt of
notice of such nonpayment, whichever is later, will make a deposit of funds, in
an account with State Street Bank and Trust Company, N.A., in New York, New
York, or its successor, sufficient for the payment of any such insured amounts
which are then due. Upon presentment and surrender of such Municipal Obligations
or presentment of such other proof of ownership of the Municipal Obligations,
together with any appropriate instruments of assignment to evidence the
assignment of the insured amounts due on the Municipal Obligations as are paid
by the Insurer, and appropriate instruments to effect the appointment of the
Insurer as agent for the Fund in any legal proceeding related to payment of
insured amounts on Municipal Obligations, such instruments being in a form
satisfactory to State Street Bank and Trust
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Company, N.A., State Street Bank and Trust Company, N.A. shall disburse to the
Fund or the paying agent payment of the insured amounts due on such Municipal
Obligations, less any amount held by the paying agent for the payment of such
insured amounts and legally available therefor.
FINANCIAL GUARANTY INSURANCE COMPANY ("FINANCIAL GUARANTY")
The Portfolio Insurance Policy is non-cancellable except for failure to pay the
premium. The premium rate for each purchase of a security covered by the
Portfolio Insurance Policy is fixed for the life of the Insured Bond. The
insurance premiums are payable monthly by the Fund and are adjusted for
purchases, sales and payments prior to maturity of Insured Bonds during the
month. In the event of a sale of any Insured Bond by the Fund or payment thereof
prior to maturity, the Portfolio Insurance policy terminates as to such Insured
Bond.
Under the provisions of the Portfolio Insurance Policy, Financial Guaranty
unconditionally and irrevocably agrees to pay to State Street Bank and Trust
Company, or its successor, as its agent (the "Fiscal Agent"), that portion of
the principal of and interest on the Insured Bonds which shall become due for
payment but shall be unpaid by reason of nonpayment by the issuer of the Insured
Bonds. The term "due for payment" means, when referring to the principal of an
Insured Bond, its stated maturity date or the date on which it shall have been
called for mandatory sinking fund redemption and does not refer to any earlier
date on which payment is due by reason of call for redemption (other than by
mandatory sinking fund redemption), acceleration or other advancement of
maturity and means, when referring to interest on an Insured Bond, the stated
date for payment of interest. In addition, the Portfolio Insurance Policy covers
nonpayment by the issuer that results from any payment of principal or interest
made by such issuer on the Insured Bond to the Fund which has been recovered
from the Fund or its shareholders pursuant to the United States Bankruptcy Code
by a trustee in bankruptcy in accordance with a final, nonappealable order of a
court having competent jurisdiction.
Financial Guaranty will make such payments to the Fiscal Agent on the date such
principal or interest becomes due for payment or on the business day next
following the day on which Financial Guaranty shall have received notice of
nonpayment, whichever is later. The Fiscal Agent will disburse the Trustee the
face amount of principal and interest which is then due for payment but is
unpaid by reason of nonpayment by the issuer, but only upon receipt by the
Fiscal Agent of (i) evidence of the Trustee's right to receive payment of the
principal or interest due for payment and (ii) evidence, including any
appropriate instruments of assignment, that all of the rights to payment of such
principal or interest due for payment thereupon shall vest in Financial
Guaranty. Upon such disbursement, Financial Guaranty shall become the owner of
the Insured Bond, appurtenant coupon or right to payment of principal or
interest on such Insured Bond and shall be fully subrogated to all of the
Trustee's rights thereunder, including the right to payment, thereof.
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In determining whether to insure municipal securities held in the Fund,
Financial Guaranty will apply its own standards which are not necessarily the
same as the criteria used in regard to the selection of securities by the Fund.
Certain of the municipal securities insured under the Portfolio Insurance Policy
may also be insured under an insurance policy obtained by the issuer of such
municipal securities. The premium for any insurance policy or policies obtained
by an issuer or Insured Bonds has been paid in advance by such issuer and any
such policy or policies are non-cancellable and will continue in force so long
as the Insured Bonds so insured are outstanding. Financial Guaranty has also
agreed, if requested by the Funds on or before the fifth day preceding the 1st
day of any month, to insure to maturity Insured Bonds sold by the Trustee during
the month immediately following such request of the Funds. The premium for any
such insurance to maturity provided by Financial Guaranty is paid by the Fund
and any such insurance is non-cancellable and will continue in force so long as
the Bonds so insured are outstanding.
Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation (the
"Corporation"), a Delaware holding company. The Corporation is a subsidiary of
General Electric Capital Corporation. Financial Guaranty is a monoline financial
guaranty insurer domiciled in the State of New York and subject to regulation by
the State of New York Insurance Department. As of December 31, 1998, the total
capital and surplus of Financial Guaranty was $1,258,215,191. Financial Guaranty
prepares financial statements on the basis of both statutory accounting
principles and generally accepted accounting principles. Copies of such
financial statements may be obtained by writing to Financial Guaranty at 115
Broadway, New York, New York 10006, Attention: Communications Department
(telephone number: (212) 312-3000) or to the New York State Insurance Department
at 25 Beaver Street, New York, New York 10004-2319, Attention: Financial
Condition Property/Casualty Bureau (telephone number: (212) 480- 5187).
The policies of insurance obtained by the Fund from Financial Guaranty and the
negotiations in respect thereof represent the only relationship between
Financial Guaranty and the Fund. Otherwise neither Financial Guaranty nor its
parent, FGIC Corporation, or any affiliate thereof has any significant
relationship, direct or indirect, with the Fund or the Board of Trustees of the
Fund.
The above municipal bond insurers have insurance claims-paying ability ratings
of AAA from S&P and Aaa from Moody's. Financial Guaranty also has an insurance
claims-paying ability rating of AAA from Fitch. An S&P insurance claims-paying
ability rating is an assessment of an operating insurance company's financial
capacity to meet obligations under an insurance policy in accordance with its
terms. An insurer with an insurance claims-paying ability rating of AAA has the
highest rating assigned by S&P. Capacity to honor insurance contracts is
adjudged by S&P to be extremely strong and highly likely to remain so over a
long period of time. A Moody's insurance claims-paying ability rating is an
opinion of the ability of an insurance company to repay punctually senior
policyholder obligations and claims. An insurer with an insurance claims-paying
ability rating of Aaa is adjudged by Moody's to be of the best quality. In the
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opinion of Moody's, the policy obligations of an insurance company with an
insurance claims-paying ability rating of Aaa carry the smallest degree of
credit risk and, while the financial strength of these companies is likely to
change, such changes as can be visualized are most unlikely to impair the
company's fundamentally strong position.
An insurance claims-paying ability rating by S&P or Moody's does not constitute
an opinion on any specific contract in that such an opinion can only be rendered
upon the review of the specific insurance contract. Furthermore, an insurance
claims-paying ability rating does not take into account deductibles, surrender
or cancellation penalties or the timeliness of payment, nor does it address the
ability of a company to meet nonpolicy obligations (i.e., debt contracts).
The assignment of ratings by S&P or Moody's to debt issues that are fully or
partially supported by insurance policies, contracts or guarantees is a separate
process form the determination of claims-paying ability ratings. The likelihood
of a timely flow of funds from the insurer to the trustee for the bondholders is
a key element in the rating determination for such debt issues.
S&P's and Moody's ratings are not recommendations to buy, sell or hold the
Municipal Obligations insured by policies issued by AMBAC Assurance, Financial
Security, MBIA or Financial Guaranty and such ratings may be subject to revision
or withdrawal at any time by the rating agencies. Any downward revision or
withdrawal of either or both ratings may have an adverse effect on the market
price of the Municipal Obligations insured by policies issued by AMBAC
Assurance, Financial Security, MBIA or Financial Guaranty.
S&P's ratings of AMBAC Assurance, Financial Security, MBIA and Financial
Guaranty should be evaluated independent of Moody's ratings. Any further
explanation as to the significance of the ratings may be obtained only from the
applicable rating agency. See Appendix A for more information about ratings by
Moody's and S&P.
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NUVEEN INSURED MUNICIPAL OPPORTUNITY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
APRIL ______, 1999
<PAGE> 200
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 eight 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
Securities and Exchange Commission fees $ 22,518
Printing and engraving expenses 73,000
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* $205,518
========
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[*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................................ 52,227
---------
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> 202
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> 203
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> 204
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> 205
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
22nd day of April, 1999.
NUVEEN INSURED MUNICIPAL 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 April 22, 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
April 22, 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> 206
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
- ------- ------------
a. Restated 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 (incorporated by reference to Exhibit b of the
Registration Statement on Form N-2 (Registration Nos. 333-75987
and 811-06379), which was filed March 12, 1999)...................
c. Not applicable....................................................
d.1 Basic Terms of Auction Agency Agreement, including form of request and
acceptance letter related thereto (incorporated by reference to Exhibit
d.1 of the Registration Statement on Form N-2 (Registration Nos. 333-75987
and 811-06379), which was filed March 12, 1999)....................
d.2 Basic Terms of Broker-Dealer Agreement, including form of request and
acceptance letter related thereto (incorporated by reference to Exhibit
d.2 of the Registration Statement on Form N-2 (Registration Nos. 333-75987
and 811-06379), which was filed March 12, 1999)...................
d.3 Form of Letter of Representation to The Depository Trust Company relating
to the Series of MuniPreferred ...................................
e. Dividend Reinvestment Plan (incorporated by reference to Exhibit e
of the Registration Statement on Form N-2 (Registration Nos. 333-75987
and 811-06379), which was filed March 12, 1999)...................
f. Not applicable....................................................
g.1 Investment Management Agreement (incorporated by reference to Exhibit
g.1 of the Registration Statement on Form N-2 (Registration Nos. 333-75987
and 811-06379), which was filed March 12, 1999)...................
g.2 Renewal of Investment Management Agreement (incorporated by reference to
Exhibit g.2 of the Registration Statement on Form N-2 (Registration Nos.
333-75987 and 811-06379), which was filed March 12, 1999).........
h. Form of Underwriting Agreement....................................
i. Deferred Compensation Plan for Non-Employee Directors (incorporated by
reference to Exhibit i of the Registration Statement on Form N-2
(Registration Nos. 333-75987 and 811-06379), which was filed
March 12, 1999)...................................................
j.1 Exchange-Traded Fund Custody Agreement (incorporated by reference to
Exhibit j.1 of the Registration Statement on Form N-2 (Registration Nos.
333-75987 and 811-06379), which was filed March 12, 1999).........
j.2 Fund Accounting Agreement (incorporated by reference to Exhibit
j.2 of the Registration Statement on Form N-2 (Registration Nos. 333-75987
and 811-06379), which was filed March 12, 1999)...................
j.3 Letter of Succession to Agreements................................
k. Not applicable....................................................
l.1 Opinion and consent of Morgan, Lewis & Bockius LLP................
1.2 Opinion and consent of Dorsey & Whitney 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................................................
*to be filed by amendment
C-VII
<PAGE> 1
EXHIBIT 99.a
ARTICLES OF INCORPORATION
OF
NUVEEN INSURED MUNICIPAL OPPORTUNITY FUND, INC.
* * *
FIRST: The name and address of the incorporator are as follows:
Name Address
---- -------
Larry W. Martin 333 West Wacker Drive
Chicago, Illinois 60606
SECOND: The name of the Corporation is: Nuveen Insured Municipal
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
-7-
<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
-8-
<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.
-9-
<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-
-10-
<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 25th day of July,
1991.
/s/ Larry W. Martin
------------------------
Incorporator
Larry W. Martin
/s/ Gifford R. Zimmerman
------------------------
Witness
Gifford R. Zimmerman
-11-
<PAGE> 12
NUVEEN INSURED MUNICIPAL OPPORTUNITY FUND, INC.
AMENDMENT AND RESTATEMENT OF
STATEMENT ESTABLISHING AND FIXING THE RIGHTS
AND PREFERENCES OF
MUNICIPAL AUCTION RATE
CUMULATIVE PREFERRED STOCK ("MUNIPREFERRED(R)")
<PAGE> 13
NUVEEN INSURED MUNICIPAL OPPORTUNITY FUND, INC.
TABLE OF CONTENTS
Page
DEFINITIONS 1
"AA" Composite Commercial Paper Rate 1
Accountant's Confirmation 2
Affiliate 2
Agent Member 2
Anticipation Notes 2
Applicable Rate 2
Articles 2
Auction 2
Auction Agency Agreement 2
Auction Agent 2
Auction Date 2
Auction Procedures 3
Available MuniPreferred 3
Benchmark Rate 3
Beneficial Owner 3
Bid and Bids 3
Bidder and Bidders 3
Board of Directors 3
Broker-Dealer 3
Broker-Dealer Agreement 3
Business Day 3
Code 3
Commercial Paper Dealers 3
Common Stock 3
Cure Date 3
Date of Original Issue 3
Deposit Securities 4
Discounted Value 4
Dividend Payment Date 4
Dividend Period 4
Existing Holder 4
Failure to Deposit 4
Federal Tax Rate Increase 4
Fund 5
Gross-up Payment 5
Holder 5
Hold Order and Hold Orders 5
Independent Accountant 5
Initial Rate Period 5
Interest Equivalent 5
Issue Type Category 5
Kenny Index 5
Late Charge 5
Liquidation Preference 5
Market Value 5
Maximum Potential Gross-up Payment Liability 5
Maximum Rate 6
<PAGE> 14
Page
Moody's 6
Moody's Discount Factor 6
Moody's Eligible Asset 7
Moody's Exposure Period 7
Moody's Volatility Factor 7
MuniPreferred 7
MuniPreferred Basic Maintenance Amount 7
MuniPreferred Basic Maintenance Cure Date 8
MuniPreferred Basic Maintenance Report 9
Municipal Obligations 9
1940 Act 9
1940 Act Cure Date 9
1940 Act MuniPreferred Asset Coverage 9
Notice of Redemption 9
Notice of Special Rate Period 9
Order and Orders 9
Original Issue Insurance 9
Other Issues 9
Outstanding 9
Permanent Insurance 9
Person 9
Portfolio Insurance 10
Potential Beneficial Owner 10
Potential Holder 10
Preferred Stock 10
Quarterly Valuation Date 10
Rate Multiple 10
Rate Period 10
Rate Period Days 10
Receivables for Municipal Obligations Sold 10
Redemption Price 10
Reference Rate 11
Registration Statement 11
S&P 11
S&P Discount Factor 11
S&P Eligible Asset 11
S&P Exposure Period 11
S&P Volatility Factor 11
Secondary Market Insurance 11
Securities Depository 11
Sell Order and Sell Orders 11
Special Rate Period 11
Special Redemption Provisions 11
Submission Deadline 11
Submitted Bid and Submitted Bids 12
Submitted Hold Order and Submitted Hold Orders 12
Submitted Order and Submitted Orders 12
Submitted Sell Order and Submitted Sell Orders 12
Subsequent Rate Period 12
Substitute Commercial Paper Dealer 12
Substitute U.S. Government Securities Dealer 12
Sufficient Clearing Bids 12
Taxable Allocation 12
Taxable Income 12
<PAGE> 15
Page
Taxable Equivalent of the Short-Term Municipal Bond Rate 12
Treasury Bill 13
Treasury Bill Rate 13
Treasury Note 13
Treasury Note Rate 13
U.S. Government Securities Dealer 14
Valuation Date 14
Volatility Factor 14
Voting Period 14
Winning Bid Rate 14
PART I 15
1. Number of Authorized Shares. 15
2. Dividends. 15
(a) Ranking. 15
(b) Cumulative Cash Dividends. 15
(c) Dividends Cumulative From Date of Original Issue. 15
(d) Dividend Payment Dates and Adjustment Thereof. 15
(e) Dividend Rates and Calculation of Dividends. 16
(i) Dividend Rates. 16
(ii) Calculation of Dividends. 17
(f) Curing a Failure to Deposit. 18
(g) Dividend Payments by Fund to Auction Agent. 18
(h) Auction Agent as Trustee of Dividend Payments by Fund. 18
(i) Dividends Paid to Holders. 18
(j) Dividends Credited Against Earliest Accumulated But
Unpaid Dividends. 18
(k) Dividends Designated as Exempt-Interest Dividends. 18
3. Gross-up Payments. 19
(a) Minimum Rate Periods and Special Rate Periods of
28 Rate Period Days or Fewer. 19
(b) Special Rate Periods of More Than 28 Rate Period Days. 19
(c) No Gross-up Payments In the Event of a Reallocation. 19
4. Designation of Special Rate Periods. 19
(a) Length of and Preconditions for Special Rate Period. 19
(b) Adjustment of Length of Special Rate Period. 20
(c) Notice of Proposed Special Rate Period. 20
(d) Notice of Special Rate Period. 20
(e) Failure to Deliver Notice of Special Rate Period. 21
5. Voting Rights. 21
(a) One Vote Per Share of MuniPreferred. 21
(b) Voting For Additional Directors. 22
(i) Voting Period. 22
(ii) Notice of Special Meeting. 22
(iii) Terms of Office of Existing Directors. 22
(iv) Terms of Office of Certain Directors to
Terminate Upon Termination of Voting
Period. 23
(c) Holders of MuniPreferred To Vote On Certain Other
Matters. 23
(i) Increases in Capitalization. 23
(ii) 1940 Act Matters. 24
(d) Board May Take Certain Actions Without Shareholder
Approval. 24
(e) Voting Rights Set Forth Herein Are Sole Voting Rights. 25
(f) No Preemptive Rights or Cumulative Voting. 25
<PAGE> 16
Page
(g) Voting for Directors Sole Remedy for Fund's Failure
to Pay Dividends. 25
(h) Holders Entitled to Vote. 25
6. 1940 Act MuniPreferred Asset Coverage. 25
7. MuniPreferred Basic Maintenance Amount. 25
8. [Reserved] 27
9. Restrictions on Dividends and Other Distributions. 27
(a) Dividends on Preferred Stock Other Than MuniPreferred. 27
(b) Dividends and Other Distributions With Respect to
Common Stock Under the 1940 Act. 27
(c) Other Restrictions On Dividends and Other Distributions. 27
10. Rating Agency Restrictions. 28
11. Redemption. 29
(a) Optional Redemption. 29
(b) Mandatory Redemption. 30
(c) Notice of Redemption. 31
(d) No Redemption Under Certain Circumstances. 31
(e) Absence of Funds Available for Redemption. 31
(f) Auction Agent as Trustee of Redemption Payments by Fund. 32
(g) Shares for Which Notice of Redemption Has Been Given Are
No Longer Outstanding. 32
(h) Compliance With Applicable Law. 32
(i) Only Whole Shares of MuniPreferred May Be Redeemed. 32
12. Liquidation Rights. 32
(a) Ranking. 32
(b) Distributions Upon Liquidation. 32
(c) Pro Rata Distributions. 33
(d) Rights of Junior Stock. 33
(e) Certain Events Not Constituting Liquidation. 33
13. Miscellaneous. 33
(a) Amendment of Appendix A to Add Additional Series. 33
(b) Appendix A Incorporated By Reference. 33
(c) No Fractional Shares. 34
(d) Status of Shares of MuniPreferred Redeemed, Exchanged or
Otherwise Acquired by the Fund. 34
(e) Board May Resolve Ambiguities. 34
(f) Headings Not Determinative. 34
(g) Notices. 34
PART II 35
1. Orders. 35
2. Submission of Orders by Broker-Dealers to Auction Agent. 36
3. Determination of Sufficient Clearing Bids, Winning Bid Rate
and Applicable Rate. 38
4. Acceptance and Rejection of Submitted Bids and Submitted
Sell Orders and Allocation of Shares. 39
5. Notification of Allocations. 42
6. Auction Agent. 42
7. Transfer of Shares of MuniPreferred. 42
8. Global Certificate. 43
Appendix A A-1
Section 1. Designation As To Series. A-1
Section 2. Number of Authorized Shares Per Series. A-2
<PAGE> 17
Page
Section 3. Exceptions to Certain Definitions. A-2
Section 4. Certain Definitions. A-2
S&P Discount Factor A-6
S&P Eligible Asset A-7
Secondary Market Insurance A-8
Section 5. Initial Rate Periods. A-8
Section 6. Date for Purposes of Paragraph (yyy) Contained Under
the Heading "Definitions" in this Statement. A-8
Section 7. Party Named for Purposes of the Definition of
"Rate Multiple" in this Statement. A-8
Section 8. Additional Definitions. A-8
Section 9. Dividend Payment Dates. A-8
Section 10. Amount for Purposes of Subparagraph (c)(i) of
Section 5 of Part I of this Statement. A-9
Section 11. Redemption Provisions Applicable to Initial
Rate Periods. A-9
Section 12. Applicable Rate for Purposes of Subparagraph(b)
(iii) of Section 3 of Part II of this Statement.
<PAGE> 18
NUVEEN INSURED MUNICIPAL 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 1 of Appendix A hereto are
as follows (each such series being referred to herein as a series of
MuniPreferred, and shares of all such series being referred to herein
individually as a share of MuniPreferred and collectively as shares of
MuniPreferred):
DEFINITIONS
Except as otherwise specifically provided in Section 3 of Appendix A
hereto, as used in Parts I and II of this Statement, the following terms shall
have the following meanings (with terms defined in the singular having
comparable meanings when used in the plural and vice versa), unless the context
otherwise requires:
(a) ""AA" Composite Commercial Paper Rate," on any date for any Rate
Period of shares of a series of MuniPreferred, shall mean (i) (A) in the
case of any Minimum Rate Period or any Special Rate Period of fewer than 49
Rate Period Days, the interest equivalent of the 30-day rate; provided,
however, that if such Rate Period is a Minimum Rate Period and the "AA"
Composite Commercial Paper Rate is being used to determine the Applicable
Rate for shares of such series when all of the Outstanding shares of such
series are subject to Submitted Hold Orders, then the interest equivalent
of the seven-day rate, and (B) in the case of any Special Rate Period of
(1) 49 or more but fewer than 70 Rate Period Days, the interest equivalent
of the 60-day rate; (2) 70 or more but fewer than 85 Rate Period Days, the
arithmetic average of the interest
1
<PAGE> 19
equivalent of the 60-day and 90-day rates; (3) 85 or more but fewer than 99
Rate Period Days, the interest equivalent of the 90-day rate; (4) 99 or
more but fewer than 120 Rate Period Days, the arithmetic average of the
interest equivalent of the 90-day and 120-day rates; (5) 120 or more but
fewer than 141 Rate Period Days, the interest equivalent of the 120-day
rate; (6) 141 or more but fewer than 162 Rate Period Days, the arithmetic
average of the 120-day and 180-day rates; and (7) 162 or more but fewer
than 183 Rate Period Days, the interest equivalent of the 180-day rate, in
each case on commercial paper placed on behalf of issuers whose corporate
bonds are rated "AA" by S&P or the equivalent of such rating by S&P or
another rating agency, as made available on a discount basis or otherwise
by the Federal Reserve Bank of New York for the Business Day next preceding
such date; or (ii) in the event that the Federal Reserve Bank of New York
does not make available any such rate, then the arithmetic average of such
rates, as quoted on a discount basis or otherwise, by the Commercial Paper
Dealers to the Auction Agent for the close of business on the Business Day
next preceding such date. If any Commercial Paper Dealer does not quote a
rate required to determine the "AA" Composite Commercial Paper Rate, the
"AA" Composite Commercial Paper Rate shall be determined on the basis of
the quotation or quotations furnished by the remaining Commercial Paper
Dealer or Commercial Paper Dealers and any Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers selected by the Fund to
provide such rate or rates not being supplied by any Commercial Paper
Dealer or Commercial Paper Dealers, as the case may be, or, if the Fund
does not select any such Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers, by the remaining Commercial Paper Dealer or
Commercial Paper Dealers. For purposes of this definition, the "interest
equivalent" of a rate stated on a discount basis (a "discount rate") for
commercial paper of a given days' maturity shall be equal to the quotient
(rounded upwards to the next higher one-thousandth (.001) of 1%)of (A) the
discount rate divided by (B) the difference between (x) 1.00 and (y) a
fraction the numerator of which shall be the product of the discount rate
times the number of days in which such commercial paper matures and the
denominator of which shall be 360.
(b) "Accountant's Confirmation" shall have the meaning specified in
paragraph (c) of Section 7 of Part I of this Statement.
(c) "Affiliate" shall mean, for purposes of the definition of
"Outstanding," any Person known to the Auction Agent to be controlled by,
in control of or under common control with the Fund; provided, however,
that no Broker-Dealer controlled by, in control of or under common control
with the Fund shall be deemed to be an Affiliate nor shall any corporation
or any Person controlled by, in control of or under common control with
such corporation one of the directors, trustees or executive officers of
which is a director of the Fund be deemed to be an Affiliate solely because
such director, trustee or executive officer is also a director of the Fund.
(d) "Agent Member" shall mean a member of or participant in the
Securities Depository that will act on behalf of a Bidder.
(e) "Anticipation Notes" shall mean Tax Anticipation Notes (TANs),
Revenue Anticipation Notes (RANs), Tax and Revenue Anticipation Notes
(TRANs), Grant Anticipation Notes (GANs) that are rated by S&P and Bond
Anticipation Notes (BANs) that are rated by S&P.
(f) "Applicable Rate" shall have the meaning specified in
subparagraph (e)(i) of Section 2 of Part I of this Statement.
(g) "Articles" shall have the meaning specified on the first page of
this Statement.
(h) "Auction" shall mean each periodic implementation of the Auction
Procedures.
(i) "Auction Agency Agreement" shall mean the agreement between the
Fund and the Auction Agent which provides, among other things, that the
Auction Agent will follow the
2
<PAGE> 20
Auction Procedures for purposes of determining the Applicable Rate for
shares of a series of MuniPreferred so long as the Applicable Rate for
shares of such series is to be based on the results of an Auction.
(j) "Auction Agent" shall mean the entity appointed as such by a
resolution of the Board of Directors in accordance with Section 6 of Part
II of this Statement.
(k) "Auction Date," with respect to any Rate Period, shall mean the
Business Day next preceding the first day of such Rate Period.
(l) "Auction Procedures" shall mean the procedures for conducting
Auctions set forth in Part II of this Statement.
(m) "Available MuniPreferred" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(n) "Benchmark Rate" shall have the meaning specified in Section 12 of
Appendix A hereto.
(o) "Beneficial Owner," with respect to shares of a series of
MuniPreferred, means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the Auction Agent) as a
holder of shares of such series.
(p) "Bid" and "Bids" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement.
(q) "Bidder" and "Bidders" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement;
provided, however, that neither the Fund nor any affiliate thereof shall be
permitted to be a Bidder in an Auction, except that any Broker-Dealer that
is an affiliate of the Fund may be a Bidder in an Auction, but only if the
Orders placed by such Broker-Dealer are not for its own account.
(r) "Board of Directors" shall mean the Board of Directors of the Fund
or any duly authorized committee thereof.
(s) "Broker-Dealer" shall mean any broker-dealer, commercial bank or
other entity permitted by law to perform the functions required of a
Broker-Dealer in Part II of this Statement, that is a member of, or a
participant in, the Securities Depository or is an affiliate of such member
or participant, has been selected by the Fund and has entered into a
Broker-Dealer Agreement that remains effective.
(t) "Broker-Dealer Agreement" shall mean an agreement among the Fund,
the Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer
agrees to follow the procedures specified in Part II of this Statement.
(u) "Business Day" shall mean a day on which the New York Stock
Exchange is open for trading and which is neither a Saturday, Sunday nor
any other day on which banks in The City of New York, New York, are
authorized by law to close.
(v) "Code" means the Internal Revenue Code of 1986, as amended.
(w) "Commercial Paper Dealers" shall mean Lehman Commercial Paper
Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated or, in lieu of any thereof, their respective affiliates
or successors, if such entity is a commercial paper dealer.
3
<PAGE> 21
(x) "Common Stock" shall mean the common stock, par value $.01 per
share, of the Fund.
(y) "Cure Date" shall mean the MuniPreferred Basic Maintenance Cure
Date or the 1940 Act Cure Date, as the case may be.
(z) "Date of Original Issue," with respect to shares of a series of
MuniPreferred, shall mean the date on which the Fund initially issued such
shares.
(aa) "Deposit Securities" shall mean cash and Municipal Obligations
rated at least A-1+ or SP-1+ by S&P, except that, for purposes of
subparagraph (a)(v) of Section 11 of Part I of this Statement, such
Municipal Obligations shall be considered "Deposit Securities" only if they
are also rated P-1, MIG-1 or VMIG-1 by Moody's.
(bb) "Discounted Value," as of any Valuation Date, shall mean, (i)
with respect to an S&P Eligible Asset, the quotient of the Market Value
thereof divided by the applicable S&P Discount Factor and (ii) (a) with
respect to a Moody's Eligible Asset that is not currently callable as of
such Valuation Date at the option of the issuer thereof, the quotient of
the Market Value thereof divided by the applicable Moody's Discount Factor,
or (b) with respect to a Moody's Eligible Asset that is currently callable
as of such Valuation Date at the option of the issuer thereof, the quotient
of (1) the lesser of the Market Value or call price thereof, including any
call premium, divided by (2) the applicable Moody's Discount Factor.
(cc) [Reserved]
(dd) [Reserved]
(ee) "Dividend Payment Date," with respect to shares of a series of
MuniPreferred, shall mean any date on which dividends are payable on shares
of such series pursuant to the provisions of paragraph (d) of Section 2 of
Part I of this Statement.
(ff) "Dividend Period," with respect to shares of a series of
MuniPreferred, shall mean the period from and including the Date of
Original Issue of shares of such series to but excluding the initial
Dividend Payment Date for shares of such series and any period thereafter
from and including one Dividend Payment Date for shares of such series to
but excluding the next succeeding Dividend Payment Date for shares of such
series.
(gg) "Existing Holder," with respect to shares of a series of
MuniPreferred, shall mean a Broker-Dealer (or any such other Person as may
be permitted by the Fund) that is listed on the records of the Auction
Agent as a holder of shares of such series.
(hh) "Failure to Deposit," with respect to shares of a series of
MuniPreferred, shall mean a failure by the Fund to pay to the Auction
Agent, not later than 12:00 noon, New York City time, (A) on the Business
Day next preceding any Dividend Payment Date for shares of such series, in
funds available on such Dividend Payment Date in The City of New York, New
York, the full amount of any dividend (whether or not earned or declared)
to be paid on such Dividend Payment Date on any share of such series or (B)
on the Business Day next preceding any redemption date in funds available
on such redemption date for shares of such series in The City of New York,
New York, the Redemption Price to be paid on such redemption date for any
share of such series after notice of redemption is mailed pursuant to
paragraph (c) of Section 11 of Part I of this Statement; provided, however,
that the foregoing clause (B) shall not apply to the Fund's failure to pay
the Redemption Price in respect of shares of MuniPreferred when the related
Notice of Redemption provides that redemption of such shares is subject to
one or more conditions
4
<PAGE> 22
precedent and any such condition precedent shall not have been satisfied at
the time or times and in the manner specified in such Notice of Redemption.
(ii) "Federal Tax Rate Increase" shall have the meaning specified in
the definition of "Moody's Volatility Factor."
(jj) "Fund" shall mean the entity named on the first page of this
Statement, which is the issuer of the shares of MuniPreferred.
(kk) "Gross-up Payment" shall have the meaning specified in Section 4
of Appendix A hereto.
(ll) "Holder," with respect to shares of a series of MuniPreferred,
shall mean the registered holder of such shares as the same appears on the
stock books of the Fund.
(mm) "Hold Order" and "Hold Orders" shall have the respective
meanings specified in paragraph (a) of Section 1 of Part II of this
Statement.
(nn) "Independent Accountant" shall mean a nationally recognized
accountant, or firm of accountants, that is with respect to the Fund an
independent public accountant or firm of independent public accountants
under the Securities Act of 1933, as amended from time to time.
(oo) "Initial Rate Period," with respect to shares of a series of
MuniPreferred, shall have the meaning specified with respect to shares of
such series in Section 5 of Appendix A hereto.
(pp) "Interest Equivalent" means a yield on a 360-day basis of a
discount basis security which is equal to the yield on an equivalent
interest-bearing security.
(qq) "Issue Type Category," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.
(rr) "Kenny Index" shall have the meaning specified in the definition
of "Taxable Equivalent of the Short-Term Municipal Bond Rate."
(ss) "Late Charge" shall have the meaning specified in subparagraph
(e)(1)(B) of Section 2 of Part I of this Statement.
(tt) "Liquidation Preference," with respect to a given number of
shares of MuniPreferred, means $25,000 times that number.
(uu) "Market Value" of any asset of the Fund shall mean the market
value thereof determined by the pricing service designated from time to
time by the Board of Directors. Market Value of any asset shall include any
interest accrued thereon. The pricing service values portfolio securities
at the mean between the quoted bid and asked price or the yield equivalent
when quotations are readily available. Securities for which quotations are
not readily available are valued at fair value as determined by the pricing
service using methods which include consideration of: yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating; indications as to value from dealers; and general market
conditions. The pricing service may employ electronic data processing
techniques or a matrix system, or both, to determine valuations.
(vv) "Maximum Potential Gross-up Payment Liability," as of any
Valuation Date, shall mean the aggregate amount of Gross-up Payments that
would be due if the Fund were to
5
<PAGE> 23
make Taxable Allocations, with respect to any taxable year, estimated based
upon dividends paid and the amount of undistributed realized net capital
gains and other taxable income earned by the Fund, as of the end of the
calendar month immediately preceding such Valuation Date, and assuming such
Gross-up Payments are fully taxable.
(ww) "Maximum Rate," for shares of a series of MuniPreferred on any
Auction Date for shares of such series, shall mean:
(i) in the case of any Auction Date which is not the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Fund pursuant to Section 4 of Part I of this
Statement, the product of (A) the Reference Rate on such Auction Date
for the next Rate Period of shares of such series and (B) the Rate
Multiple on such Auction Date, unless shares of such series have or
had a Special Rate Period (other than a Special Rate Period of 28 Rate
Period Days or fewer) and an Auction at which Sufficient Clearing Bids
existed has not yet occurred for a Minimum Rate Period of shares of
such series after such Special Rate Period, in which case the higher
of:
(A) the dividend rate on shares of such series for the
then-ending Rate Period; and
(B) the product of (1) the higher of (x) the Reference Rate
on such Auction Date for a Rate Period equal in length to the
then-ending Rate Period of shares of such series, if such
then-ending Rate Period was 364 Rate Period Days or fewer, or the
Treasury Note Rate on such Auction Date for a Rate Period equal
in length to the then-ending Rate Period of shares of such
series, if such then-ending Rate Period was more than 364 Rate
Period Days, and (y) the Reference Rate on such Auction Date for
a Rate Period equal in length to such Special Rate Period of
shares of such series, if such Special Rate Period was 364 Rate
Period Days or fewer, or the Treasury Note Rate on such Auction
Date for a Rate Period equal in length to such Special Rate
Period, if such Special Rate Period was more than 364 Rate Period
Days and (2) the Rate Multiple on such Auction Date; or
(ii) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Fund pursuant to Section 4 of Part I of this
Statement, the product of (A) the highest of (1) the Reference Rate on
such Auction Date for a Rate Period equal in length to the then-ending
Rate Period of shares of such series, if such then-ending Rate Period
was 364 Rate Period Days or fewer, or the Treasury Note Rate on such
Auction Date for a Rate Period equal in length to the then-ending Rate
Period of shares of such series, if such then-ending Rate Period was
more than 364 Rate Period Days, (2) the Reference Rate on such Auction
Date for the Special Rate Period for which the Auction is being held
if such Special Rate Period is 364 Rate Period Days or fewer or the
Treasury Note Rate on such Auction Date for the Special Rate Period
for which the Auction is being held if such Special Rate Period is
more than 364 Rate Period Days, and (3) the Reference Rate on such
Auction Date for Minimum Rate Periods and (B) the Rate Multiple on
such Auction Date.
(xx) [Reserved]
(yy) "Minimum Rate Period" shall mean any Rate Period consisting of 7
Rate Period Days.
(zz) "Moody's" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors.
6
<PAGE> 24
(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:
<TABLE>
<CAPTION>
Federal Volatility
Tax Rate Increase Factor
----------------- ----------
<S> <C>
5% 295%
10% 317%
15% 341%
20% 369%
25% 400%
30% 436%
35% 477%
40% 525%
</TABLE>
(eee) "MuniPreferred" shall have the meaning set forth on the first
page of this Statement.
(fff) "MuniPreferred Basic Maintenance Amount," as of any Valuation
Date, shall mean the dollar amount equal to the sum of (i)(A) the product
of the number of shares of MuniPreferred outstanding on such date
multiplied by $25,000 (plus the product of the number of shares of any
other series of Preferred Stock outstanding on such date multiplied by the
liquidation preference of such shares), plus any redemption premium
applicable to shares of MuniPreferred (or other Preferred Stock) then
subject to redemption; (B) the aggregate amount of dividends that will have
accumulated at the respective Applicable Rates (whether or not earned or
declared) to (but not including) the first respective Dividend Payment
Dates for shares of MuniPreferred outstanding that follow such Valuation
Date (plus the aggregate amount of dividends, whether or not earned or
declared, that will have accumulated in respect of other outstanding shares
of Preferred Stock to, but not including, the first respective dividend
payment dates for such other shares that follow such Valuation Date);
(C) the aggregate amount of
7
<PAGE> 25
dividends that would accumulate on shares of each series of MuniPreferred
outstanding from such first respective Dividend Payment Date therefor
through the 56th day after such Valuation Date, at the Maximum Rate
(calculated as if such Valuation Date were the Auction Date for the Rate
Period commencing on such Dividend Payment Date) for a Minimum Rate Period
of shares of such series to commence on such Dividend Payment Date,
assuming, solely for purposes of the foregoing, that if on such Valuation
Date the Fund shall have delivered a Notice of Special Rate Period to the
Auction Agent pursuant to Section 4(d)(i) of this Part I with respect to
shares of such series, such Maximum Rate shall be the higher of (a) the
Maximum Rate for the Special Rate Period of shares of such series to
commence on such Dividend Payment Date and (b) the Maximum Rate for a
Minimum Rate Period of shares of such series to commence on such Dividend
Payment Date, multiplied by the Volatility Factor applicable to a Minimum
Rate Period, or, in the event the Fund shall have delivered a Notice of
Special Rate Period to the Auction Agent pursuant to Section 4(d)(i) of
this Part I with respect to shares of such series designating a Special
Rate Period consisting of 56 Rate Period Days or more, the Volatility
Factor applicable to a Special Rate Period of that length (plus the
aggregate amount of dividends that would accumulate at the maximum dividend
rate or rates on any other shares of Preferred Stock outstanding from such
respective dividend payment dates through the 56th day after such Valuation
Date, as established by or pursuant to the respective statements
establishing and fixing the rights and preferences of such other shares of
Preferred Stock) (except that (1) if such Valuation Date occurs at a time
when a Failure to Deposit (or, in the case of shares of Preferred Stock
other than MuniPreferred, a failure similar to a Failure to Deposit) has
occurred that has not been cured, the dividend for purposes of calculation
would accumulate at the current dividend rate then applicable to the shares
in respect of which such failure has occurred and (2) for those days during
the period described in this subparagraph (C) in respect of which the
Applicable Rate in effect immediately prior to such Dividend Payment Date
will remain in effect (or, in the case of shares of Preferred Stock other
than MuniPreferred, in respect of which the dividend rate or rates in
effect immediately prior to such respective dividend payment dates will
remain in effect), the dividend for purposes of calculation would
accumulate at such Applicable Rate (or other rate or rates, as the case may
be) in respect of those days); (D) the amount of anticipated expenses of
the Fund for the 90 days subsequent to such Valuation Date; (E) the amount
of the Fund's Maximum Potential Gross-up Payment Liability in respect of
shares of MuniPreferred (and similar amounts payable in respect of other
shares of Preferred Stock pursuant to provisions similar to those contained
in Section 3 of Part I of this Statement) as of such Valuation Date; and
(F) any current liabilities as of such Valuation Date to the 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.
8
<PAGE> 26
(hhh) "MuniPreferred Basic Maintenance Report" shall mean a report
signed by the President, Treasurer or any Senior Vice President or Vice
President of the Fund which sets forth, as of the related Valuation Date,
the assets of the Fund, the Market Value and the Discounted Value thereof
(seriatim and in aggregate), and the MuniPreferred Basic Maintenance
Amount.
(iii) "Municipal Obligations" shall mean "Municipal Obligations"
as defined in the Fund's registration statement on Form N-2 on file with
the Securities and Exchange Commission, as such registration statement may
be amended from time to time (the "Registration Statement").
(jjj) "1940 Act" shall mean the Investment Company Act of 1940, as
amended from time to time.
(kkk) "1940 Act Cure Date," with respect to the failure by the
Fund to maintain the 1940 Act MuniPreferred Asset Coverage (as required by
Section 6 of Part I of this Statement) as of the last Business Day of each
month, shall mean the last Business Day of the following month.
(lll) "1940 Act MuniPreferred Asset Coverage" shall mean asset
coverage, as defined in Section 18(h) of the 1940 Act, of at least 200%
with respect to all outstanding senior securities of the Fund which are
stock, including all outstanding shares of MuniPreferred (or such other
asset coverage as may in the future be specified in or under the 1940 Act
as the minimum asset coverage for senior securities which are stock of a
closed-end investment company as a condition of declaring dividends on its
common stock).
(mmm) "Notice of Redemption" shall mean any notice with respect to
the redemption of shares of MuniPreferred pursuant to paragraph (c) of
Section 11 of Part I of this Statement.
(nnn) "Notice of Special Rate Period" shall mean any notice with
respect to a Special Rate Period of shares of MuniPreferred pursuant to
subparagraph (d)(i) of Section 4 of Part I of this Statement.
(ooo) "Order" and "Orders" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(ppp) "Original Issue Insurance," if defined in Section 4 of
Appendix A hereto, shall have the meaning specified in that section.
(qqq) "Other Issues," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.
(rrr) "Outstanding" shall mean, as of any Auction Date with
respect to shares of a series of MuniPreferred, the number of shares of
such series theretofore issued by the Fund except, without duplication, (i)
any shares of such series theretofore cancelled or delivered to the Auction
Agent for cancellation or redeemed by the Fund, (ii) any shares of such
series as to which the Fund or any Affiliate thereof shall be an Existing
Holder and (iii) any shares of such series represented by any certificate
in lieu of which a new certificate has been executed and delivered by the
Fund.
(sss) "Permanent Insurance," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.
(ttt) "Person" shall mean and include an individual, a
partnership, a corporation, a trust, an unincorporated association, a joint
venture or other entity or a government or any agency or political
subdivision thereof.
9
<PAGE> 27
(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 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
10
<PAGE> 28
Period Days but fewer than 183 Rate Period Days; and (iii) the Treasury
Bill Rate in the case of Special Rate Periods of more than 182 Rate Period
Days but fewer than 365 Rate Period Days.
(ffff) "Registration Statement" has the meaning specified in the
definition of "Municipal Obligations."
(gggg) "S&P" shall mean Standard & Poor's Corporation, a New York
corporation, and its successors.
(hhhh) "S&P Discount Factor" shall have the meaning specified in
Section 4 of Appendix A hereto.
(iiii) "S&P Eligible Asset" shall have the meaning specified in
Section 4 of Appendix A hereto.
(jjjj) "S&P Exposure Period" shall mean the maximum period of time
following a Valuation Date that the Fund has under this Statement to cure
any failure to maintain, as of such Valuation Date, the Discounted Value
for its portfolio at least equal to the MuniPreferred Basic Maintenance
Amount (as described in paragraph (a) of Section 7 of Part I of this
Statement).
(kkkk) "S&P Volatility Factor" shall mean, as of any Valuation Date,
a multiplicative factor equal to (i) 305% in the case of any Minimum Rate
Period or any Special Rate Period of 28 Rate Period Days or fewer; (ii)
268% in the case of any Special Rate Period of more than 28 Rate Period
Days but fewer than 183 Rate Period Days; and (iii) 204% in the case of any
Special Rate Period of more than 182 Rate Period Days.
(llll) "Secondary Market Insurance," if defined in Section 4 of
Appendix A hereto, shall have the meaning specified in that section.
(mmmm) "Securities Depository" shall mean The Depository Trust
Company and its successors and assigns or any other securities depository
selected by the Fund which agrees to follow the procedures required to be
followed by such securities depository in connection with shares of
MuniPreferred.
(nnnn) "Sell Order" and "Sell Orders" shall have the respective
meanings specified in paragraph (a) of Section 1 of Part II of this
Statement.
(oooo) "Special Rate Period," with respect to shares of a series of
MuniPreferred, shall have the meaning specified in paragraph (a) of
Section 4 of Part I of this Statement.
(pppp) "Special Redemption Provisions" shall have the meaning
specified in subparagraph (a)(i) of Section 11 of Part I of this
Statement.
(qqqq) "Submission Deadline" shall mean 1:30 P.M., New York City
time, on any Auction Date or such other time on any Auction Date by which
Broker-Dealers are required to submit Orders to the Auction Agent as
specified by the Auction Agent from time to time.
(rrrr) "Submitted Bid" and "Submitted Bids" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of
this Statement.
(ssss) "Submitted Hold Order" and "Submitted Hold Orders" shall have
the respective meanings specified in paragraph (a) of Section 3 of Part
II of this Statement.
11
<PAGE> 29
(tttt) "Submitted Order" and "Submitted Orders" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of
this Statement.
(uuuu) "Submitted Sell Order" and "Submitted Sell Orders" shall have
the respective meanings specified in paragraph (a) of Section 3 of Part
II of this Statement.
(vvvv) "Subsequent Rate Period," with respect to shares of a series
of MuniPreferred, shall mean the period from and including the first day
following the Initial Rate Period of shares of such series to but excluding
the next Dividend Payment Date for shares of such series and any period
thereafter from and including one Dividend Payment Date for shares of such
series to but excluding the next succeeding Dividend Payment Date for
shares of such series; provided, however, that if any Subsequent Rate
Period is also a Special Rate Period, such term shall mean the period
commencing on the first day of such Special Rate Period and ending on the
last day of the last Dividend Period thereof.
(wwww) "Substitute Commercial Paper Dealer" shall mean The First
Boston Company or Morgan Stanley & Co. Incorporated or their respective
affiliates or successors, if such entity is a commercial paper dealer;
provided, however, that none of such entities shall be a Commercial Paper
Dealer.
(xxxx) "Substitute U.S. Government Securities Dealer" shall mean The
First Boston Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated
or their respective affiliates or successors, if such entity is a U.S.
Government securities dealer; provided, however, that none of such entities
shall be a U.S. Government Securities Dealer.
(yyyy) "Sufficient Clearing Bids" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(zzzz) "Taxable Allocation" shall have the meaning specified in
Section 3 of Part I of this Statement.
(aaaaa) "Taxable Income" shall have the meaning specified in Section
12 of Appendix A hereto.
(bbbbb) "Taxable Equivalent of the Short-Term Municipal Bond Rate," on
any date for any Minimum Rate Period or Special Rate Period of 28 Rate
Period Days or fewer, shall mean 90% of the quotient of (A) the per annum
rate expressed on an interest equivalent basis equal to the Kenny S&P 30
day High Grade Index or any successor index (the "Kenny Index") (provided,
however, that any such successor index must be approved by Moody's (if
Moody's is then rating the shares of MuniPreferred) and S&P (if S&P is then
rating the shares of MuniPreferred)), made available for the Business Day
immediately preceding such date but in any event not later than 8:30 A.M.,
New York City time, on such date by Kenny S&P Evaluation Services or any
successor thereto, based upon 30-day yield evaluations at par of short-term
bonds the interest on which is excludable for regular Federal income tax
purposes under the Code of "high grade" component issuers selected by Kenny
S&P Evaluation Services or any such successor from time to time in its
discretion, which component issuers shall include, without limitation,
issuers of general obligation bonds, but shall exclude any bonds the
interest on which constitutes an item of tax preference under Section
57(a)(5) of the Code, or successor provisions, for purposes of the
"alternative minimum tax," divided by (B) 1.00 minus the maximum marginal
regular Federal individual income tax rate applicable to ordinary income or
the maximum marginal regular Federal corporate income tax rate applicable
to ordinary income (in each case expressed as a decimal), whichever is
greater; provided, however, that if the Kenny Index is not made so
available by 8:30 A.M., New York City time, on such date by Kenny S&P
Evaluation Services or any successor, the Taxable Equivalent of the
Short-Term Municipal Bond Rate shall mean the quotient of (A) the per annum
rate expressed on an interest equivalent basis equal to the most
12
<PAGE> 30
recent Kenny Index so made available for any preceding Business Day,
divided by (B) 1.00 minus the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income (in
each case expressed as a decimal), whichever is greater.
(ccccc) "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.
(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.
13
<PAGE> 31
(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.
14
<PAGE> 32
PART I
1. Number of Authorized Shares.
The number of authorized shares constituting a series of MuniPreferred
shall be as set forth with respect to such series in Section 2 of Appendix A
hereto.
2. Dividends.
(a) Ranking. The shares of a series of MuniPreferred shall rank on a parity
with each other, with shares of any other series of MuniPreferred and with
shares of any other series of Preferred Stock as to the payment of dividends by
the Fund.
(b) Cumulative Cash Dividends. The Holders of shares of MuniPreferred of
any series shall be entitled to receive, when, as and if declared by the Board
of Directors, out of funds legally available therefor, cumulative cash dividends
at the Applicable Rate for shares of such series, determined as set forth in
paragraph (e) of this Section 2, and no more (except to the extent set forth in
Section 3 of this Part I), payable on the Dividend Payment Dates with respect to
shares of such series determined pursuant to paragraph (d) of this Section 2.
Holders of shares of MuniPreferred shall not be entitled to any dividend,
whether payable in cash, property or stock, in excess of full cumulative
dividends, as herein provided, on shares of MuniPreferred. No interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on shares of MuniPreferred which may be in arrears, and,
except to the extent set forth in subparagraph (e)(i) of this Section 2, no
additional sum of money shall be payable in respect of any such arrearage.
(c) Dividends Cumulative From Date of Original Issue. Dividends on shares
of MuniPreferred of any series shall accumulate at the Applicable Rate for
shares of such series from the Date of Original Issue thereof.
(d) Dividend Payment Dates and Adjustment Thereof. The Dividend Payment
Dates with respect to shares of a series of MuniPreferred shall be as set forth
with respect to shares of such series in Section 9 of Appendix A hereto;
provided, however, that:
(i) (A) in the case of a series of MuniPreferred designated as "Series
F MuniPreferred" or "Series M MuniPreferred" in Section 1 of Appendix A
hereto, if the Monday or Tuesday, as the case may be, on which dividends
would otherwise be payable on shares of such series is not a Business Day,
then such dividends shall be payable on such shares on the first Business
Day that falls after such Monday or Tuesday, as the case may be, and (B) in
the case of a series of MuniPreferred designated as "Series T
MuniPreferred," "Series W MuniPreferred" or "Series TH MuniPreferred" in
Section 1 of Appendix A hereto, if the Wednesday, Thursday or Friday, as
the case may be, on which dividends would otherwise be payable on shares of
such series is not a Business Day, then such dividends shall be payable on
such shares on the first Business Day that falls prior to such Wednesday,
Thursday or Friday, as the case may be; and
(ii) notwithstanding Section 9 of Appendix A hereto, the Fund in its
discretion may establish the Dividend Payment Dates in respect of any
Special Rate Period of shares of a series of MuniPreferred consisting of
more than 28 Rate Period Days; provided, however, that such dates shall be
set forth in the Notice of Special Rate Period relating to such Special
Rate Period, as delivered to the Auction Agent, which Notice of Special
Rate Period shall be filed with the Secretary of the Fund; and further
provided that (1) any such Dividend Payment Date shall be a Business Day
and (2) the last Dividend Payment Date in respect of such Special Rate
Period shall be the Business Day immediately following the last day
thereof, as such last day is determined in accordance with paragraph (b) of
Section 4 of this Part I.
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<PAGE> 33
(e) Dividend Rates and Calculation of Dividends. (i) Dividend Rates. The
dividend rate on shares of MuniPreferred of any series during the period from
and after the Date of Original Issue of shares of such series to and including
the last day of the Initial Rate Period of shares of such series shall be equal
to the rate per annum set forth with respect to shares of such series under
"Designation" in Section 1 of Appendix A hereto. For 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:
(A) an Auction for any such Subsequent Rate Period is not held for any
reason other than as described below, the dividend rate on shares of such
series for such Subsequent Rate Period will be the Maximum Rate for shares
of such series on the Auction Date therefor;
(B) any Failure to Deposit shall have occurred with respect to shares
of such series during any Rate Period thereof (other than any Special Rate
Period consisting of more than 364 Rate Period Days or any Rate Period
succeeding any Special Rate Period consisting of more than 364 Rate Period
Days during which a Failure to Deposit occurred that has not been cured),
but, prior to 12:00 Noon, New York City time, on the third Business Day
next succeeding the date on which such Failure to Deposit occurred, such
Failure to Deposit shall have been cured in accordance with paragraph
(f) of this Section 2 and the Fund shall have paid to the Auction Agent a
late charge ("Late Charge") equal to the sum of (1) if such Failure to
Deposit consisted of the failure timely to pay to the Auction Agent the
full amount of dividends with respect to any Dividend Period of the shares
of such series, an amount computed by multiplying (x) 200% of the Reference
Rate for the Rate Period during which such Failure to Deposit occurs on the
Dividend Payment Date for such Dividend Period by (y) a fraction, the
numerator of which shall be the number of days for which such Failure to
Deposit has not been cured in accordance with paragraph (f) of this Section
2 (including the day such Failure to Deposit occurs and excluding the day
such Failure to Deposit is cured) and the denominator of which shall be
360, and applying the rate obtained against the aggregate Liquidation
Preference of the outstanding shares of such series and (2) if such Failure
to Deposit consisted of the failure timely to pay to the Auction Agent the
Redemption Price of the shares, if any, of such series for which Notice of
Redemption has been mailed by the Fund pursuant to paragraph (c) of Section
11 of this Part I, an amount computed by multiplying (x) 200% of the
Reference Rate for the Rate Period during which such Failure to Deposit
occurs on the redemption date by (y) a fraction, the numerator of which
shall be the number of days for which such Failure to Deposit is not cured
in accordance with paragraph (f) of this Section 2 (including the day such
Failure to Deposit occurs and excluding the day such Failure to Deposit is
cured) and the denominator of which shall be 360, and applying the rate
obtained against the aggregate Liquidation Preference of the outstanding
shares of such series to be redeemed, no Auction will be held in respect of
shares of such series for the 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;
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<PAGE> 34
(C) any Failure to Deposit shall have occurred with respect to shares
of such series during any Rate Period thereof (other than any Special Rate
Period consisting of more than 364 Rate Period Days or any Rate Period
succeeding any Special Rate Period consisting of more than 364 Rate Period
Days during which a Failure to Deposit occurred that has not been cured),
and, prior to 12:00 Noon, New York City time, on the third Business Day
next succeeding the date on which such Failure to Deposit occurred, such
Failure to Deposit shall not have been cured in accordance with paragraph
(f) of this Section 2 or the Fund shall not have paid the applicable Late
Charge to the Auction Agent, no Auction will be held in respect of shares
of such series for the 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 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
17
<PAGE> 35
the Fund to make the required payment to the Auction Agent) with respect to any
Rate Period of shares of such series if, within the respective time periods
described in subparagraph (e)(i) of this Section 2, the Fund shall have paid to
the Auction Agent (A) all accumulated and unpaid dividends on shares of such
series and (B) without duplication, the Redemption Price for shares, if any, of
such series for which Notice of Redemption has been mailed by the Fund pursuant
to paragraph (c) of Section 11 of Part I of this Statement; provided, however,
that the foregoing clause (B) shall not apply to the Fund's failure to pay the
Redemption Price in respect of shares of MuniPreferred when the related
Redemption Notice provides that redemption of such shares is subject to one or
more conditions precedent and any such condition precedent shall not have been
satisfied at the time or times and in the manner specified in such Notice of
Redemption.
(g) Dividend Payments by Fund to Auction Agent. The Fund shall pay to the
Auction Agent, not later than 12:00 Noon, New York City time, on the Business
Day next preceding each Dividend Payment Date for shares of a series of
MuniPreferred, an aggregate amount of funds available on the next Business Day
in The City of New York, New York, equal to the dividends to be paid to all
Holders of shares of such series on such Dividend Payment Date.
(h) Auction Agent as Trustee of Dividend Payments by Fund. All moneys paid
to the Auction Agent for the payment of dividends (or for the payment of any
Late Charge) shall be held in trust for the payment of such dividends (and any
such Late Charge) by the Auction Agent for the benefit of the Holders specified
in paragraph (i) of this Section 2. Any moneys paid to the Auction Agent in
accordance with the foregoing but not applied by the Auction Agent to the
payment of dividends (and any such Late Charge) will, to the extent permitted by
law, be repaid to the Fund at the end of 90 days from the date on which such
moneys were so to have been applied.
(i) Dividends Paid to Holders. Each dividend on shares of MuniPreferred
shall be paid on the Dividend Payment Date therefor to the Holders thereof as
their names appear on the stock books of the Fund on the Business Day next
preceding such Dividend Payment Date.
(j) Dividends Credited Against Earliest Accumulated But Unpaid Dividends.
Any dividend payment made on shares of MuniPreferred shall first be credited
against the earliest accumulated but unpaid dividends due with respect to such
shares. Dividends in arrears for any past Dividend Period may be declared and
paid at any time, without reference to any regular Dividend Payment Date, to the
Holders as their names appear on the stock books of the Fund on such date, not
exceeding 15 days preceding the payment date thereof, as may be fixed by the
Board of Directors.
(k) Dividends Designated as Exempt-Interest Dividends. Dividends on shares
of MuniPreferred shall be designated as exempt-interest dividends up to the
amount of tax-exempt income of the Fund, to the extent permitted by, and for
purposes of, Section 852 of the Code.
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<PAGE> 36
3. Gross-up Payments.
Holders of shares of MuniPreferred shall be entitled to receive, when, as
and if declared by the Board of Directors, out of funds legally available
therefor, dividends in an amount equal to the aggregate Gross-up Payments as
follows:
(a) Minimum Rate Periods and Special Rate Periods of 28 Rate Period
Days or Fewer. If, in the case of any Minimum Rate Period or any Special
Rate Period of 28 Rate Period Days or fewer, the Fund allocates any net
capital gains or other income taxable for Federal income tax purposes to a
dividend paid on shares of MuniPreferred without having given advance
notice thereof to the Auction Agent as provided in Section 5 of Part II of
this Statement (such allocation being referred to herein as a "Taxable
Allocation") solely by reason of the fact that such allocation is made
retroactively as a result of the redemption of all or a portion of the
outstanding shares of MuniPreferred or the liquidation of the Fund, the
Fund shall, prior to the end of the calendar year in which such dividend
was paid, provide notice thereof to the Auction Agent and direct the Fund's
dividend disbursing agent to send such notice with a Gross-up Payment to
each Holder of such shares that was entitled to such dividend payment
during such calendar year at such Holder's address as the same appears or
last appeared on the stock books of the Fund.
(b) Special Rate Periods of More Than 28 Rate Period Days. If, in the
case of any Special Rate Period of more than 28 Rate Period Days, the Fund
makes a Taxable Allocation to a dividend paid on shares of MuniPreferred,
the Fund shall, prior to the end of the calendar year in which such
dividend was paid, provide notice thereof to the Auction Agent and direct
the Fund's dividend disbursing agent to send such notice with a Gross-up
Payment to each Holder of shares that was entitled to such dividend payment
during such calendar year at such Holder's address as the same appears or
last appeared on the stock books of the Fund.
(c) No Gross-up Payments In the Event of a Reallocation. The Fund
shall not be required to make Gross-up Payments with respect to any net
capital gains or other taxable income determined by the Internal Revenue
Service to be allocable in a manner different from that allocated by the
Fund.
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
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<PAGE> 37
day of such Special Rate Period is not (a) a Tuesday that is a Business Day in
the case of a series of MuniPreferred designated as "Series M MuniPreferred" in
Section 1 of Appendix A hereto, (b) a Wednesday that is a Business Day in the
case of a series of MuniPreferred designated as "Series T MuniPreferred" in
Section 1 of Appendix A hereto, (c) a Thursday that is a Business Day in the
case of a series of MuniPreferred designated as "Series W MuniPreferred" in
Section 1 of Appendix A hereto, (d) a Friday that is a Business Day in the case
of a series of MuniPreferred designated as "Series TH MuniPreferred" in Section
1 of Appendix A hereto, (e) a Monday that is a Business Day in the case of a
series of MuniPreferred designated as "Series F MuniPreferred" in Section 1 of
Appendix A hereto, then the Fund shall designate such Subsequent Rate Period as
a Special Rate Period consisting of the period commencing on the first day
following the end of the immediately preceding Rate Period and ending (a) on the
first Monday that is followed by a Tuesday that is a Business Day preceding what
would otherwise be such last day, in the case of Series M MuniPreferred, (b) on
the first Tuesday that is followed by a Wednesday that is a Business Day
preceding what would otherwise be such last day, in the case of Series T
MuniPreferred, (c) on the first Wednesday that is followed by a Thursday that is
a Business Day preceding what would otherwise be such last day, in the case of
Series W MuniPreferred, (d) on the first Thursday that is followed by a Friday
that is a Business Day preceding what would otherwise be such last day, in the
case of Series TH MuniPreferred, and (e) on the first Sunday that is followed by
a Monday that is a Business Day preceding what would otherwise be such last day,
in the case of Series F MuniPreferred.
(c) Notice of Proposed Special Rate Period. If the Fund proposes to
designate any succeeding Subsequent Rate Period of shares of a series of
MuniPreferred as a Special Rate Period pursuant to paragraph (a) of this Section
4, not less than 20 (or such lesser number of days as may be agreed to from time
to time by the Auction Agent) nor more than 30 days prior to the date the Fund
proposes to designate as the first day of such Special Rate Period (which shall
be such day that would otherwise be the first day of a Minimum Rate Period),
notice shall be (i) published or caused to be published by the Fund in a
newspaper of general circulation to the financial community in The City of New
York, New York, which carries financial news, and (ii) mailed by the Fund by
first-class mail, postage prepaid, to the Holders of shares of such series. Each
such notice shall state (A) that the Fund may exercise its option to designate a
succeeding Subsequent Rate Period of shares of such series as a Special Rate
Period, specifying the first day thereof and (B) that the Fund will, by 11:00
A.M., New York City time, on the second Business Day next preceding such date
(or by such later time or date, or both, as may be agreed to by the Auction
Agent) notify the Auction Agent of either (x) its determination, subject to
certain conditions, to exercise such option, in which case the Fund shall
specify the Special Rate Period designated, or (y) its determination not to
exercise such option.
(d) Notice of Special Rate Period. No later than 11:00 A.M., New York City
time, on the second Business Day next preceding the first day of any proposed
Special Rate Period of shares of a series of MuniPreferred as to which notice
has been given as set forth in paragraph (c) of this Section 4 (or such later
time or date, or both, as may be agreed to by the Auction Agent), the Fund shall
deliver to the Auction Agent either:
(i) a notice ("Notice of Special Rate Period") stating (A) that the
Fund has determined to designate the next succeeding Rate Period of shares
of such series as a Special Rate Period, specifying the same and the first
day thereof, (B) the Auction Date immediately prior to the first day of
such Special Rate Period, (C) that such Special Rate Period shall not
commence if (1) an Auction for shares of such series shall not be held on
such Auction Date for any reason or (2) an Auction for shares of such
series shall be held on such Auction Date but Sufficient Clearing Bids for
shares of such series shall not exist in such Auction, (D) the scheduled
Dividend Payment Dates for shares of such series during such Special Rate
Period and (E) the Special Redemption Provisions, if any, applicable to
shares of such series in respect of such Special Rate Period; such notice
to be accompanied by a MuniPreferred Basic Maintenance Report showing that,
as of the third Business Day next preceding such proposed Special Rate
Period, Moody's Eligible Assets (if Moody's is then rating such series) and
S&P Eligible Assets (if S&P is then rating such series) each have an
aggregate Discounted Value at least equal to the MuniPreferred Basic
Maintenance
20
<PAGE> 38
Amount as of such Business Day (assuming for purposes of the foregoing
calculation that (a) the Maximum Rate is the Maximum Rate on such Business
Day as if such Business Day were the Auction Date for the proposed Special
Rate Period, and (b) the Moody's Discount Factors applicable to Moody's
Eligible Assets are determined by reference to the first Exposure Period
longer than the Exposure Period then applicable to the Fund, as described
in the definition of Moody's Discount Factor herein); or
(ii) a notice stating that the Fund has determined not to exercise its
option to designate a Special Rate Period of shares of such series and that
the next succeeding Rate Period of shares of such series shall be a Minimum
Rate Period.
(e) Failure to Deliver Notice of Special Rate Period. If the Fund fails to
deliver either of the notices described in subparagraphs (d)(i) or (d)(ii) of
this Section 4 (and, in the case of the notice described in subparagraph (d)(i)
of this Section 4, a MuniPreferred Basic Maintenance Report to the effect set
forth in such subparagraph (if either Moody's or S&P is then rating the series
in question)) with respect to any designation of any proposed Special Rate
Period to the Auction Agent by 11:00 A.M., New York City time, on the second
Business Day next preceding the first day of such proposed Special Rate Period
(or by such later time or date, or both, as may be agreed to by the Auction
Agent), the Fund shall be deemed to have delivered a notice to the Auction Agent
with respect to such Special Rate Period to the effect set forth in subparagraph
(d)(ii) of this Section 4. In the event the Fund delivers to the Auction Agent a
notice described in subparagraph (d)(i) of this Section 4, it shall file a copy
of such notice with the Secretary of the Fund, and the contents of such notice
shall be binding on the Fund. In the event the Fund delivers to the Auction
Agent a notice described in subparagraph (d)(ii) of this Section 4, the Fund
will provide Moody's (if Moody's is then rating the series in question) and S&P
(if S&P is then rating the series in question) a copy of such notice.
5. Voting Rights.
(a) One Vote Per Share of MuniPreferred. Except as otherwise provided in
the Articles or as otherwise required by law, (i) each Holder of shares of
MuniPreferred shall be entitled to one vote for each share of MuniPreferred held
by such Holder on each matter submitted to a vote of shareholders of the Fund,
and (ii) the holders of outstanding shares of Preferred Stock, including each
share of MuniPreferred, and of shares of Common Stock shall vote together as a
single class; provided, however, that, at any meeting of the shareholders of the
Fund held for the election of directors, the holders of outstanding shares of
Preferred Stock, including MuniPreferred, represented in person or by proxy at
said meeting, shall be entitled, as a class, to the exclusion of the holders of
all other securities and classes of capital stock of the Fund, to elect two
directors of the Fund, each share of Preferred Stock, including each share of
MuniPreferred, entitling the holder thereof to one vote. Subject to paragraph
(b) of this Section 5, the holders of outstanding shares of Common Stock and
Preferred Stock, including MuniPreferred, voting together as a single class,
shall elect the balance of the directors.
(b) Voting For Additional Directors. (i) Voting Period. During any period
in which any one or more of the conditions described in subparagraphs (A) or (B)
of this subparagraph (b)(i) shall exist (such period being referred to herein as
a "Voting Period"), the number of directors constituting the Board of Directors
shall be automatically increased by the smallest number that, when added to the
two directors elected exclusively by the holders of shares of Preferred Stock,
including shares of MuniPreferred, would constitute a majority of the Board of
Directors as so increased by such smallest number; and the holders of shares of
Preferred Stock, including MuniPreferred, shall be entitled, voting as a class
on a one-vote-per-share basis (to the exclusion of the holders of all other
securities and classes of capital stock of the Fund), to elect such smallest
number of additional directors, together with the two directors that such
holders are in any event entitled to elect. A Voting Period shall commence:
(A) if at the close of business on any dividend payment date
accumulated dividends (whether or not earned or declared) on any
outstanding share of Preferred Stock, including
21
<PAGE> 39
MuniPreferred, equal to at least two full years' dividends shall be due and
unpaid and sufficient cash or specified securities shall not have been
deposited with the Auction Agent for the payment of such accumulated
dividends; or
(B) if at any time holders of shares of Preferred Stock are entitled
under the 1940 Act to elect a majority of the directors of the Fund.
Upon the termination of a Voting Period, the voting rights described in this
subparagraph (b)(i) shall cease, subject always, however, to the revesting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this subparagraph (b)(i).
(ii) Notice of Special Meeting. As soon as practicable after the accrual
of any right of the holders of shares of Preferred Stock to elect additional
directors as described in subparagraph (b)(i) of this Section 5, the Fund shall
notify the Auction Agent and the Auction Agent shall call a special meeting of
such holders, by mailing a notice of such special meeting to such holders, such
meeting to be held not less than 10 nor more than 20 days after the date of
mailing of such notice. If the Fund fails to send such notice to the Auction
Agent or if the Auction Agent does not call such a special meeting, it may be
called by any such holder on like notice. The record date for determining the
holders entitled to notice of and to vote at such special meeting shall be the
close of business on the fifth Business Day preceding the day on which such
notice is mailed. At any such special meeting and at each meeting of holders of
shares of Preferred Stock held during a Voting Period at which directors are to
be elected, such holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of capital stock of the Fund), shall
be entitled to elect the number of directors prescribed in subparagraph (b)(i)
of this Section 5 on a one-vote-per-share basis.
(iii) Terms of Office of Existing Directors. The terms of office of all
persons who are directors of the Fund at the time of a special meeting of
Holders and holders of other Preferred Stock to elect directors shall continue,
notwithstanding the election at such meeting by the Holders and such other
holders of the number of directors that they are entitled to elect, and the
persons so elected by the Holders and such other holders, together with the two
incumbent directors elected by the Holders and such other holders of Preferred
Stock and the remaining incumbent directors elected by the holders of the Common
Stock and Preferred Stock, shall constitute the duly elected directors of the
Fund.
(iv) Terms of Office of Certain Directors to Terminate Upon Termination of
Voting Period. Simultaneously with the termination of a Voting Period, the terms
of office of the additional directors elected by the Holders and holders of
other Preferred Stock pursuant to subparagraph (b)(i) of this Section 5 shall
terminate, the remaining directors shall constitute the directors of the Fund
and the voting rights of the Holders and such other holders to elect additional
directors pursuant to subparagraph (b)(i) of this Section 5 shall cease, subject
to the provisions of the last sentence of subparagraph (b)(i) of this Section 5.
(c) Holders of MuniPreferred To Vote On Certain Other Matters.
(i) Increases in Capitalization. So long as any shares of MuniPreferred are
outstanding, the Fund shall not, without the affirmative vote or consent of the
Holders of at least a majority of the shares of MuniPreferred outstanding at the
time, in person or by proxy, either in writing or at a meeting, voting as a
separate class: (a) authorize, create or issue any class or series of stock
ranking prior to or on a parity with shares of MuniPreferred with respect to the
payment of dividends or the distribution of assets upon dissolution, liquidation
or winding up of the affairs of the Fund, or authorize, create or issue
additional shares of any series of MuniPreferred (except that, notwithstanding
the foregoing, but subject to the provisions of paragraph (c) of Section 10 of
this Part I, the Board of Directors, without the vote or consent of the Holders
of MuniPreferred, may from time to time authorize and create, and the Fund may
from time to time issue, additional shares of any series of MuniPreferred or
classes or series of Preferred Stock ranking on a parity with shares of
MuniPreferred with respect to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up of the affairs of the Fund;
provided, however, that if Moody's or S&P is not then rating the shares of
MuniPreferred, the aggregate liquidation preference of all Preferred Stock of
the Fund
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<PAGE> 40
outstanding after any such issuance, exclusive of accumulated and unpaid
dividends, may not exceed the amount set forth in Section 10 of Appendix A
hereto) or (b) amend, alter or repeal the provisions of the Articles, including
this Statement, whether by merger, consolidation or otherwise, so as to affect
any preference, right or power of such shares of MuniPreferred or the Holders
thereof; provided, however, that (i) none of the actions permitted by the
exception to (a) above will be deemed to affect such preferences, rights or
powers, (ii) a division of a share of MuniPreferred will be deemed to affect
such preferences, rights or powers only if the terms of such division adversely
affect the Holders of shares of MuniPreferred and (iii) the authorization,
creation and issuance of classes or series of stock ranking junior to shares of
MuniPreferred with respect to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up of the affairs of the Fund,
will be deemed to affect such preferences, rights or powers only if Moody's or
S&P is then rating shares of MuniPreferred and such issuance would, at the time
thereof, cause the Fund not to satisfy the 1940 Act MuniPreferred Asset Coverage
or the MuniPreferred Basic Maintenance Amount. So long as any shares of
MuniPreferred are outstanding, the Fund shall not, without the affirmative vote
or consent of the Holders of at least 66 2/3% of the shares of MuniPreferred
outstanding at the time, in person or by proxy, either in writing or at a
meeting, voting as a separate class, file a voluntary application for relief
under Federal bankruptcy law or any similar application under state law for so
long as the Fund is solvent and does not foresee becoming insolvent. To the
extent that shares of MuniPreferred constitute a series of stock under Minnesota
law and to the extent the Holders of such shares are empowered under the
Minnesota Business Corporation Act to vote as a class on the actions set forth
above in this subparagraph (c)(i), the Fund shall not approve any such action
without the affirmative vote or consent of the Holders of at least a majority of
the shares of MuniPreferred of such series outstanding at the time, in person or
by proxy, either in writing or at a meeting (voting as a separate class).
23
<PAGE> 41
(ii) 1940 Act Matters. Unless a higher percentage is provided for in the
Articles, (A) the affirmative vote of the Holders of at least a majority of the
shares of Preferred Stock, including MuniPreferred, outstanding at the time,
voting as a separate class, shall be required to approve any conversion of the
Fund from a closed-end to an open-end investment company and (B) the affirmative
vote of the Holders of a "majority of the outstanding shares of Preferred
Stock," including MuniPreferred, voting as a separate class, shall be required
to approve any plan of reorganization (as such term is used in the 1940 Act)
adversely affecting such shares. The affirmative vote of the Holders of a
"majority of the outstanding shares of Preferred Stock," including
MuniPreferred, voting as a separate class, shall be required to approve any
action not described in the first sentence of this Section 5(c)(ii) requiring a
vote of security holders of the Fund under Section 13(a) of the 1940 Act. For
purpose of the foregoing, "majority of the outstanding shares of Preferred
Stock" means (i) 67% or more of such shares present at a meeting, if the Holders
of more than 50% of such shares are present or represented by proxy, or (ii)
more than 50% of such shares, whichever is less. In the event a vote of Holders
of MuniPreferred is required pursuant to the provisions of Section 13(a) of the
1940 Act, the Fund shall, not later than ten Business Days prior to the date on
which such vote is to be taken, notify Moody's (if Moody's is then rating the
shares of MuniPreferred) and S&P (if S&P is then rating the shares of
MuniPreferred) that such vote is to be taken and the nature of the action with
respect to which such vote is to be taken. The Fund shall, not later than ten
Business Days after the date on which such vote is taken, notify Moody's (if
Moody's is then rating the shares of MuniPreferred) of the results of such vote.
(d) Board May Take Certain Actions Without Shareholder Approval. The Board
of Directors, without the vote or consent of the shareholders of the Fund, may
from time to time amend, alter or repeal any or all of the definitions of the
terms listed below, or any provision of this Statement viewed by Moody's or S&P
as a predicate for any such definition, and any such amendment, alteration or
repeal will not be deemed to affect the preferences, rights or powers of shares
of MuniPreferred or the Holders thereof; provided, however, that the Board of
Directors receives written confirmation from Moody's (such confirmation being
required to be obtained only in the event Moody's is rating the shares of
MuniPreferred and in no event being required to be obtained in the case of the
definitions of (x) Deposit Securities, Discounted Value, Receivables for
Municipal Obligations Sold, Issue Type Category and Other Issues as such terms
apply to S&P Eligible Assets and (y) S&P Discount Factor, S&P Eligible Asset,
S&P Exposure Period and S&P Volatility Factor) and S&P (such confirmation being
required to be obtained only in the event S&P is rating the shares of
MuniPreferred and in no event being required to be obtained in the case of the
definitions of (x) Discounted Value, Receivables for Municipal Obligations Sold,
Issue Type Category and Other Issues as such terms apply to Moody's Eligible
Assets, and (y) Moody's Discount Factor, Moody's Eligible Asset, Moody's
Exposure Period and Moody's Volatility Factor) that any such amendment,
alteration or repeal would not impair the ratings then assigned by Moody's or
S&P, as the case may be, to shares of MuniPreferred:
Deposit Securities Other Issues
Discounted Value Quarterly Valuation Date
Escrowed Bonds Receivables for Municipal
Issue Type Category Obligations Sold
Market Value S&P Discount Factor
Maximum Potential Gross-up
Payment Liability
MuniPreferred Basic Maintenance Amount
MuniPreferred Basic Maintenance Cure Date
MuniPreferred Basic Maintenance Report
Moody's Discount Factor
Moody's Eligible Asset
Moody's Exposure Period
Moody's Volatility Factor
1940 Act Cure Date
1940 Act MuniPreferred Asset Coverage
24
<PAGE> 42
S&P Eligible Asset
S&P Exposure Period
S&P Volatility Factor
Valuation Date
Volatility Factor
25
<PAGE> 43
(e) Voting Rights Set Forth Herein Are Sole Voting Rights. Unless otherwise
required by law, the Holders of shares of MuniPreferred shall not have any
relative rights or preferences or other special rights other than those
specifically set forth herein.
(f) No Preemptive Rights or Cumulative Voting. The Holders of shares of
MuniPreferred shall have no preemptive rights or rights to cumulative voting.
(g) Voting for Directors Sole Remedy for Fund's Failure to Pay Dividends.
In the event that the Fund fails to pay any dividends on the shares of
MuniPreferred, the exclusive remedy of the Holders shall be the right to vote
for directors pursuant to the provisions of this Section 5.
(h) Holders Entitled to Vote. For purposes of determining any rights of the
Holders to vote on any matter, whether such right is created by this Statement,
by the other provisions of the Articles, by statute or otherwise, no Holder
shall be entitled to vote any share of MuniPreferred and no share of
MuniPreferred shall be deemed to be "outstanding" for the purpose of voting or
determining the number of shares required to constitute a quorum if, prior to or
concurrently with the time of determination of shares entitled to vote or shares
deemed outstanding for quorum purposes, as the case may be, the requisite Notice
of Redemption with respect to such shares shall have been mailed as provided in
paragraph (c) of Section 11 of this Part I and the Redemption Price for the
redemption of such shares shall have been deposited in trust with the Auction
Agent for that purpose. No share of MuniPreferred held by the Fund or any
affiliate of the Fund (except for shares held by a Broker-Dealer that is an
affiliate of the Fund for the account of its customers) shall have any voting
rights or be deemed to be outstanding for voting or other purposes.
6. 1940 Act MuniPreferred Asset Coverage.
The Fund shall maintain, as of the last Business Day of each month in
which any share of MuniPreferred is outstanding, the 1940 Act MuniPreferred
Asset Coverage.
7. MuniPreferred Basic Maintenance Amount.
(a) So long as shares of MuniPreferred are outstanding, the Fund shall
maintain, on each Valuation Date, and shall verify to its satisfaction that it
is maintaining on such Valuation Date, (i) S&P Eligible Assets having an
aggregate Discounted Value equal to or greater than the MuniPreferred Basic
Maintenance Amount (if S&P is then rating the shares of MuniPreferred) and (ii)
Moody's Eligible Assets having an aggregate Discounted Value equal to or greater
than the MuniPreferred Basic Maintenance Amount (if Moody's is then rating the
shares of MuniPreferred).
(b) On or before 5:00 P.M., New York City time, on the third Business Day
after a Valuation Date on which the Fund fails to satisfy the MuniPreferred
Basic Maintenance Amount, and on the third Business Day after the MuniPreferred
Basic Maintenance Cure Date with respect to such Valuation Date, the Fund shall
complete and deliver to S&P (if S&P is then rating the shares of MuniPreferred),
Moody's (if Moody's is then rating the shares of MuniPreferred) and the Auction
Agent (if either S&P or Moody's is then rating the shares of MuniPreferred) a
MuniPreferred Basic Maintenance Report as of the date of such failure or such
MuniPreferred Basic Maintenance Cure Date, as the case may be, which will be
deemed to have been delivered to the Auction Agent if the Auction Agent receives
a copy or telecopy, telex or other electronic transcription thereof and on the
same day the Fund mails to the Auction Agent for delivery on the next Business
Day the full MuniPreferred Basic Maintenance Report. The Fund shall also deliver
a MuniPreferred Basic Maintenance Report to (i) the Auction Agent (if either
Moody's or S&P is then rating the shares of MuniPreferred) as of (A) the
fifteenth day of each month (or, if such day is not a Business Day, the next
succeeding Business Day) and (B) the last Business Day of each month, (ii)
Moody's (if Moody's is then rating the shares of MuniPreferred) and S&P (if S&P
is then rating the shares of MuniPreferred) as of any Quarterly Valuation Date,
in each case on or before the third Business Day after such day, and (iii) S&P,
if and when requested for any Valuation Date, on or before the third Business
Day
26
<PAGE> 44
after such request. A failure by the Fund to deliver a MuniPreferred Basic
Maintenance Report pursuant to the preceding sentence shall be deemed to be
delivery of a MuniPreferred Basic Maintenance Report indicating the Discounted
Value for all assets of the Fund is less than the MuniPreferred Basic
Maintenance Amount, as of the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery of a MuniPreferred
Basic Maintenance Report in accordance with paragraph (b) of this Section 7
relating to a Quarterly Valuation Date, the Fund shall cause the Independent
Accountant to confirm in writing to S&P (if S&P is then rating the shares of
MuniPreferred), Moody's (if Moody's is then rating the shares of MuniPreferred)
and the Auction Agent (if either S&P or Moody's is then rating the shares of
MuniPreferred) (i) the mathematical accuracy of the calculations reflected in
such Report (and in any other MuniPreferred Basic Maintenance Report, randomly
selected by the Independent Accountant, that was delivered by the Fund during
the quarter ending on such Quarterly Valuation Date) and (ii) that, in such
Report (and in such randomly selected Report), the Fund determined in accordance
with this Statement whether the Fund had, at such Quarterly Valuation Date (and
at the Valuation Date addressed in such randomly-selected Report), S&P Eligible
Assets (if S&P is then rating the shares of MuniPreferred) of an aggregate
Discounted Value at least equal to the MuniPreferred Basic Maintenance Amount
and Moody's Eligible Assets (if Moody's is then rating the shares of
MuniPreferred) of an aggregate Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount (such confirmation being herein called
the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery of a MuniPreferred
Basic Maintenance Report in accordance with paragraph (b) of this Section 7
relating to any Valuation Date on which the Fund failed to satisfy the
MuniPreferred Basic Maintenance Amount, and relating to the MuniPreferred Basic
Maintenance Cure Date with respect to such failure to satisfy the MuniPreferred
Basic Maintenance Amount, the Fund shall cause the Independent Accountant to
provide to S&P (if S&P is then rating the shares of MuniPreferred), Moody's (if
Moody's is then rating the shares of MuniPreferred) and the Auction Agent (if
either S&P or Moody's is then rating the shares of MuniPreferred) an
Accountant's Confirmation as to such MuniPreferred Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to paragraph (c) or
(d) of this Section 7 shows that an error was made in the MuniPreferred Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation was required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all S&P Eligible Assets (if S&P is then
rating the shares of MuniPreferred) or Moody's Eligible Assets (if Moody's is
then rating the shares of MuniPreferred), as the case may be, of the Fund was
determined by the Independent Accountant, the calculation or determination made
by such Independent Accountant shall be final and conclusive and shall be
binding on the Fund, and the Fund shall accordingly amend and deliver the
MuniPreferred Basic Maintenance Report to S&P (if S&P is then rating the shares
of MuniPreferred), Moody's (if Moody's is then rating the shares of
MuniPreferred) and the Auction Agent (if either S&P or Moody's is then rating
the shares of MuniPreferred) promptly following receipt by the Fund of such
Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business Day
after the Date of Original Issue of any shares of MuniPreferred, the Fund shall
complete and deliver to S&P (if S&P is then rating the shares of MuniPreferred)
and Moody's (if Moody's is then rating the shares of MuniPreferred) a
MuniPreferred Basic Maintenance Report as of the close of business on such Date
of Original Issue. Within five Business Days of such Date of Original Issue, the
Fund shall cause the Independent Accountant to confirm in writing to S&P (if S&P
is then rating the shares of MuniPreferred) (i) the mathematical 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
27
<PAGE> 45
less than or equal to 105%, the Fund shall complete and deliver to S&P (if S&P
is then rating the shares of MuniPreferred) or Moody's (if Moody's is then
rating the shares of MuniPreferred), as the case may be, a MuniPreferred Basic
Maintenance Report as of the date of either such event.
8. [Reserved]
9. Restrictions on Dividends and Other Distributions.
(a) Dividends on Preferred Stock Other Than MuniPreferred. Except as set
forth in the next sentence, no dividends shall be declared or paid or set apart
for payment on the shares of any class or series of stock ranking, as to the
payment of dividends, on a parity with shares of MuniPreferred for any period
unless full cumulative dividends have been or contemporaneously are declared and
paid on the shares of each series of MuniPreferred through its most recent
Dividend Payment Date. When dividends are not paid in full upon the shares of
each series of MuniPreferred through its most recent Dividend Payment Date or
upon the shares of any other class or series of stock ranking on a parity as to
the payment of dividends with shares of MuniPreferred through their most recent
respective dividend payment dates, all dividends declared upon shares of
MuniPreferred and any other such class or series of stock ranking on a parity as
to the payment of dividends with shares of MuniPreferred shall be declared pro
rata so that the amount of dividends declared per share on shares of
MuniPreferred and such other class or series of stock shall in all cases bear to
each other the same ratio that accumulated dividends per share on the shares of
MuniPreferred and such other class or series of stock bear to each other (for
purposes of this sentence, the amount of dividends declared per share of
MuniPreferred shall be based on the Applicable Rate for such share for the
Dividend Periods during which dividends were not paid in full).
(b) Dividends and Other Distributions With Respect to Common Stock Under
the 1940 Act. The Board of Directors shall not declare any dividend (except a
dividend payable in shares of Common Stock), or declare any other distribution,
upon shares of Common Stock, or purchase shares of Common Stock, unless in every
such case the shares of Preferred Stock have, at the time of any such
declaration or purchase, an asset coverage (as defined in and determined
pursuant to the 1940 Act) of at least 200% (or such other asset coverage as may
in the future be specified in or under the 1940 Act as the minimum asset
coverage for senior securities which are stock of a closed-end investment
company as a condition of declaring dividends on its common stock) after
deducting the amount of such dividend, distribution or purchase price, as the
case may be.
(c) Other Restrictions On Dividends and Other Distributions. For so long as
any share of MuniPreferred is outstanding, and except as set forth in paragraph
(a) of this Section 9 and paragraph (c) of Section 12 of this Part I, (A) the
Fund shall not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or in
options, warrants or rights to subscribe for or purchase, Common Stock or other
stock, if any, ranking junior to the shares of MuniPreferred as to the payment
of dividends and the distribution of assets upon dissolution, liquidation or
winding up) in respect of the Common Stock or any other stock of the Fund
ranking junior to or on a parity with the shares of MuniPreferred as to the
payment of dividends or the distribution of assets upon dissolution, liquidation
or winding up, or call for redemption, redeem, purchase or otherwise acquire for
consideration any shares of Common Stock or any other such junior stock (except
by conversion into or exchange for stock of the Fund ranking junior to the
shares of MuniPreferred as to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up), or any such parity stock
(except by conversion into or exchange for stock of the Fund ranking junior to
or on a parity with MuniPreferred as to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up), unless (i)
full cumulative dividends on shares of each series of MuniPreferred through its
most recently ended Dividend Period shall have been paid or shall have been
declared and sufficient funds for the payment thereof deposited with the Auction
Agent and (ii) the Fund has redeemed the full number of shares of MuniPreferred
required to be redeemed by any provision for mandatory redemption pertaining
thereto, and (B) the Fund shall not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or in options, warrants or rights to subscribe for or purchase,
Common Stock or other stock, if any, ranking junior to shares of MuniPreferred
as to the
28
<PAGE> 46
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 or paying dividends if (i) the
MuniPreferred Basic Maintenance Amount would continue to be satisfied after
giving effect to such borrowing and (ii) such borrowing (A) is privately
arranged with a bank or other person and is evidenced by a promissory note
or other evidence of indebtedness that is not intended to be publicly
distributed or (B) is for "temporary purposes," is evidenced by a
promissory note or other evidence of indebtedness and is in an amount not
exceeding 5 per centum of the value of the total assets of the Fund at the
time of the borrowing; for purposes of the foregoing, "temporary purpose"
means that the borrowing is to be repaid within sixty days and is not to be
extended or renewed;
(c) issue additional shares of any series of MuniPreferred or any
class or series of stock ranking prior to or on a parity with shares of
MuniPreferred with respect to the payment of dividends or the distribution
of assets upon dissolution, liquidation or winding up of the Fund, or
reissue any shares of MuniPreferred previously purchased or redeemed by the
Fund;
(d) engage in any short sales of securities;
(e) lend securities;
(f) merge or consolidate into or with any other corporation;
(g) change the pricing service (currently J.J. Kenny) referred to in
the definition of Market Value; or
(h) enter into reverse repurchase agreements.
11. Redemption.
(a) Optional Redemption. (i) Subject to the provisions of subparagraph (v)
of this paragraph (a), shares of MuniPreferred of any series may be redeemed, at
the option of the Fund, as a whole or from time to time in part, on the second
Business Day preceding any Dividend Payment Date for shares of such series, out
of funds legally available therefor, at a redemption price per share equal to
the sum of $25,000 plus an amount equal to accumulated but unpaid dividends
thereon (whether or not earned or declared) to (but not including) the date
fixed for redemption; provided, however, that (1) shares of a series
29
<PAGE> 47
of MuniPreferred may not be redeemed in part if after such partial
redemption fewer than 500 shares of such series remain outstanding; (2) unless
otherwise provided in Section 11 of Appendix A hereto, shares of a series of
MuniPreferred are redeemable by the Fund during the Initial Rate Period thereof
only on the second Business Day next preceding the last Dividend Payment Date
for such Initial Rate Period; and (3) subject to subparagraph (ii) of this
paragraph (a), the Notice of Special Rate Period relating to a Special Rate
Period of shares of a series of MuniPreferred, as delivered to the Auction Agent
and filed with the Secretary of the Fund, may provide that shares of such series
shall not be redeemable during the whole or any part of such Special Rate Period
(except as provided in subparagraph (iv) of this paragraph (a)) or shall be
redeemable during the whole or any part of such Special Rate Period only upon
payment of such redemption premium or premiums as shall be specified therein
("Special Redemption Provisions").
(ii) A Notice of Special Rate Period relating to shares of a series of
MuniPreferred for a Special Rate Period thereof may contain Special Redemption
Provisions only if the Fund's Board of Directors, after consultation with the
Broker-Dealer or Broker-Dealers for such Special Rate Period of shares of such
series, determines that such Special Redemption Provisions are in the best
interest of the Fund.
(iii) If fewer than all of the outstanding shares of a series of
MuniPreferred are to be redeemed pursuant to subparagraph (i) of this paragraph
(a), the number of shares of such series to be redeemed shall be determined by
the Board of Directors, and such shares shall be redeemed pro rata from the
Holders of shares of such series in proportion to the number of shares of such
series held by such Holders.
(iv) Subject to the provisions of subparagraph (v) of this paragraph (a),
shares of any series of MuniPreferred may be redeemed, at the option of the
Fund, as a whole but not in part, out of funds legally available therefor, on
the first day following any Dividend Period thereof included in a Rate Period
consisting of more than 364 Rate Period Days if, on the date of determination of
the Applicable Rate for shares of such series for such Rate Period, such
Applicable Rate equalled or exceeded on such date of determination the Treasury
Note Rate for such Rate Period, at a redemption price per share equal to the sum
of $25,000 plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed for
redemption.
(v) The Fund may not on any date mail a Notice of Redemption pursuant to
paragraph (c) of this Section 11 in respect of a redemption contemplated to be
effected pursuant to this paragraph (a) unless on such date (a) the Fund has
available Deposit Securities with maturity or tender dates not later than the
day preceding the applicable redemption date and having a value not less than
the amount (including any applicable premium) due to Holders of shares of
MuniPreferred by reason of the redemption of such shares on such redemption date
and (b) the Discounted Value of Moody's Eligible Assets (if Moody's is then
rating the shares of MuniPreferred) and the Discounted Value of S&P Eligible
Assets (if S&P is then rating the shares of MuniPreferred) each at least equal
the MuniPreferred Basic Maintenance Amount, and would at least equal the
MuniPreferred Basic Maintenance Amount immediately subsequent to such redemption
if such redemption were to occur on such date. For purposes of determining in
clause (b) of the preceding sentence whether the Discounted Value of Moody's
Eligible Assets at least equals the MuniPreferred Basic Maintenance Amount, the
Moody's Discount Factors applicable to Moody's Eligible Assets shall be
determined by reference to the first Exposure Period longer than the Exposure
Period then applicable to the Fund, as described in the definition of Moody's
Discount Factor herein.
(b) Mandatory Redemption. The Fund shall redeem, at a redemption price
equal to $25,000 per share plus accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed by the
Board of Directors for redemption, certain of the shares of MuniPreferred, if
the Fund fails to have either Moody's Eligible Assets with a Discounted Value or
S&P Eligible Assets with a Discounted Value greater than or equal to the
MuniPreferred Basic Maintenance Amount or fails to maintain the 1940 Act
MuniPreferred Asset Coverage, in accordance with the requirements of the rating
agency or agencies then rating the shares of MuniPreferred, and such failure is
not cured on or before the MuniPreferred Basic Maintenance Cure Date or the 1940
Act Cure Date, as the case may be. The number of shares of MuniPreferred to be
redeemed shall be equal to the lesser of (i) the minimum number of shares
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<PAGE> 48
of MuniPreferred, together with all shares of other Preferred Stock subject to
redemption or retirement, the redemption of which, if deemed to have occurred
immediately prior to the opening of business on the Cure Date, would have
resulted in the Fund's having both Moody's Eligible Assets with a Discounted
Value and S&P Eligible Assets with a Discounted Value greater than or equal to
the MuniPreferred Basic Maintenance Amount or maintaining the 1940 Act
MuniPreferred Asset Coverage, as the case may be, on such Cure Date (provided,
however, that if there is no such minimum number of shares of MuniPreferred and
shares of other Preferred Stock the redemption or retirement of which would have
had such result, all shares of MuniPreferred and Preferred Stock then
outstanding shall be redeemed), and (ii) the maximum number of shares of
MuniPreferred, together with all shares of other Preferred Stock subject to
redemption or retirement, that can be redeemed out of funds expected to be
legally available therefor. In determining the shares of MuniPreferred required
to be redeemed in accordance with the foregoing, the Fund shall allocate the
number required to be redeemed to satisfy the MuniPreferred Basic Maintenance
Amount or the 1940 Act MuniPreferred Asset Coverage, as the case may be, pro
rata among shares of MuniPreferred and other Preferred Stock (and, then, pro
rata among each series of MuniPreferred) subject to redemption or retirement.
The Fund shall effect such redemption on the date fixed by the Fund therefor,
which date shall not be earlier than 20 days nor later than 40 days after such
Cure Date, except that if the Fund does not have funds legally available for the
redemption of all of the required number of shares of MuniPreferred and shares
of other Preferred Stock which are subject to redemption or retirement or the
Fund otherwise is unable to effect such redemption on or prior to 40 days after
such Cure Date, the Fund shall redeem those shares of MuniPreferred and shares
of other Preferred Stock which it was unable to redeem on the earliest
practicable date on which it is able to effect such redemption. If fewer than
all of the outstanding shares of a series of MuniPreferred are to be redeemed
pursuant to this paragraph (b), the number of shares of such series to be
redeemed shall be redeemed pro rata from the Holders of shares of such series in
proportion to the number of shares of such series held by such Holders.
(c) Notice of Redemption. If the Fund shall determine or be required to
redeem shares of a series of MuniPreferred pursuant to paragraph (a) or (b) of
this Section 11, it shall mail a Notice of Redemption with respect to such
redemption by first class mail, postage prepaid, to each Holder of the shares of
such series to be redeemed, at such Holder's address as the same appears on the
stock books of the Fund on the record date established by the Board of
Directors. Such Notice of Redemption shall be so mailed not less than 20 nor
more than 45 days prior to the date fixed for redemption. Each such Notice of
Redemption shall state: (i) the redemption date; (ii) the number of shares of
MuniPreferred to be redeemed and the series thereof; (iii) the CUSIP number for
shares of such series; (iv) the Redemption Price; (v) the place or places where
the certificate(s) for such shares (properly endorsed or assigned for transfer,
if the Board of Directors shall so require and the Notice of Redemption shall so
state) are to be surrendered for payment of the Redemption Price; (vi) that
dividends on the shares to be redeemed will cease to accumulate on such
redemption date; and (vii) the provisions of this Section 11 under which such
redemption is made. If fewer than all shares of a series of MuniPreferred held
by any Holder are to be redeemed, the Notice of Redemption mailed to such Holder
shall also specify the number of shares of such series to be redeemed from such
Holder. The Fund may provide in any Notice of Redemption relating to a
redemption contemplated to be effected pursuant to paragraph (a) of this Section
11 that such redemption is subject to one or more conditions precedent and that
the Fund shall not be required to effect such redemption unless each such
condition shall have been satisfied at the time or times and in the manner
specified in such Notice of Redemption.
(d) No Redemption Under Certain Circumstances. Notwithstanding the
provisions of paragraphs (a) or (b) of this Section 11, if any dividends on
shares of a series of MuniPreferred (whether or not earned or declared) are in
arrears, no 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.
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(e) Absence of Funds Available for Redemption. To the extent that any
redemption for which Notice of Redemption has been mailed is not made by reason
of the absence of legally available funds therefor, such redemption shall be
made as soon as practicable to the extent such funds become available. Failure
to redeem shares of MuniPreferred shall be deemed to exist at any time after the
date specified for redemption in a Notice of Redemption when the Fund shall have
failed, for any reason whatsoever, to deposit in trust with the Auction Agent
the Redemption Price with respect to any shares for which such Notice of
Redemption has been mailed; provided, however, that the foregoing shall not
apply in the case of the Fund's failure to deposit in trust with the Auction
Agent the Redemption Price with respect to any shares where (1) the Notice of
Redemption relating to such redemption provided that such redemption was subject
to one or more conditions precedent and (2) any such condition precedent shall
not have been satisfied at the time or times and in the manner specified in such
Notice of Redemption. Notwithstanding the fact that the Fund may not have
redeemed shares of MuniPreferred for which a Notice of Redemption has been
mailed, dividends may be declared and paid on shares of MuniPreferred and shall
include those shares of MuniPreferred for which a Notice of Redemption has been
mailed.
(f) Auction Agent as Trustee of Redemption Payments by Fund. All moneys
paid to the Auction Agent for payment of the Redemption Price of shares of
MuniPreferred called for redemption shall be held in trust by the Auction Agent
for the benefit of Holders of shares so to be redeemed.
(g) Shares for Which Notice of Redemption Has Been Given Are No Longer
Outstanding. Provided a Notice of Redemption has been mailed pursuant to
paragraph (c) of this Section 11, upon the deposit with the Auction Agent (on
the Business Day next preceding the date fixed for redemption thereby, in funds
available on the next Business Day in The City of New York, New York) of funds
sufficient to redeem the shares of MuniPreferred that are the subject of such
notice, dividends on such shares shall cease to accumulate and such shares shall
no longer be deemed to be outstanding for any purpose, and all rights of the
Holders of the shares so called for redemption shall cease and terminate, except
the right of such Holders to receive the Redemption Price, but without any
interest or other additional amount, except as provided in subparagraph (e)(i)
of Section 2 of this Part I and in Section 3 of this Part I. Upon surrender in
accordance with the Notice of Redemption of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Board of Directors
shall so require and the Notice of Redemption shall so state), the Redemption
Price shall be paid by the Auction Agent to the Holders of shares of
MuniPreferred subject to redemption. In the case that fewer than all of the
shares represented by any such certificate are redeemed, a new certificate shall
be issued, representing the unredeemed shares, without cost to the Holder
thereof. The Fund shall be entitled to receive from the Auction Agent, promptly
after the date fixed for redemption, any cash deposited with the Auction Agent
in excess of (i) the aggregate Redemption Price of the shares of MuniPreferred
called for redemption on such date and (ii) all other amounts to which Holders
of shares of MuniPreferred called for redemption may be entitled. Any funds so
deposited that are unclaimed at the end of 90 days from such redemption date
shall, to the extent permitted by law, be repaid to the Fund, after which time
the Holders of shares of MuniPreferred so called for redemption may look only to
the Fund for payment of the Redemption Price and all other amounts to which they
may be entitled. The Fund shall be entitled to receive, from time to time after
the date fixed for redemption, any interest on the funds so deposited.
(h) Compliance With Applicable Law. In effecting any redemption pursuant to
this Section 11, the Fund shall use its best efforts to comply with all
applicable conditions precedent to effecting such redemption under the 1940 Act
and Minnesota law, but shall effect no redemption except in accordance with the
1940 Act and Minnesota law.
(i) Only Whole Shares of MuniPreferred May Be Redeemed. In the case of any
redemption pursuant to this Section 11, only whole shares of MuniPreferred shall
be redeemed, and in the event that any provision of the Articles would require
redemption of a fractional share, the Auction Agent shall be authorized to round
up so that only whole shares are redeemed.
12. Liquidation Rights.
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<PAGE> 50
(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 with
respect to the distribution of assets upon dissolution, liquidation or winding
up of the affairs of the Fund shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the Holders of the shares of
MuniPreferred shall not be entitled to share therein.
(e) Certain Events Not Constituting Liquidation. Neither the sale of all or
substantially all the property or business of the Fund, nor the merger or
consolidation of the Fund into or with any other corporation nor the merger or
consolidation of any other corporation into or with the Fund shall be a
dissolution, liquidation or winding up, whether voluntary or involuntary, for
the purposes of this Section 12.
13. Miscellaneous.
(a) Amendment of Appendix A to Add Additional Series. Subject to the
provisions of paragraph (c) of Section 10 of this Part I, the Board of Directors
may, by resolution duly adopted, without shareholder approval (except as
otherwise provided by this Statement or required by applicable law), amend
Appendix A hereto to (1) reflect any amendments hereto which the Board of
Directors is entitled to adopt pursuant to the terms of this Statement without
shareholder approval and (2) add additional series of MuniPreferred or
additional shares of a series of MuniPreferred (and terms relating thereto) to
the series and shares of MuniPreferred theretofore described thereon. Each such
additional series and all such additional shares shall be governed by the terms
of this Statement.
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<PAGE> 51
(b) Appendix A Incorporated By Reference. Appendix A hereto is incorporated
in and made a part of this Statement by reference thereto.
(c) No Fractional Shares. No fractional shares of MuniPreferred shall be
issued.
(d) Status of Shares of MuniPreferred Redeemed, Exchanged or Otherwise
Acquired by the Fund. Shares of MuniPreferred which are redeemed, exchanged or
otherwise acquired by the Fund shall return to the status of authorized and
unissued shares of Preferred Stock without designation as to series. Upon the
redemption, exchange or other acquisition by the Fund of all outstanding shares
of a series of MuniPreferred, all provisions of the Articles relating to such
series (including, without limitation, all provisions of this Statement relating
to such series) shall cease to be of further effect and shall cease to be part
of the Articles. Upon the occurrence of any such event, the Board of Directors
shall have the power, pursuant to Minnesota Statutes Section 302A.135,
Subdivision 5 or any successor provision and without shareholder action, to
cause restated articles of incorporation of the Fund or other appropriate
documents to be prepared and filed with the Secretary of State of the State of
Minnesota which reflect such removal from the Articles of all such provisions
relating to such series or, if appropriate, the cancellation of this Statement,
or both.
(e) Board May Resolve Ambiguities. To the extent permitted by applicable
law, the Board of Directors may interpret or adjust the provisions of this
Statement to resolve any inconsistency or ambiguity or to remedy any formal
defect, and may amend this Statement with respect to any series of MuniPreferred
prior to the issuance of shares of such series.
(f) Headings Not Determinative. The headings contained in this Statement
are for convenience of reference only and shall not affect the meaning or
interpretation of this Statement.
(g) Notices. All notices or communications, unless otherwise specified in
the By-Laws of the Fund or this Statement, shall be sufficiently given if in
writing and delivered in person or mailed by first-class mail, postage prepaid.
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<PAGE> 52
PART II
1. Orders. (a) Prior to the Submission Deadline on each Auction Date for
shares of a series of MuniPreferred:
(i) each Beneficial Owner of shares of such series may submit to its
Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such series held
by such Beneficial Owner which such Beneficial Owner desires to
continue to hold without regard to the Applicable Rate for shares of
such series for the next succeeding Rate Period of such shares;
(B) the number of Outstanding shares, if any, of such series held
by such Beneficial Owner which such Beneficial Owner offers to sell if
the Applicable Rate for shares of such series for the next succeeding
Rate Period of shares of such series shall be less than the rate per
annum specified by such Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such series held
by such Beneficial Owner which such Beneficial Owner offers to sell
without regard to the Applicable Rate for shares of such series for
the next succeeding Rate Period of shares of such series;
and
(ii) one or more Broker-Dealers, using lists of Potential Beneficial
Owners, shall in good faith for the purpose of conducting a competitive
Auction in a commercially reasonable manner, contact Potential Beneficial
Owners (by telephone or otherwise), including Persons that are not
Beneficial Owners, on such lists to determine the number of shares, if any,
of such series which each such Potential Beneficial Owner offers to
purchase if the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series shall not be less than the
rate per annum specified by such Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or Potential
Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction Agent,
of information referred to in clause (i)(A), (i)(B), (i)(C) or (ii) of this
paragraph (a) is hereinafter referred to as an "Order" and collectively as
"Orders" and each Beneficial Owner and each Potential Beneficial Owner placing
an Order with a Broker-Dealer, and such Broker-Dealer placing an Order with the
Auction Agent, is hereinafter referred to as a "Bidder" and collectively as
"Bidders"; an Order containing the information referred to in clause (i)(A) of
this paragraph (a) is hereinafter referred to as a "Hold Order" and collectively
as "Hold Orders"; an Order containing the information referred to in clause
(i)(B) or (ii) of this paragraph (a) is hereinafter referred to as a "Bid" and
collectively as "Bids"; and an Order containing the information referred to in
clause (i)(C) of this paragraph (a) is hereinafter referred to as a "Sell Order"
and collectively as "Sell Orders."
(b)(i) A Bid by a Beneficial Owner or an Existing Holder of shares of a
series of MuniPreferred subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in such
Bid if the Applicable Rate for shares of such series determined on such
Auction Date shall be less than the rate specified therein;
(B) such number or a lesser number of Outstanding shares of such
series to be determined as set forth in clause (iv) of paragraph (a) of
Section 4 of this Part II if the Applicable
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<PAGE> 53
Rate for shares of such series determined on such Auction Date shall be
equal to the rate specified therein; or
(C) the number of Outstanding shares of such series specified in such
Bid if the rate specified therein shall be higher than the Maximum Rate for
shares of such series, or such number or a lesser number of Outstanding
shares of such series to be determined as set forth in clause (iii) of
paragraph (b) of Section 4 of this Part II if the rate specified therein
shall be higher than the Maximum Rate for shares of such series and
Sufficient Clearing Bids for shares of such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of shares of
a series of MuniPreferred subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in such
Sell Order; or
(B) such number or a lesser number of Outstanding shares of such
series as set forth in clause (iii) of paragraph (b) of Section 4 of this
Part II if Sufficient Clearing Bids for shares of such series do not exist;
provided, however, that a Broker-Dealer that is an Existing Holder with respect
to shares of a series of MuniPreferred shall not be liable to any Person for
failing to sell such shares pursuant to a Sell Order described in the proviso to
paragraph (c) of Section 2 of this Part II if (1) such shares were transferred
by the Beneficial Owner thereof without compliance by such Beneficial Owner or
its transferee Broker-Dealer (or other transferee person, if permitted by the
Fund) with the provisions of Section 7 of this Part II or (2) such Broker-Dealer
has informed the Auction Agent pursuant to the terms of its Broker-Dealer
Agreement that, according to such Broker-Dealer's records, such Broker-Dealer
believes it is not the Existing Holder of such shares.
(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:
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<PAGE> 54
(A) the number of shares, if any, of such series subject to any
Hold Order of such Existing Holder;
(B) the number of shares, if any, of such series subject to any
Bid of such Existing Holder and the rate specified in such Bid; and
(C) the number of shares, if any, of such series subject to any
Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of shares of such
series, the rate and number of shares of such series specified in such
Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent shall round such rate up to
the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding shares of
MuniPreferred of a series held by any Existing Holder is not submitted to the
Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a
Hold Order to have been submitted by or on behalf of such Existing Holder
covering the number of Outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent; provided,
however, that if an Order or Orders covering all of the Outstanding shares of
such series held by any Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline for an Auction relating to a Special Rate
Period consisting of more than 28 Rate Period Days, the Auction Agent shall deem
a Sell Order to have been submitted by or on behalf of such Existing Holder
covering the number of outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the Auction
Agent covering in the aggregate more than the number of Outstanding shares of
MuniPreferred of a series subject to an Auction held by such Existing Holder,
such Orders shall be considered valid in the following order of priority:
(i) all Hold Orders for shares of such series shall be considered
valid, but only up to and including in the aggregate the number of
Outstanding shares of such series held by such Existing Holder, and if the
number of shares of such series subject to such Hold Orders exceeds the
number of Outstanding shares of such series held by such Existing Holder,
the number of shares subject to each such Hold Order shall be reduced pro
rata to cover the number of Outstanding shares of such series held by such
Existing Holder;
(ii) (A) any Bid for shares of such series shall be considered valid
up to and including the excess of the number of Outstanding shares of such
series held by such Existing Holder over the number of shares of such
series subject to any Hold Orders referred to in clause (i) above;
(B) subject to subclause (A), if more than one Bid of an Existing
Holder for shares of such series is submitted to the Auction Agent
with the same rate and the number of Outstanding shares of such series
subject to such Bids is greater than such excess, such Bids shall be
considered valid up to and including the amount of such excess, and
the number of shares of such series subject to each Bid with the same
rate shall be reduced pro rata to cover the number of shares of such
series equal to such excess;
(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
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<PAGE> 55
(D) in any such event, the number, if any, of such Outstanding
shares of such series subject to any portion of Bids considered not
valid in whole or in part under this clause (ii) shall be treated as
the subject of a Bid for shares of such series by or on behalf of a
Potential Holder at the rate therein specified; and
(iii) all Sell Orders for shares of such series shall be considered
valid up to and including the excess of the number of Outstanding shares of
such series held by such Existing Holder over the sum of shares of such
series subject to valid Hold Orders referred to in clause (i) above and
valid Bids referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of a series of
MuniPreferred is submitted to the Auction Agent by or on behalf of any Potential
Holder, each such Bid submitted shall be a separate Bid with the rate and number
of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to
the Submission Deadline on any Auction Date, shall be irrevocable.
3. Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate. (a) Not earlier than the Submission Deadline on each Auction
Date for shares of a series of MuniPreferred, the Auction Agent shall assemble
all valid Orders submitted or deemed submitted to it by the Broker-Dealers in
respect of shares of such series (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to individually as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order" and collectively as "Submitted Hold
Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders") and shall determine for such series:
(i) the excess of the number of Outstanding shares of such series over
the number of Outstanding shares of such series subject to Submitted Hold
Orders (such excess being hereinafter referred to as the "Available
MuniPreferred" of such series);
(ii) from the Submitted Orders for shares of such series whether:
(A) the number of Outstanding shares of such series subject to
Submitted Bids of Potential Holders specifying one or more rates equal
to or lower than the Maximum Rate for shares of such series;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series subject to
Submitted Bids of Existing Holders specifying one or more rates higher
than the Maximum Rate for shares of such series; and
(C) the number of Outstanding shares of such series subject to
Submitted Sell Orders
(in the event such excess or such equality exists (other than because the
number of shares of such series in subclauses (B) and (C) above is zero
because all of the Outstanding shares of such series are subject to
Submitted Hold Orders), such Submitted Bids in subclause (A) above being
hereinafter referred to collectively as "Sufficient Clearing Bids" for
shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series exist, the
lowest rate specified in such Submitted Bids (the "Winning Bid Rate" for
shares of such series) which if:
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<PAGE> 56
(A)(I) each such Submitted Bid of Existing Holders specifying
such lowest rate and (II) all other such Submitted Bids of Existing
Holders specifying lower rates were rejected, thus entitling such
Existing Holders to continue to hold the shares of such series that
are subject to such Submitted Bids; and
(B)(I) each such Submitted Bid of Potential Holders specifying
such lowest rate and (II) all other such Submitted Bids of Potential
Holders specifying lower rates were accepted;
would result in such Existing Holders described in subclause (A) above
continuing to hold an aggregate number of Outstanding shares of such series
which, when added to the number of Outstanding shares of such series to be
purchased by such Potential Holders described in subclause (B) above, would
equal not less than the Available MuniPreferred of such series.
(b) Promptly after the Auction Agent has made the determinations pursuant
to paragraph (a) of this Section 3, the Auction Agent shall advise the Fund of
the Maximum Rate for shares of the series of MuniPreferred for which an Auction
is being held on the Auction Date and, based on such determination, the
Applicable Rate for shares of such series for the next succeeding Rate Period
thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series exist, that
the Applicable Rate for all shares of such series for the next succeeding
Rate Period thereof shall be equal to the Winning Bid Rate for shares of
such series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do not
exist (other than because all of the Outstanding shares of such series are
subject to Submitted Hold Orders), that the Applicable Rate for all shares
of such series for the next succeeding Rate Period thereof shall be equal
to the Maximum Rate for shares of such series; or
(iii) if all of the Outstanding shares of such series are subject to
Submitted Hold Orders, that the Applicable Rate for all shares of such
series for the next succeeding Rate Period thereof shall be as set forth in
Section 12 of Appendix A hereto.
4. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares. Existing Holders shall continue to hold the shares of
MuniPreferred that are subject to Submitted Hold Orders, and, based on the
determinations made pursuant to paragraph (a) of Section 3 of this Part II, the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected by the
Auction Agent and the Auction Agent shall take such other action as set forth
below:
(a) If Sufficient Clearing Bids for shares of a series of MuniPreferred
have been made, all Submitted Sell Orders with respect to shares of such series
shall be accepted and, subject to the provisions of paragraphs (d) and (e) of
this Section 4, Submitted Bids with respect to shares of such series shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids with respect to shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is higher than the Winning Bid Rate for shares of
such series shall be accepted, thus requiring each such Existing Holder to
sell the shares of MuniPreferred subject to such Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be rejected, thus entitling each such Existing Holder to
continue to hold the shares of MuniPreferred subject to such Submitted
Bids;
(iii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be accepted;
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<PAGE> 57
(iv) each Existing Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of such
series shall be rejected, thus entitling such Existing Holder to continue
to hold the shares of MuniPreferred subject to such Submitted Bid, unless
the number of Outstanding shares of MuniPreferred subject to all such
Submitted Bids shall be greater than the number of shares of MuniPreferred
("remaining shares") in the excess of the Available MuniPreferred of such
series over the number of shares of MuniPreferred subject to Submitted Bids
described in clauses (ii) and (iii) of this paragraph (a), in which event
such Submitted Bid of such Existing Holder shall be rejected in part, and
such Existing Holder shall be entitled to continue to hold shares of
MuniPreferred subject to such Submitted Bid, but only in an amount equal to
the number of shares of MuniPreferred of such series obtained by
multiplying the number of remaining shares by a fraction, the numerator of
which shall be the number of Outstanding shares of MuniPreferred held by
such Existing Holder subject to such Submitted Bid and the denominator of
which shall be the aggregate number of Outstanding shares of MuniPreferred
subject to such Submitted Bids made by all such Existing Holders that
specified a rate equal to the Winning Bid Rate for shares of such series;
and
(v) each Potential Holder's Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of such
series shall be accepted but only in an amount equal to the number of
shares of such series obtained by multiplying the number of shares in the
excess of the Available MuniPreferred of such series over the number of
shares of MuniPreferred subject to Submitted Bids described in clauses
(ii) through (iv) of this paragraph (a) by a fraction, the numerator of
which shall be the number of Outstanding shares of MuniPreferred subject to
such Submitted Bid and the denominator of which shall be the aggregate
number of Outstanding shares of MuniPreferred subject to such Submitted
Bids made by all such Potential Holders that specified a rate equal to the
Winning Bid Rate for shares of such series.
(b) If Sufficient Clearing Bids for shares of a series of MuniPreferred
have not been made (other than because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), subject to the provisions of
paragraph (d) of this Section 4, Submitted Orders for shares of such series
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids for shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be rejected, thus entitling such Existing
Holders to continue to hold the shares of MuniPreferred subject to such
Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for shares of such series
specifying any rate that is higher than the Maximum Rate for shares of such
series and the Submitted Sell Orders for shares of such series of each
Existing Holder shall be accepted, thus entitling each Existing Holder that
submitted or on whose behalf was submitted any such Submitted Bid or
Submitted Sell Order to sell the shares of such series subject to such
Submitted Bid or Submitted Sell Order, but in both cases only in an amount
equal to the number of shares of such series obtained by multiplying the
number of shares of such series subject to Submitted Bids described in
clause (ii) of this paragraph (b) by a fraction, the numerator of which
shall be the number of Outstanding shares of such series held by such
Existing Holder subject to such Submitted Bid or Submitted Sell Order and
the denominator of which shall be the aggregate number of Outstanding
shares of such series subject to all such Submitted Bids and Submitted Sell
Orders.
B-40
<PAGE> 58
(c) If all of the Outstanding shares of a series of MuniPreferred are
subject to Submitted Hold Orders, all Submitted Bids for shares of such series
shall be rejected.
(d) If, as a result of the procedures described in clause (iv) or (v) of
paragraph (a) or clause (iii) of paragraph (b) of this Section 4, any Existing
Holder would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of a series of
MuniPreferred on any Auction Date, the Auction Agent shall, in such manner as
it shall determine in its sole discretion, round up or down the number of shares
of MuniPreferred of such series to be purchased or sold by any Existing Holder
or Potential Holder on such Auction Date as a result of such procedures so that
the number of shares so purchased or sold by each Existing Holder or Potential
Holder on such Auction Date shall be whole shares of MuniPreferred.
(e) If, as a result of the procedures described in clause (v) of
paragraph (a) of this Section 4, any Potential Holder would be entitled or
required to purchase less than a whole share of a series of MuniPreferred on any
Auction Date, the Auction Agent shall, in such manner as it shall determine in
its sole discretion, allocate shares of MuniPreferred of such series for
purchase among Potential Holders so that only whole shares of MuniPreferred of
such series are purchased on such Auction Date as a result of such procedures by
any Potential Holder, even if such allocation results in one or more Potential
Holders not purchasing shares of MuniPreferred of such series on such Auction
Date.
(f) Based on the results of each Auction for shares of a series of
MuniPreferred, the Auction Agent shall determine the aggregate number of shares
of such series to be purchased and the aggregate number of shares of such series
to be sold by Potential Holders and Existing Holders and, with respect to each
Potential Holder and Existing Holder, to the extent that such aggregate number
of shares to be purchased and such aggregate number of shares to be sold differ,
determine to which other Potential Holder(s) or Existing Holder(s) they shall
deliver, or from which other Potential Holder(s) or Existing Holder(s) they
shall receive, as the case may be, shares of MuniPreferred of such series.
Notwithstanding any provision of the Auction Procedures or the Settlement
Procedures to the contrary, in the event an Existing Holder or Beneficial Owner
of shares of a series of MuniPreferred with respect to whom a Broker-Dealer
submitted a Bid to the Auction Agent for such shares that was accepted in whole
or in part, or submitted or is deemed to have submitted a Sell Order for such
shares that was accepted in whole or in part, fails to instruct its Agent Member
to deliver such shares against payment therefor, partial deliveries of shares of
MuniPreferred that have been made in respect of Potential Holders' or Potential
Beneficial Owners' Submitted Bids for shares of such series that have been
accepted in whole or in part shall constitute good delivery to such Potential
Holders and Potential Beneficial Owners.
(g) Neither the Fund nor the Auction Agent nor any affiliate of either
shall have any responsibility or liability with respect to the failure of an
Existing Holder, a Potential Holder, a Beneficial Owner, a Potential Beneficial
Owner or its respective Agent Member to deliver shares of MuniPreferred of any
series or to pay for shares of MuniPreferred of any series sold or purchased
pursuant to the Auction Procedures or otherwise.
5. Notification of Allocations. Whenever the Fund intends to include any
net capital gains or other income taxable for Federal income tax purposes in
any dividend on shares of MuniPreferred, the Fund shall, in the case of a
Minimum Rate Period or a Special Rate Period of 28 Rate Period Days or fewer,
and may, in the case of any other Special Rate Period, notify the Auction Agent
of the amount to be so included not later than the Dividend Payment Date next
preceding the Auction Date on which the Applicable Rate for such dividend is to
be established. Whenever the Auction Agent receives such notice from the Fund,
it will be required in turn to notify each Broker-Dealer, who, on or prior to
such Auction Date, in accordance with its Broker-Dealer Agreement, will be
required to notify its Beneficial Owners and Potential Beneficial Owners of
shares of MuniPreferred believed by it to be interested in submitting an Order
in the Auction to be held on such Auction Date.
6. Auction Agent. For so long as any shares of MuniPreferred are
outstanding, the Auction Agent, duly appointed by the Fund to so act, shall be
in each case a commercial bank, trust company or
41
<PAGE> 59
other financial institution independent of the Fund and its affiliates
(which however, may engage or have engaged in business transactions with the
Fund or its affiliates) and at no time shall the Fund or any of its affiliates
act as the Auction Agent in connection with the Auction Procedures. If the
Auction Agent resigns or for any reason its appointment is terminated during any
period that any shares of MuniPreferred are outstanding, the Board of Directors
shall use its best efforts promptly thereafter to appoint another qualified
commercial bank, trust company or financial institution to act as the Auction
Agent. The Auction Agent's registry of Existing Holders of shares of a series of
MuniPreferred shall be conclusive and binding on the Broker-Dealers. A
Broker-Dealer may inquire of the Auction Agent between 3:00 p.m. on the Business
Day preceding an Auction for shares of a series of MuniPreferred and 9:30 a.m.
on the Auction Date for such Auction to ascertain the number of shares of such
series in respect of which the Auction Agent has determined such Broker-Dealer
to be an Existing Holder. If such Broker-Dealer believes it is the Existing
Holder of fewer shares of such series than specified by the Auction Agent in
response to such Broker-Dealer's inquiry, such Broker-Dealer may so inform the
Auction Agent of that belief. Such Broker-Dealer shall not, in its capacity as
Existing Holder of shares of such series, submit Orders in such Auction in
respect of shares of such series covering in the aggregate more than the number
of shares of such series specified by the Auction Agent in response to such
Broker-Dealer's inquiry.
7. Transfer of Shares of MuniPreferred. Unless otherwise permitted by the
Fund, a Beneficial Owner or an Existing Holder may sell, transfer or otherwise
dispose of shares of MuniPreferred only in whole shares and only pursuant to a
Bid or Sell Order placed with the Auction Agent in accordance with the
procedures described in this Part II or to a Broker-Dealer; provided, however,
that (a) a sale, transfer or other disposition of shares of MuniPreferred from a
customer of a Broker-Dealer who is listed on the records of that Broker-Dealer
as the holder of such shares to that Broker-Dealer or another customer of that
Broker-Dealer shall not be deemed to be a sale, transfer or other disposition
for purposes of this Section 7 if such Broker-Dealer remains the Existing Holder
of the shares so sold, transferred or disposed of immediately after such sale,
transfer or disposition and (b) in the case of all transfers other than pursuant
to Auctions, the Broker-Dealer (or other Person, if permitted by the Fund) to
whom such transfer is made shall advise the Auction Agent of such transfer.
8. Global Certificate. Prior to the commencement of a Voting Period,
(i) all of the shares of a series of MuniPreferred outstanding from time to time
shall be represented by one global certificate registered in the 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 INSURED MUNICIPAL OPPORTUNITY FUND, INC., has
caused these presents to be signed in its name and on its behalf by its Vice
President and attested by its Assistant Secretary, and the said officers of the
Fund further acknowledged said instrument to be the corporate act of the Fund,
and stated under penalty of perjury that to the best of their knowledge,
information and belief the matters and facts therein set forth with respect to
approval are true in all material respects, all on October 1, 1996.
NUVEEN INSURED MUNICIPAL
OPPORTUNITY FUND, INC.
By
Gifford R. Zimmerman
Vice President and Secretary
42
<PAGE> 60
ATTEST:
Alan G. Berkshire
Vice President and Assistant Secretary
43
<PAGE> 61
NUVEEN INSURED MUNICIPAL OPPORTUNITY FUND, INC.
Appendix A
Section 1. Designation As To Series.
Series M: A series of 4,000 shares of Preferred Stock, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Stock, Series M." Each share of Series M
MuniPreferred shall be issued on December 20, 1991; have an Applicable Rate for
its Initial Rate Period equal to 4.75% per annum; have an initial Dividend
Payment Date of January 7, 1992; and have such other preferences, limitations
and relative voting rights, in addition to those required by applicable law or
set forth in the Articles applicable to Preferred Stock of the Fund, as set
forth in Part I and Part II of this Statement. The Series M MuniPreferred shall
constitute a separate series of Preferred Stock of the Fund, and each share of
Series M MuniPreferred shall be identical except as provided in Section 11 of
Part I of this Statement.
Series T: A series of 4,000 shares of Preferred Stock, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Stock, Series T." Each share of Series T
MuniPreferred shall be issued on December 20, 1991; have an Applicable Rate for
its Initial Rate Period equal to 4.75% per annum; have an initial Dividend
Payment Date of January 8, 1992; and have such other preferences, limitations
and relative voting rights, in addition to those required by applicable law or
set forth in the Articles applicable to Preferred Stock of the Fund, as set
forth in Part I and Part II of this Statement. The Series T MuniPreferred shall
constitute a separate series of Preferred Stock of the Fund, and each share of
Series T MuniPreferred shall be identical except as provided in Section 11 of
Part I of this Statement.
Series W: A series of 4,000 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 W
MuniPreferred shall be issued on February 28, 1992; have an Applicable Rate for
its Initial Rate Period equal to 3.25% per annum; have an initial Dividend
Payment Date of March 5, 1992; and have such other preferences, limitations and
relative voting rights, in addition to those required by applicable law or set
forth in the Articles applicable to Preferred Stock of the Fund, as set forth in
Part I and Part II of this Statement. The Series W MuniPreferred shall
constitute a separate series of Preferred Stock of the Fund, and each share of
Series W MuniPreferred shall be identical except as provided in Section 11 of
Part I of this Statement.
Series W2: A series of 10,000 shares of Preferred Stock, par value $0.1 per
share liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Stock, Series W2." Each share of Series W2
MuniPreferred shall be issued on April 27, 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 II of this Statement. The Series W2 MuniPreferred shall constitute a
separate series of Preferred Stock of the Fund, and each share of Series W2
MuniPreferred shall be identical except as provided in Section 11 of Part I of
this Statement.
Series TH1: A series of 4,000 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 TH1." Each share of Series TH1
MuniPreferred shall be issued on December 20, 1991; have an Applicable Rate for
its Initial Rate Period equal to 4.75% per annum; have an initial Dividend
Payment Date of January 10, 1992; and have such other preferences, limitations
and relative voting rights, in addition to those required by applicable law or
set forth in the Articles applicable to Preferred Stock of the Fund, as set
forth in Part I and Part II of this Statement. The Series TH1 MuniPreferred
shall constitute a separate series of Preferred Stock of the Fund, and each
share of Series TH1 MuniPreferred shall be identical except as provided in
Section 11 of Part I of this Statement.
Series TH2: A series of 4,000 shares of Preferred Stock, par value of $.01
per share, liquidation preference $25,000 per share, is hereby designated
"Municipal Auction Rate Cumulative Preferred Stock, Series TH2." Each share of
Series TH2 MuniPreferred shall be issued on February 28, 1992; have an
Applicable Rate for its Initial Rate Period equal to 3.25% per annum; have an
initial Dividend Payment Date of March 9, 1992; and have such other preferences,
limitations and relative voting rights, in addition to those required by
applicable law or set forth in the Articles applicable to Preferred Stock of the
Fund, as set forth in Part I and Part II of this Statement. The Series TH2
MuniPreferred shall constitute a separate
A-1
<PAGE> 62
series of Preferred Stock of the Fund, and each share of Series TH2
MuniPreferred shall be identical except as provided in Section 11 of Part I of
this Statement.
Series F: A series of 4,000 shares of Preferred Stock, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Stock, Series F." Each share of Series F
MuniPreferred shall be issued on February 28, 1992; have an Applicable Rate for
its Initial Rate Period equal to 3.25% per annum; have an initial Dividend
Payment Date of March 9, 1992; and have such other preferences, limitations and
relative voting rights, in addition to those required by applicable law or set
forth in the Articles applicable to Preferred Stock of the Fund, as set forth in
Part I and Part II of this Statement. The Series F MuniPreferred shall
constitute a separate series of Preferred Stock of the Fund, and each share of
Series F MuniPreferred shall be identical except as provided in Section 11 of
Part I of this Statement.
Section 2. Number of Authorized Shares Per Series.
The number of authorized shares constituting Series M MuniPreferred is
4,000; Series T MuniPreferred is 4,000; Series W MuniPreferred is 4,000; Series
W2 is 10,000; Series TH1 MuniPreferred is 4,000; Series TH2 MuniPreferred is
4,000; and Series F MuniPreferred is 4,000.
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.
"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 (i) (A) in the event such Municipal Obligation is covered
by an Original Issue Insurance policy or a Portfolio Insurance policy which
does not provide the Fund with the option to obtain Permanent Insurance
A-2
<PAGE> 63
with respect to such Municipal Obligation, or is not covered by bond
insurance, the Moody's or S&P rating on such Municipal Obligation, (B) in
the event such Municipal Obligation is covered by a Secondary Market
Insurance Policy, the Moody's insurance claims-paying ability rating of the
issuer of the policy, or (C) in the event such Municipal Obligation is
covered by a Portfolio Insurance policy which provides the Fund with the
option to obtain Permanent Insurance with respect to such Municipal
Obligation, at the Fund's option, the Moody's or S&P rating on such
Municipal Obligation or the Moody's insurance claims-paying ability rating
of the issuer of the Portfolio Insurance policy and (ii) the shortest
Exposure Period set forth opposite such rating that is the same length as
or is longer than the Moody's Exposure Period, in accordance with the table
set forth below:
<TABLE>
<CAPTION>
Rating Category
(V)MIG SP-1
Exposure Period Aaa* Aa* A* Baa* Other** -1*** +***
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but
greater than
seven weeks 154 164 173 205 235 137 149
9 weeks or less but
greater than
eight weeks 158 169 179 209 242 138 150
</TABLE>
* Moody's rating.
** Municipal Obligations not rated by Moody's but rated BBB by S&P.
*** Municipal Obligations rated MIG-1 or VMIG-1 or, if not rated by Moody's,
rated SP-1+ by S&P, which do not mature or have a demand feature at par
exercisable in 30 days and which do not have a long-term rating.
If the Moody's Discount Factor used to discount a particular Municipal
Obligation is determined by reference to the insurance claims-paying
ability rating of the insurer of such Municipal Obligation, such Moody's
Discount Factor will be increased by an amount equal to 50% of the
difference between (i) the percentage set forth in the above table under
the applicable rating category, and (ii) the percentage set forth in the
above table under the rating category that is one rating category below the
applicable rating category. Notwithstanding the foregoing, (i) the Moody's
Discount Factor for short-term Municipal Obligations will be 115%, so long
as such Municipal Obligations are rated at least MIG-1, VMIG-1 or P-1 by
Moody's and mature or have a demand feature at par exercisable in 30 days
or less or 125% as long as such Municipal Obligations are rated at least
A-1+/AA or SP-1+/AA by S&P and mature or have a demand feature at par
exercisable in 30 days or less and (ii) no Moody's Discount Factor will be
applied to cash or to Receivables for Municipal Obligations Sold.
"Moody's Eligible Asset" shall mean cash, Receivables for Municipal
Obligations Sold or a Municipal Obligation that (i) pays interest in cash,
(ii) is publicly rated Baa or higher by Moody's or, if not rated by Moody's
but rated by S&P, is rated at least BBB by S&P (provided, however, that for
purposes of determining the Moody's Discount Factor applicable to any such
S&P-rated Municipal Obligation, such Municipal Obligation (excluding any
short-term Municipal Obligation) shall be deemed to have a Moody's rating
which is one full rating category lower than its S&P rating), (iii) does
not have its Moody's rating suspended by Moody's, and (iv) is part of an
issue of Municipal Obligations of at least $10,000,000. Municipal
Obligations issued by any one issuer and rated BBB by S&P may comprise no
more than 4% of total Moody's Eligible Assets; such BBB-rated Municipal
Obligations, if any, together with any Municipal Obligations issued by the
same issuer and rated Baa by Moody's or A by S&P, may comprise no more than
6% of total Moody's Eligible Assets; such BBB, Baa and A-rated Municipal
Obligations, if any, together with any Municipal Obligations issued by the
same issuer and rated A by Moody's or AA by S&P, may
A-3
<PAGE> 64
comprise no more than 10% of total Moody's Eligible Assets; and such BBB,
Baa, A and AA-rated Municipal Obligations, if any, together with any
Municipal Obligations issued by the same issuer and rated Aa by Moody's or
AAA by S&P, may comprise no more than 20% of total Moody's Eligible Assets.
For purposes of the foregoing sentence, any Municipal Obligation backed by
the guaranty, letter of credit or insurance issued by a third party shall
be deemed to be issued by such third party if the issuance of such third
party credit is the sole determinant of the rating on such Municipal
Obligation. Municipal Obligations issued by issuers located within a single
state or territory and rated BBB by S&P may comprise no more than 12% of
total Moody's Eligible Assets; such BBB-rated Municipal Obligations, if
any, together with any Municipal Obligations issued by issuers located
within the same state or territory and rated Baa by Moody's or A by S&P,
may comprise no more than 20% of total Moody's Eligible Assets; such BBB,
Baa and A-rated Municipal Obligations, if any, together with any Municipal
Obligations issued by issuers located within the same state or territory
and rated A by Moody's or AA by S&P, may comprise no more than 40% of total
Moody's Eligible Assets; and such BBB, Baa, A and AA-rated Municipal
Obligations, if any, together with any Municipal Obligations issued by
issuers located within the same state or territory and rated Aa by Moody's
or AAA by S&P, may comprise no more than 60% of total Moody's Eligible
Assets. For purposes of applying the foregoing requirements, a Municipal
Obligation shall be deemed to be rated BBB by S&P if rated BBB-, BBB or
BBB+ by S&P, Moody's Eligible Assets shall be calculated without including
cash, and Municipal Obligations rated MIG-1, VMIG-1 or P-1 or, if not rated
by Moody's, rated A-1+/AA or SP-1+/AA by S&P, shall be considered to have a
long-term rating of A. When the Fund sells a Municipal Obligation and
agrees to repurchase such Municipal Obligation at a future date, such
Municipal Obligation shall be valued at its Discounted Value for purposes
of determining Moody's Eligible Assets, and the amount of the repurchase
price of such Municipal Obligation shall be included as a liability for
purposes of calculating the MuniPreferred Basic Maintenance Amount. When
the Fund purchases a Moody's Eligible Asset and agrees to sell it at a
future date, such Eligible Asset shall be valued at the amount of cash to
be received by the Fund upon such future date, provided that the
counterparty to the transaction has a long-term debt rating of at least A2
from Moody's and the transaction has a term of no more than 30 days,
otherwise such Eligible Asset shall be valued at the Discounted Value of
such Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset to the extent it is (i) subject to any material
lien, mortgage, pledge, security interest or security agreement of any kind
(collectively, "Liens"), except for (a) Liens which are being contested in
good faith by appropriate proceedings and which Moody's has indicated to
the Fund will not affect the status of such asset as a Moody's Eligible
Asset, (b) Liens for taxes that are not then due and payable or that can be
paid thereafter without penalty, (c) Liens to secure payment for services
rendered or cash advanced to the Fund by Nuveen Advisory Corp., The Chase
Manhattan Bank, N.A. 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.
For purposes of determining as of any Valuation Date whether the Fund
has Moody's 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 Moody's 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 a Moody's Discount Factor determined by reference to the
insurance claims-paying ability rating of the issuer of such Portfolio
Insurance policy.
"Original Issue Insurance" shall mean "Original Issue Insurance" as
defined in the Fund's Registration Statement.
A-4
<PAGE> 65
"Permanent Insurance" shall mean "Permanent Insurance" as defined in
the Fund's Registration Statement.
"Portfolio Insurance" shall mean "Portfolio Insurance" as defined in
the Fund's Registration Statement.
"Rate Multiple," for shares of a series of MuniPreferred on any
Auction Date for shares of such series, shall mean the percentage,
determined as set forth below, based on the prevailing rating of shares of
such series in effect at the close of business on the Business Day next
preceding such Auction Date:
<TABLE>
<CAPTION>
Prevailing Rating Percentage
----------------- ----------
<S> <C>
"aa3"/AA- or higher 110%
"a3"/A- 125%
"baa3"/BBB- 150%
"ba3"/BB- 200%
Below "ba3"/BB- 150%
</TABLE>
provided, however, that in the event the Fund has notified the Auction
Agent of its intent to allocate income taxable for Federal income tax
purposes to shares of such series prior to the Auction establishing the
Applicable Rate for shares of such series, the applicable percentage in the
foregoing table shall be divided by the quantity 1 minus the maximum
marginal regular Federal individual income tax rate applicable to ordinary
income or the maximum marginal regular Federal corporate income tax rate
applicable to ordinary income, whichever is greater.
For purposes of this definition, the "prevailing rating" of shares of
a series of MuniPreferred shall be (i) "aa3"/AA- or higher if such shares
have a rating of "aa3" or better by Moody's and AA- or better by S&P or the
equivalent of such ratings by such agencies or a substitute rating agency
or substitute rating agencies selected as provided below, (ii) if not
"aa3"/AA- or higher, then "a3"/A- if such shares have a rating of "a3" or
better by Moody's and A- or better by S&P or the equivalent of such ratings
by such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, (iii) if not "aa3"/AA- or higher or
"a3"/A-, then "baa3"/BBB- if such shares have a rating of "baa3" or better
by Moody's and BBB- or better by S&P or the equivalent of such ratings by
such agencies or a substitute rating agency or substitute rating agencies
selected as provided below, (iv) if not "aa3"/AA- or higher, "a3"/A- or
"baa3"/BBB-, then "ba3"/BB- if such shares have a rating of "ba3" or better
by Moody's and BB- or better by S&P or the equivalent of such ratings by
such agencies or a substitute rating agency or substitute rating agencies
selected as provided below, and (v) if not "aa3"/AA- or higher, "a3"/A-,
"baa3"/BBB-, or "ba3"/BB-, then Below "ba3"/BB-; provided, however, that if
such shares are rated by only one rating agency, the prevailing rating will
be determined without reference to the rating of any other rating agency.
The Fund shall take all reasonable action necessary to enable either S&P or
Moody's to provide a rating for shares of MuniPreferred. If neither S&P nor
Moody's shall make such a rating available, the party set forth in Section
7 of Appendix A or its successor shall select at least one nationally
recognized statistical rating organization (as that term is used in the
rules and regulations of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended from time to time) to act as a
substitute rating agency in respect of shares of the series of
MuniPreferred set forth opposite such party's name in Section 7 of Appendix
A and the Fund shall take all reasonable action to enable such rating
agency to provide a rating for such shares.
"S&P Discount Factor" shall mean, for purposes of determining the
Discounted Value of any S&P Eligible Asset, the percentage determined by
reference to (i) (A) in the event such Municipal Obligation is covered by
an Original Issue Insurance policy or a Portfolio Insurance policy which
does not provide the Fund with the option to obtain Permanent Insurance
with respect to such
A-5
<PAGE> 66
Municipal Obligation, or is not covered by bond insurance, the S&P or Moody's
rating on such Municipal Obligation, (B) in the event such Municipal Obligation
is covered by a Secondary Market Insurance policy, the S&P insurance
claims-paying ability rating of the issuer of the policy, or (C) in the event
such Municipal Obligation is covered by a Portfolio Insurance policy which
provides the Fund with the option to obtain Permanent Insurance with respect to
such Municipal Obligation, at the Fund's option, the S&P or Moody's rating on
such Municipal Obligation or the S&P insurance claims-paying ability rating of
the issuer of the Portfolio Insurance policy and (ii) the shortest Exposure
Period set forth opposite such rating that is the same length as or is longer
than the S&P Exposure Period, in accordance with the table set forth below:
<TABLE>
<CAPTION>
Rating Category
- -----------------------------------------------------------------------
Exposure Period AAA* AA* A* BBB*
- -------------------------------------------------------------------------------
<S> <S> <S> <S> <S>
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.
</TABLE>
Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
Municipal Obligations will be 115%, so long as such Municipal Obligations are
rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable
within 30 days or less, or 125% if such Municipal Obligations are not rated by
S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's; provided, however, that any
such Moody's-rated short-term Municipal Obligations which have demand features
exercisable within 30 days or less must be backed by a letter of credit,
liquidity facility or guarantee from a bank or other financial institution with
a short-term rating of at least A-1+ from S&P; and further provided that such
Moody's-rated short-term Municipal Obligations may comprise no more than 50% of
short-term Municipal Obligations that qualify as S&P Eligible Assets; (ii) no
S&P Discount Factor will be applied to cash or to Receivables for Municipal
Obligations Sold. For purposes of the foregoing, Anticipation Notes rated SP-1+
or, if not rated by S&P, rated MIG-1 or VMIG-1 by Moody's, which do not mature
or have a demand feature at par exercisable in 30 days and which do not have a
long-term rating, shall be considered to be short-term Municipal Obligations.
"S&P Eligible Asset" shall mean cash (excluding any cash irrevocably
deposited by the Fund for the payment of any liabilities within the meaning of
MuniPreferred Basic Maintenance Amount), Receivables for Municipal Obligations
Sold or a Municipal Obligation owned by the Fund that (i) is interest bearing
and pays interest at least semi-annually; (ii) is payable with respect to
principal and interest in U.S. Dollars (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 such 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 it's Moody's
rating); (iii) is publicly rated BBB or higher by S&P or, if not rated by S&P
but rated by Moody's, is rated at least A by Moody's; (iv) is not part of a
private placement of Municipal Obligations; and (v) is part of an issue of
Municipal Obligations with an original issue size of at least $20 million or, if
of an issue with an original issue size below $20 million (but in no event below
$10 million), is issued by an issuer with a total of at least $50 million of
securities outstanding. Solely for purposes of this definition, the term
"Municipal Obligation" means any obligation the interest on which is exempt from
regular Federal income taxation and which is issued by any of the fifty United
States, the District of Columbia or any of the territories of the United States,
their
A-6
<PAGE> 67
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 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) Long-Term Municipal Obligations 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 Periods.
The Initial Rate Period for shares of Series M MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
January 7, 1992.
The Initial Rate Period for shares of Series T MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
January 8, 1992.
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
March 5, 1992.
The Initial Rate Period for shares of Series W2 MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
May ____, 1999.
The Initial Rate Period for shares of Series TH1 MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
January 10, 1992.
The Initial Rate Period for shares of Series TH2 MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
March 6, 1992.
The Initial Rate Period for shares of Series F MuniPreferred shall be the
period from and including the Date of Original Issue thereof to but excluding
March 9, 1992.
Section 6. Date for Purposes of Paragraph (yyy) Contained Under the Heading
"Definitions" in this Statement.
February 29, 1992 for Series M MuniPreferred, Series T MuniPreferred and
Series TH1 MuniPreferred, May 31, 1992 for Series W MuniPreferred, Series TH2
MuniPreferred and Series F MuniPreferred, and
A-7
<PAGE> 68
Section 7. Party Named for Purposes of the Definition of "Rate Multiple" in
this Statement.
Party: Series of MuniPreferred:
<TABLE>
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated Series M
Smith Barney Shearson Inc. Series T
Merrill Lynch, Pierce, Fenner & Smith Incorporated Series W
Salomon Smith Barney Inc. Series W2
Lehman Brothers, Inc. Series TH1
Merrill Lynch, Pierce, Fenner & Smith Incorporated Series TH2
Lehman Brothers, Inc. Series F
</TABLE>
Section 8. Additional Definitions.
Not applicable.
Section 9. Dividend Payment Dates.
Except as otherwise provided in paragraph (d) of Section 2 of Part I of
this Statement, dividends shall be payable on shares of:
Series M MuniPreferred on Tuesday, January 7, 1992, and on each Tuesday
thereafter;
Series T MuniPreferred on Wednesday, January 8, 1992, and on each Wednesday
thereafter;
Series W MuniPreferred on Thursday, March 5, 1992, and on each Thursday
thereafter;
Series W2 MuniPreferred on Thursday, May __, 1999, and on each Thursday
thereafter.
Series TH1 MuniPreferred on Friday, January 10, 1992, and on each Friday
thereafter;
Series TH2 MuniPreferred on Friday, March 6, 1992, and on each Friday
thereafter;
Series F MuniPreferred on Monday, March 9, 1992, and on each Monday
thereafter.
Section 10. Amount for Purposes of Subparagraph (c)(i) of Section 5 of Part I of
this Statement.
$600,000,000
Section 11. Redemption Provisions Applicable to Initial Rate Periods.
Not applicable.
Section 12. Applicable Rate for Purposes of Subparagraph(b)(iii) of Section 3 of
Part II of this Statement.
For 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
A-8
<PAGE> 69
corporate income tax rate applicable to ordinary income, whichever is greater;
provided, however, that if the Fund has notified the Auction Agent of its intent
to allocate to shares of such series in such Rate Period any net capital gains
or other income taxable for Federal income tax purposes ("Taxable Income"), the
Applicable Rate for shares of such series for such Rate Period will be (i) if
the Taxable Yield Rate (as defined below) is greater than the Benchmark Rate,
then the Benchmark Rate, or (ii) if the Taxable Yield Rate is less than or equal
to the Benchmark Rate, then the rate equal to the sum of (x) the lesser of the
Kenny Index (if such Rate Period consists of fewer than 183 Rate Period Days) or
the product of the Benchmark Rate multiplied by the factor set forth in the
preceding clause (B) and (y) the product of the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax applicable to ordinary income, whichever is
greater, multiplied by the Taxable Yield Rate. For purposes of the foregoing,
Taxable Yield Rate means the rate determined by (a) dividing the amount of
Taxable Income available for distribution per such share of MuniPreferred by the
number of days in the Dividend Period in respect of which such Taxable Income is
contemplated to be distributed, (b) multiplying the amount determined in (a)
above by 365 (in the case of a Dividend Period of 7 Rate Period Days) or 360 (in
the case of any other Dividend Period), and (c) dividing the amount determined
in (b) above by $25,000.
A-9
<PAGE> 1
EXHIBIT 99.2d.3
[DTC LOGO]
BOOK-ENTRY-ONLY AUCTION-RATE/MONEY MARKET PREFERRED/AND
REMARKETED PREFERRED SECURITIES
LETTER OF REPRESENTATIONS
[TO BE COMPLETED BY ISSUER AND TRUST COMPANY]
NUVEEN INSURED MUNICIPAL OPPORTUNITY FUND, INC.
-----------------------------------------------
[NAME OF ISSUER]
BANKERS TRUST COMPANY
---------------------
[NAME OF TRUST COMPANY]
Attention: General Counsel's Office April , 1999
THE DEPOSITORY TRUST COMPANY [DATE]
55 Water Street, 49th Floor
New York, NY 10041-0099
Re: _____Shares of Municipal Auction Rate Cumulative Preferred Stock,
Series W2, par value $.01 per share of Nuveen Insured Municipal
Opportunity Fund, Inc., CUSIP No._____
[ISSUE DESCRIPTION, INCLUDING CUSIP NUMBER]
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain matters
relating to the above-referenced issue (the "Securities"). Trust Company will
act as transfer agent, registrar, dividend disbursing agent, and redemption
agent with respect to the Securities. The Securities will be issued pursuant to
a prospectus, private placement memorandum, or other such document authorizing
the issuance of the Securities dated April _____, 1999 (the "Document").
Salomon Smith Barney Inc. ("underwriter") is distributing the Securities
through The Depository Trust Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC, and
to act in accordance with its Rules with respect to the Securities, Issuer and
Trust Company make the following representations to DTC:
1. Prior to closing on the Securities on April _____, 1999 there shall be
deposited with DTC one Security certificate registered in the name of DTC's
nominee, Cede & Co., which represents the total number of Securities issued.
Said certificate shall remain in DTC's custody as provided in the Document. If,
however, the aggregate principal amount of the Securities exceeds $200 million,
one certificate will be issued with respect to each $200 million of principal
amount and an additional certificate will be issued with respect to any
remaining principal amount. Each Security certificate shall bear the following
legend:
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to Issuer or its
agent for registration of transfer,
<PAGE> 2
exchange, or payment, and any certificate issued is registered in the name
of Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such
other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co.; has
an interest herein.
2. Issuer:(a) understands that DTC has no obligation to, and will not,
communicate to its Participants or to any person having an interest in the
Securities any information contained in the Security certificate(s); and (b)
acknowledges that neither DTC, Participants nor any person having an interest in
the Securities shall be deemed to have notice of the provisions of the Security
certificate(s) by virtue of submission of such certificate(s) to DTC.
3. In the event of any solicitation of consents from or voting by holders
of the Securities, Issuer shall establish a record date for such purposes (with
no provision for revocation of consents or votes by subsequent holders) and
shall send notice of such record date to DTC not less than 15 calendar days in
advance of such record date. Notices to DTC pursuant to this Paragraph by
telecopy shall be sent to DTC's Reorganization Department at (212) 709-6896 or
(212) 709-6897, and receipt of such notices shall be confirmed by telephoning
(212) 709-6870. Notices to DTC pursuant to this Paragraph by mail or by any
other means shall be sent to DTC's Reorganization Department as indicated in
Paragraph 5.
4. In the event of a full or partial redemption of the outstanding
Securities, Issuer or Trust Company shall send a notice to DTC specifying: (a)
the number of Securities to be redeemed; and (b) the date such notice is to be
distributed to Security holders or published (the "Publication Date"). Such
notice shall be sent to DTC by a secure means (e.g., legible telecopy,
registered or certified mail, overnight delivery) in a timely manner designed
to assure that such notice is in DTC's possession no later than the close of
business on the business day before or, if possible, two business days before
the Publication Date. Issuer or Trust Company shall forward such notice either
in a separate secure transmission for each CUSIP number or in a secure
transmission for multiple CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP number submitted in that transmission. (The
party sending such notice shall have a method to verify subsequently the use of
such means and the timeliness of such notice.) The Publication Date shall be not
less than 30 days nor more than 60 days prior to the redemption date. Notices to
DTC pursuant to this Paragraph by telecopy shall be sent to DTC's Call
Notification Department at (516) 227-4039 or (516) 227-4190. If the party
sending the notice does not receive a telecopy receipt from DTC confirming that
the notice has been received, such party shall telephone (516) 227-4070.
Notices to DTC pursuant to this Paragraph by mail or by any other means shall
be sent to:
Manager; Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
5. In the event of an invitation to tender the Securities (including
mandatory tenders, exchanges, and capital changes), notice by Issuer or Trust
Company to Security holders specifying the terms of the tender and
the Publication Date of such notice shall be sent to DTC by a secure means in
the manner set forth in the preceding Paragraph. Notices to DTC pursuant to
this Paragraph and notices of other corporate actions by telecopy shall be sent
to DTC's Reorganization Department at (212)709-1093 or (212) 709-1094, and
receipt of
<PAGE> 3
such notices shall be confirmed by telephoning (212) 709-6884. Notices to DTC
pursuant to the above by mail or by any other means shall be sent to:
Manager; Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square; 23rd Floor
New York, NY 10004-2695
6. All notices and payment advices sent to DTC shall contain the CUSIP
number of the Securities (listed on Schedule A hereto) and the accompanying
description of such Security, which, as of the date of this letter is
"___________".
7. The Document indicates that the dividend rate for the Securities may
vary from time to time. Absent other existing arrangements with DTC, Issuer or
Trust Company shall give DTC notice of each such change in the dividend rate,
on the same day that the new rate is determined, by telephoning the Supervisor
of DTC's Dividend Announcement Section at (212) 709-1270, or by telecopy sent
to (212) 709-1723. Such verbal or telecopy notice shall be followed by prompt
written confirmation sent by a secure means in the manner set forth in
Paragraph 4 to:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
8. The Document indicates that each purchaser of Securities must sign a
purchaser's letter which contains provisions restricting transfer of the
Securities purchased. Issuer and Trust Company acknowledge that as long as Cede
& Co. is the sole record owner of the Securities, Cede & Co. shall be entitled
to all voting rights applicable to the Securities and to receive the full
amount of all dividends, liquidation proceeds, and redemption proceeds payable
with respect to the Securities, even if the credits of Securities to the DTC
accounts of any DTC Participant ("Participant") result from transfers or
failures to transfer in violation of the provisions of the purchaser's letter.
Issuer and Trust Company acknowledge that DTC shall treat any Participant
having Securities credited to its DTC accounts as entitled to the full benefits
of ownership of such Securities. Without limiting the generality of the
preceding sentence, Issuer and Trust Company acknowledge that DTC shall treat
any Participant having Securities credited to its DTC accounts as entitled to
receive dividends, distributions, and voting rights, if any, in respect of
Securities and, subject to Paragraphs 12 and 13, to receive certificates
evidencing Securities if such certificates are to be issued in accordance with
Issuer's certificate of incorporation. (The treatment by DTC of the effects of
the crediting by it of Securities to the accounts of Participants described in
the preceding two sentences shall not affect the rights of issuer, participants
in auctions relating to the Securities, purchasers, sellers, or holders of
Securities against any Participant.) DTC shall not have any responsibility to
ascertain whether any transfer of Securities is made in accordance with the
provisions of the purchaser's letter.
9. Issuer or Trust Company shall provide a written notice of dividend
payment and distribution information to a standard announcement service
subscribed to by DTC as soon as the information is available.
<PAGE> 4
In the unlikely event that no such service exists, Issuer or Trust Company
shall provide this information directly to DTC electronically, as previously
arranged by Issuer or Trust Company and DTC, as soon as the information is
available. If electronic transmission has not been arranged, absent any other
arrangements between Issuer or Trust Company and DTC, such information should
be sent by telecopy to DTC's Dividend Department at (212) 709-1723 or (212)
709-1686, and receipt of such notices shall be confirmed by telephoning (212)
709-1270. Notices to DTC pursuant to the above by mail or by any other means
shall be addressed as follows:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
10. Issuer or Trust Company shall provide CUSIP-level detail for dividend
payments and distributions to DTC no later than noon (Eastern Time) on the
payment date.
11. Dividend payments and distributions shall be received by Cede & Co.,
as nominee of DTC, or its registered assigns in same-day funds no later than
2:30 p.m. (Eastern Time) on each payment date. Absent any other arrangements
between Issuer or Trust Company and DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account #066-026776
12. Redemption payments shall be received by Cede & Co., as nominee of
DTC, or its registered assigns in same-day funds no later than 2:30 p.m.
(Eastern Time) on the payment date. Absent any other arrangements between
Issuer or Trust Company and DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Redemption Deposit Account #066-027306
13. Reorganization payments and CUSIP-level detail resulting from
corporate actions (such as tender offers, remarketing, or mergers) shall be
received by Cede & Co., as nominee of DTC, or its registered assigns in
same-day funds no later than 2:30 p.m. (Eastern Time) on the first payment
date. Absent any other arrangements between Issuer or Trust Company and DTC,
such funds shall be wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Reorganization Deposit Account #066-027608
<PAGE> 5
14. DTC may direct Issuer or Trust Company to use any other number or
address as the number or address to which notices, payments of dividends,
distributions, or redemption proceeds may be sent.
15. In the event of a redemption acceleration, or any similar transaction
(e.g., tender made and accepted in response to Issuer's or Trust Company's
invitation) necessitating a reduction in the number of Securities Outstanding,
or an advance refunding of part of the Securities outstanding DTC, in its
discretion: (a) may request Issuer or Trust Company to issue and authenticate
a new Security certificate; or (b) may make an appropriate notation on the
Security certificate indicating the date and amount of such reduction in the
number of Securities outstanding, except in the case of final redemption, in
which case the certificate will be presented to Issuer or Trust Company prior
to payment, if required.
16. In the event that Issuer determines that beneficial owners of
Securities shall be able to obtain certificated Securities, Issuer or Trust
Company shall notify DTC of the availability of certificates. In such event,
Issuer or Trust Company shall issue, transfer, and exchange certificates in
appropriate amounts, as required by DTC and others.
17. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to
Issuer or Trust Company (at which time DTC will confirm with Issuer or Trust
Company the aggregate principal amount of Securities outstanding). Under such
circumstances, at DTC's request Issuer and Trust Company shall cooperate fully
with DTC by taking appropriate action to make available one or more separate
certificates evidencing Securities to any DTC Participant having Securities
credited to its DTC accounts.
18. Issuer hereby authorizes DTC to provide to Trust Company security
position listings of Participants with respect to the Securities from time to
time at the request of Trust Company. Issuer also authorizes DTC, in the event
of a partial redemption of Securities, to provide Trust Company, upon request,
with the names of those Participants whose positions in Securities have been
selected for redemption by DTC. DTC will use its best efforts to notify Trust
Company of those Participants whose positions in Securities have been selected
for redemption by DTC. Issuer authorizes and instructs Trust Company to provide
DTC with such signatures, examples of signatures, and authorizations to act as
may be deemed necessary or appropriate by DTC to permit DTC to discharge its
obligations to its Participants and appropriate regulatory authorities. Such
requests for security position listings shall be sent to DTC's Reorganization
Department in the manner set forth in Paragraph 5.
This authorization, unless revoked by Issuer, shall continue with respect
to the Securities while any Securities are on deposit at DTC, until and unless
Trust Company shall no longer be acting. In such event, Issuer shall provide
DTC with similar evidence, satisfactory to DTC, of the authorization of any
successor thereto so to act.
19. Nothing herein shall be deemed to require Trust Company to advance
funds on behalf of Issuer.
20. This Letter of Representations may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts together constitute but one and the same instrument.
21. This Letter of Representations is governed by, and shall be construed
in accordance with, the laws of
<PAGE> 6
the State of New York.
22. The following riders, attached hereto, are hereby incorporated into
this Letter of Representations:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 7
NOTES:
A. IF THERE IS A TRUST COMPANY (AS DEFINED IN THIS LETTER OF REPRESENTATIONS),
TRUST COMPANY AS WELL AS ISSUER MUST SIGN THIS LETTER. IF THERE IS NOT
TRUST COMPANY, IN SIGNING THIS LETTER ISSUER ITSELF UNDERTAKES TO PERFORM
ALL OF THE OBLIGATIONS SET FORTH HEREIN.
B. SCHEDULE B CONTAINS STATEMENTS THAT DTC BELIEVES ACCURATELY DESCRIBE DTC,
THE METHOD OF EFFECTING BOOK-ENTRY TRANSFERS OF SECURITIES DISTRIBUTED
THROUGH DTC, AND CERTAIN RELATED MATTERS.
Very truly yours,
Nuveen Insured Municipal Opportunity Fund, Inc.
(Issuer)
By:
--------------------------------------------
(Authorized Officer's Signature)
Bankers Trust Company
(Trust Company)
By:
--------------------------------------------
(Authorized Officer's Signature)
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By:
------------------------------------
cc: Underwriter
Underwriter's Counsel
<PAGE> 8
SCHEDULE A
Municipal Auction Rate Cumulative Preferred Stock, Series W2,
par value $.01 per share of Nuveen Insured Municipal Opportunity Fund, Inc.
-----------------------------
(Describe Issue)
CUSIP Number Share Total Value ($ Amount)
- ------------ ------------- ---------------
<PAGE> 9
SCHEDULE B
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
-----------------------------------
(PREPARED BY DTC-BRACKETED MATERIAL MAY BE APPLICABLE ONLY TO CERTAIN ISSUES)
1. The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities
will be issued as fully-registered securities registered in the name of Cede &
Co. (DTC's partnership nominee). One fully-registered Security certificate will
be issued for [each issue of] the Securities, [each] in the aggregate principal
amount of such issue, and will be deposited with DTC. [If, however, the
aggregate principal amount of [any] issue exceeds $200 million, one certificate
will be issued with respect to each $200 million of principal amount and an
additional certificate will be issued with respect to any remaining principal
amount of such issue.]
2. DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Participants") deposit
with DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is owned by a number
of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The Rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
3. Purchases of Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Securities on
DTC's records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in Securities,
except in the event that use of the book-entry system for the Securities is
discontinued.
4. To facilitate subsequent transfers, all Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Securities; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Securities are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
<PAGE> 10
5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
<PAGE> 11
[6. Redemption notices shall be sent to DTC. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed.]
7. Neither DTC nor Cede & Co. will consent or vote with respect to
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as
soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
8. Redemption proceeds, distributions and dividend payments on the
Securities will be made to Cede & Co., as nominee of DTC. DTC's practice is to
credit Direct Participants' accounts, upon DTC's receipt of payment and
corresponding detail information from Issuer or Trust Company on payable date in
accordance with their respective holdings shown on DTC's records. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, Trust Company, or Issuer,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of redemption proceeds, distributions and dividends to
Cede & Co. is the responsibility of Issuer or Trust Company, disbursement of
such payments to Direct Participants shall be the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
[9. A Beneficial Owner shall give notice to elect to have its Securities
purchased or tendered, through its Participant, to Trust Company [or
Tender/Remarketing Agent], and shall effect delivery of such Securities by
causing the Direct Participant to transfer the Participant's interest in the
Securities, on DTC's records, to Trust Company [or Tender/Remarketing Agent].
The requirement for physical delivery of Securities in connection with an
optional tender or a mandatory purchase will be deemed satisfied when the
ownership rights in the Securities are transferred by Direct Participants on
DTC's records and followed by a book-entry credit of tendered Securities to
Trustee's [or Tender/Remarketing Agent's] DTC account.]
10. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to Issuer
or Trust Company. Under such circumstances, in the event that a successor
securities depository is not obtained, Security certificates are required to be
printed and delivered.
11. Issuer may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources but Issuer believes to be reliable, but
Issuer takes no responsibility for the accuracy thereof.
<PAGE> 12
RIDER AMENDING DTC LETTER OF REPRESENTATIONS -
BEO AUCTION-RATE/MONEY MARKET PREFERRED/AND REMARKETED PREFERRED SECURITIES
DTC's Reorganization and Dividend Departments have relocated to 55 Water Street.
Following are revisions to the Letter of Representations including current
addresses, telephone numbers, and telecopy numbers.
Paragraph 3 of the Letter of Representations:
- --------------------------------------------
Old Telecopier Numbers: Current Telecopier Numbers:
(212) 709-6896 and (212) 709-6897 (212) 855-5181 and (212) 855-5182
The confirmation number (formerly (212) 709-6870) is now (212) 855-5202.
Old Te1ecopier Numbers: Current Telecopier Number:
(212) 709-1093 and (212) 709-1094 (212) 855-5278
The confirmation number (formerly (212) 709-6884) is now (212) 855-5280.
The current address is: Manager; Reorganization Department
Reorganization Window
The Depository Trust Company
55 WATER STREET 50TH FLOOR
NEW YORK, NY 10041-0099.
Paragraph 7 of the Letter of Representations:
- --------------------------------------------
Old Telecopier Number: Current Telecopier Number
(212) 709-1723 (212) 855-4555
The confirmation number (formerly (212) 709-1270) is now (212) 855-4550.
The current address is: Manager; Announcements
Dividend Department
The Depository Trust Company
55 WATER STREET 25TH FLOOR
NEW YORK, NY 10041-0099
Paragraph 9 of the Letter of Representations:
- --------------------------------------------
Old Telecopier Numbers: Current Telecopier Numbers:
(212) 709-1723 and (212) 709-1686 (212) 855-4555 and (212) 855-4556
The confirmation number (formerly (212) 709-1270) is now (212) 855-4550.
<PAGE> 13
The current address for Paragraph 9 is the same as that listed above, for
Paragraph 7.
The following additional text relates to Paragraph 10 of the Letter of
Representations:
Such information shall be conveyed by automated notification. If the
circumstances prevent the funds being paid to Cede & Co., as nominee of DTC,
by 2:30 p.m. ET from equaling the dollar amount associated with detail
payments by 12:00 noon ET, Issuer or Agent must provide CUSIP-level
reconciliation to DTC no later than 2:30 p.m. ET. Reconciliation may be
provided by automated means or in written format.
The following additional text relates to Paragraph 11 of the Letter of
Representations:
Issuer must remit free funds to Agent by 1:00 p.m. ET on each payment date, or
at such earlier time as required by Agent to guarantee timely credit to the
Dividend Deposit Account of Cede & Co.
The following additional text relates to Paragraph 12 of the Letter of
Representations:
Issuer must remit free funds to Agent by 1:00 p.m. ET on each payment date, or
at such earlier time as required by Agent to guarantee timely credit to the
Redemption Deposit Account of Cede & Co. Issuer or Agent shall deliver
CUSIP-level detail regarding such payments to DTC no later than 2:30 p.m. ET on
each payment date.
The following additional text relates to Paragraph 13 of the Letter of
Representations.
Issuer must remit free funds to Agent by 1:00 p.m. ET on each payment date, or
at such earlier time as required by Agent to guarantee timely credit to the
Reorganization Deposit Account of Cede & Co. Issuer or Agent shall deliver
CUSIP-level detail regarding such payments to DTC no later than 2:30 p.m. ET on
each payment date.
<PAGE> 1
EXHIBIT 99.2h
Municipal Auction Rate Cumulative Preferred Shares
NUVEEN INSURED MUNICIPAL OPPORTUNITY FUND, INC.
3,240 Shares, Series W2
Liquidation Preference $25,000 Per Share
UNDERWRITING AGREEMENT
________ __, 1999
SALOMON SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
BT ALEX. BROWN
GOLDMAN, SACHS & CO.
JOHN NUVEEN & CO. INCORPORATED
LEGG MASON WOOD WALKER INCORPORATED
PAINE WEBBER INCORPORATED
PRUDENTIAL SECURITIES
RAYMOND JAMES & ASSOCIATES, INC.
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Nuveen Insured Municipal Opportunity Fund, Inc., a Minnesota
corporation (the "Fund"), proposes, upon the terms and conditions set forth
herein, to issue and sell an aggregate of 3,240 shares of its Municipal Auction
Rate Cumulative Preferred Shares, Series W2, (the "MuniPreferred"), par value
.01 per share, with a liquidation preference of $25,000 per share (the shares of
MuniPreferred to be sold hereby are referred to herein, collectively, as the
"Shares"). The Shares will be authorized by, and subject to the terms and
conditions of, the Statement Establishing and Fixing the Rights and Preferences
of Municipal Auction Rate Cumulative Preferred Stock (the "Statement") in the
form filed as an exhibit to the registration statement referred to in Section 1
of this agreement. Nuveen Advisory Corp., a Delaware corporation (the
"Adviser"), is the Fund's investment adviser. This is to confirm the agreement
concerning the purchase of the Shares from the Fund by Salomon Smith Barney Inc.
(the "Representative") and A.G. Edwards & Sons, Inc., BT Alex. Brown, Goldman,
Sachs & Co., John Nuveen & Co., Incorporated, Legg Mason Wood Walker
Incorporated, Paine Webber Incorporated, Prudential Securities, and Raymond
James & Associates, Inc. (each an "Underwriter", and together with the
Representative, the "Underwriters"). The Representative has been duly authorized
by each of the Underwriters to execute this Underwriting Agreement (the
"Agreement") on behalf of such Underwriters and has been duly authorized to act
hereunder on behalf of each of the Underwriters.
The Fund has entered into an investment management agreement with the
Adviser, an exchange traded fund custody agreement with United States Trust
Company of New York, a fund accounting agreement with United States Trust
Company of New York and an auction agency agreement, including the Basic Terms
in respect thereof, with Bankers Trust Company.
<PAGE> 2
2
Such agreements are hereinafter referred to as the "Investment Management
Agreement", the "Custodian Agreement", the "Fund Accounting Agreement" and the
"Auction Agency Agreement", respectively. Collectively, the Investment
Management Agreement, the Custodian Agreement, the Fund Accounting Agreement and
the Auction Agency Agreement are hereinafter referred to as the "Fund
Agreements".
1. Registration Statement and Prospectus. The Fund has prepared, in
conformity with the provisions of the Securities Act of 1933, as amended (the
"1933 Act"), the Investment Company Act of 1940, as amended (the "1940 Act"),
and the rules and regulations of the Securities and Exchange Commission (the
"Commission"), promulgated under the 1933 Act (the "1933 Act Rules and
Regulations") and the 1940 Act (the "1940 Act Rules and Regulations" and,
together with the 1933 Act Rules and Regulations, the "Rules and Regulations"),
a registration statement on Form N-2 under the 1933 Act and the 1940 Act (the
"registration statement"), including a prospectus relating to the Shares, and
has filed the registration statement and prospectus in accordance with the 1933
Act and the 1940 Act. The Fund also has filed a notification of registration of
the Fund as an investment company under the 1940 Act on Form N-8A (the "1940 Act
Notification"). The term "Registration Statement" as used in this Agreement
means the registration statement (including all financial schedules and
exhibits), as amended at the time it becomes effective under the 1933 Act, or,
if the registration statement became effective under the 1933 Act prior to the
execution of this Agreement, as amended or supplemented at the time it became
effective, prior to the execution of this Agreement. If it is contemplated, at
the time this Agreement is executed, that a post-effective amendment to the
registration statement will be filed under the 1933 Act and must be declared
effective before the offering of the Shares may commence, the term "Registration
Statement" as used in this Agreement means the registration statement as amended
by said post-effective amendment. If the Fund has filed an abbreviated
registration statement to register an additional amount of Shares pursuant to
Rule 462(b) under the 1933 Act (the "Rule 462 Registration Statement"), then any
reference herein to the term "Registration Statement" shall include such Rule
462 Registration Statement. The term "Prospectus" as used in this Agreement
means the prospectus and statement of additional information in the forms
included in the Registration Statement or, if the prospectus and statement of
additional information included in the Registration Statement omit information
in reliance on Rule 430A under the 1933 Act Rules and Regulations and such
information is included in a prospectus and statement of additional information
filed with the Commission pursuant to Rule 497 under the 1933 Act, the term
"Prospectus" as used in this Agreement means the prospectus and statement of
additional information in the forms included in the Registration Statement as
supplemented by the addition of the information contained in the prospectus
filed with the Commission pursuant to Rule 497. The term "Prepricing Prospectus"
as used in this Agreement means the prospectus and statement of additional
information subject to completion in the forms included in the registration
statement at the time of filing of pre-effective amendment no. 1 to the
registration statement under the 1933 Act with the Commission on April __, 1999,
and as such prospectus and statement of additional information shall have been
amended from time to time prior to the date of the Prospectus, together with any
other prospectus and statement of additional information relating to the Fund
other than the Prospectus approved in writing by or directly or indirectly
prepared by the Fund or the Adviser; it being understood that the definition of
Prepricing Prospectus above shall not include any Prepricing Prospectus prepared
by the
<PAGE> 3
3
Underwriters unless approved in writing by the Fund or Adviser. The terms
"Registration Statement", "Prospectus" and "Prepricing Prospectus" shall also
include any financial statements incorporated by reference therein.
The Fund has furnished the Underwriters with copies of such
Registration Statement, each amendment to such Registration Statement filed with
the Commission and each Prepricing Prospectus.
2. Agreements to Sell and Purchase. The Fund hereby agrees, subject to
all the terms and conditions set forth herein, to issue and sell to the
Underwriters, and, upon the basis of the representations, warranties and
agreements of the Fund and the Adviser herein contained and subject to all the
terms and conditions set forth herein, the Underwriters agree to purchase from
the Fund, at a purchase price of $_______ per Share, the number of shares of
MuniPreferred set forth opposite the names of the Underwriters in Schedule I
hereto.
3. Terms of Public Offering. The Fund and the Adviser have been advised
by the Underwriters that the Underwriters propose to make a public offering of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in the Underwriters' judgment is advisable and initially to
offer the Shares upon the terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the
Underwriters of and payment for the Shares shall be made at the office of
Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, NY 10017, at 9:30
A.M., New York City time, on ________ __, 1999 (the "Closing Date"). The place
of closing for the Shares and the Closing Date may be varied by agreement
between the Representative and the Fund.
Certificates for the Shares shall be registered in such names and in
such denominations as the Underwriters shall request prior to 9:30 A.M., New
York City time, on the second business day preceding the Closing Date. Such
certificates shall be made available to the Underwriters in New York City for
inspection not later than 9:30 A.M., New York City time, on the business day
next preceding the Closing Date. The certificates evidencing the Shares shall be
delivered to the Underwriters on the Closing Date, through the facilities of The
Depository Trust Company, against payment of the purchase price therefor in
immediately available funds.
5. Agreements of the Fund and the Adviser. The Fund and the Adviser,
jointly and severally, agree with the Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective under the 1933 Act before the offering of the Shares
may commence, the Fund will endeavor to cause the Registration Statement or such
post-effective amendment to become effective under the 1933 Act as soon as
possible and will advise the Underwriters promptly and, if requested by the
Underwriters, will confirm such advice in writing when the Registration
Statement or such post-effective amendment has become effective.
<PAGE> 4
4
(b) The Fund will advise the Underwriters promptly and, if requested by
the Underwriters, will confirm such advice in writing: (i) of any request made
by the Commission for amendment of or a supplement to the Registration
Statement, any Prepricing Prospectus or the Prospectus (or any amendment or
supplement to any of the foregoing) or for additional information, (ii) of the
issuance by the Commission, the National Association of Securities Dealers, Inc.
(the "NASD"), any state securities commission, any national securities exchange,
any arbitrator, any court or any other governmental, regulatory, self-regulatory
or administrative agency or any official of any order suspending the
effectiveness of the Registration Statement, prohibiting or suspending the use
of the Prospectus or any Prepricing Prospectus, or any sales material (as
hereinafter defined), of any notice pursuant to Section 8(e) of the 1940 Act, of
the suspension of qualification of the Shares for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purposes, (iii)
of receipt by the Fund, the Adviser, any affiliate of the Fund or the Adviser or
any representative or attorney of the Fund or the Adviser of any other material
communication from the Commission, the NASD, any state securities commission,
any national securities exchange, any arbitrator, any court or any other
governmental, regulatory, self-regulatory or administrative agency or any
official relating to the Fund (if such communication relating to the Fund is
received by such person within three years after the date of this Agreement),
the Registration Statement, the 1940 Act Notification, the Prospectus, any
Prepricing Prospectus, any sales material (as herein defined) (or any amendment
or supplement to any of the foregoing) or this Agreement or any of the Fund
Agreements and (iv) within the period of time referred to in paragraph (f)
below, of any material adverse change in the condition (financial or other),
business, prospects, properties, net assets or results of operations of the Fund
or the Adviser or of the happening of any other event which makes any statement
of a material fact made in the Registration Statement or the Prospectus or any
sales material (as herein defined) (or any amendment or supplement to any of the
foregoing) untrue or which requires the making of any additions to or changes in
the Registration Statement or the Prospectus, or any Prepricing Prospectus or
any sales material (as herein defined) (or any amendment or supplement to any of
the foregoing) in order to state a material fact required by the 1933 Act, the
1940 Act or the Rules and Regulations to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading or of the necessity to amend or supplement the
Registration Statement, the Prospectus, or any Prepricing Prospectus or any
sales material (as herein defined) (or any amendment or supplement to any of the
foregoing) to comply with the 1933 Act, the 1940 Act, the Rules and Regulations
or any other law or order of any court or regulatory body. If at any time the
Commission, the NASD, any state securities commission, any national securities
exchange, any arbitrator, any court or any other governmental, regulatory,
self-regulatory or administrative agency or any official shall issue any order
suspending the effectiveness of the Registration Statement, prohibiting or
suspending the use of the Prospectus or any sales material (as herein defined)
(or any amendment or supplement to any of the foregoing) or suspending the
qualification of the Shares for offering or sale in any jurisdiction, the Fund
will make every reasonable effort to obtain the withdrawal of such order at the
earliest possible time.
(c) The Fund will furnish to the Underwriters, without charge, three
signed copies of the Registration Statement as originally filed with the
Commission and of each amendment thereto, including financial statements and all
exhibits thereto, and will also furnish to the
<PAGE> 5
5
Underwriters, without charge, such number of conformed copies of the
Registration Statement as originally filed and of each amendment thereto, but
without exhibits, as the Underwriters may request.
(d) The Fund will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus, or any sales
material (as herein defined), of which the Underwriters shall not previously
have been advised or to which the Underwriters shall reasonably object after
being so advised or (ii) so long as, in the opinion of counsel for the
Underwriters, a Prospectus is required by the 1933 Act to be delivered in
connection with sales by the Underwriters or any dealer, file any information,
documents or reports pursuant to the Securities Exchange Act of 1934, as amended
(the "1934 Act") or the 1940 Act, without delivering a copy of such information,
documents or reports to the Underwriters prior to or concurrently with such
filing.
(e) Prior to the execution and delivery of this Agreement, the Fund has
delivered to the Underwriters, without charge, in such quantities as the
Underwriters have requested, copies of each form of the Prepricing Prospectus.
The Fund consents to the use, in accordance with the provisions of the 1933 Act
and with the state securities or blue sky laws of the jurisdictions in which the
Shares are offered by the Underwriters and by dealers, prior to the date of the
Prospectus, of each Prepricing Prospectus so furnished by the Fund.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the 1933 Act to be
delivered in connection with sales by the Underwriters or any dealer, the Fund
will expeditiously deliver to the Underwriters and each dealer, without charge,
as many copies of the Prospectus (and of any amendment or supplement thereto) as
the Underwriters may request. The Fund consents to the use of the Prospectus
(and of any amendment or supplement thereto) in accordance with the provisions
of the 1933 Act and with the state securities or blue sky laws of the
jurisdictions in which the Shares are offered by the Underwriters and by all
dealers to whom Shares may be sold, both in connection with the offering and
sale of the Shares and for such period of time thereafter as the Prospectus is
required by the 1933 Act to be delivered in connection with sales by the
Underwriters or any dealer. If during such period of time any event shall occur
that in the judgment of the Fund or in the opinion of counsel for the
Underwriters is required to be set forth in the Registration Statement or the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Registration Statement or the Prospectus to comply with the 1933 Act,
the 1940 Act, the Rules and Regulations or any other federal law, rule or
regulation, or any state securities or blue sky disclosure laws, rules or
regulations, the Fund will forthwith prepare and, subject to the provisions of
paragraph (d) above, promptly file with the Commission an appropriate supplement
or amendment thereto, and will expeditiously furnish to the Underwriters and
dealers, without charge, a reasonable number of copies thereof. In the event
that the Fund and the Representative agree that the Registration Statement or
the Prospectus should be amended or supplemented, the Fund, if requested by the
Representative, will promptly
<PAGE> 6
6
issue a press release announcing or disclosing the matters to be covered by the
proposed amendment or supplement.
(g) The Fund will make generally available to its security holders an
earnings statement, which need not be audited, covering a twelve-month period
ending not later than 15 months after the effective date of the Registration
Statement as soon as practicable after the end of such period, which earnings
statement shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule
158 of the 1933 Act Rules and Regulations.
(h) During the period of five years hereafter, the Fund will furnish to
the Underwriters (i) as soon as available, a copy of each report of the Fund
mailed to stockholders or filed with the Commission or furnished to the New York
Stock Exchange (the "NYSE") other than reports on Form N-SAR, and (ii) from time
to time such other information concerning the Fund as the Underwriters may
reasonably request.
(i) The Fund will apply the net proceeds from the sale of the Shares
substantially in accordance with the description set forth in the Prospectus and
in such a manner as to comply with the investment objectives, policies and
restrictions of the Fund as described in the Prospectus.
(j) The Fund will timely file the requisite copies of the Prospectus
with the Commission pursuant to Rule 497(c) or Rule 497(h) of the 1933 Act Rules
and Regulations, whichever is applicable or, if applicable, will timely file the
certification permitted by Rule 497(j) of the 1933 Act Rules and Regulations and
will advise the Representative of the time and manner of such filing.
(k) Except as provided in this Agreement, the Fund will not sell,
contract to sell, or otherwise dispose of any senior securities (as defined in
the 1940 Act) of the Fund, or grant any options or warrants to purchase senior
securities of the Fund, for a period of 120 days after the date of the
Prospectus, without the prior written consent of the Representative.
(l) Except as stated in this Agreement and in the Prepricing Prospectus
and Prospectus, neither the Fund nor the Adviser has taken, nor will it take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
securities issued by the Fund to facilitate the sale or resale of the Shares.
(m) The Fund will use its best efforts to cause the MuniPreferred,
prior to the Closing Date, to be assigned a rating of 'aaa' by Moody's Investors
Service, Inc. ("Moody's) and AAA by Standard & Poor's Rating Group ("S&P" and,
together with Moody's, the "Rating Agencies").
(n) The Fund and the Adviser will use their best efforts to perform all
of the agreements required of them and discharge all conditions to closing as
set forth in this Agreement.
<PAGE> 7
7
6. Representations and Warranties of the Fund and the Adviser. The Fund
and the Adviser, jointly and severally, represent and warrant to the
Underwriters that:
(a) Each Prepricing Prospectus included as part of the Registration
Statement as originally filed or as part of any amendment or supplement thereto,
or filed pursuant to Rule 497 of the 1933 Act Rules and Regulations, complied
when so filed in all material respects with the provisions of the 1933 Act, the
1940 Act and the Rules and Regulations. The Commission has not issued any order
preventing or suspending the use of any Prepricing Prospectus.
(b) The Registration Statement in the form in which it became or
becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective and the Prospectus and any supplement
or amendment thereto when filed with the Commission under Rule 497 of the 1933
Act Rules and Regulations and the 1940 Act Notification when originally filed
with the Commission and any amendment or supplement thereto when filed with the
Commission, complied or will comply in all material respects with the provisions
of the 1933 Act, the 1940 Act and the Rules and Regulations and did not or will
not at any such times contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, except that this representation and warranty
does not apply to statements in or omissions from the Registration Statement or
the Prospectus made in reliance upon and in conformity with information relating
to the Underwriters furnished to the Fund in writing by or on behalf of the
Underwriters expressly for use therein.
(c) All the outstanding shares of capital stock of the Fund have been
duly authorized and validly issued, are fully paid and nonassessable and are
free of any preemptive or similar rights; the Shares have been duly authorized
and, when issued and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will be validly issued, fully paid and
nonassessable and free of any preemptive or similar rights and will conform to
the description thereof in the Registration Statement and the Prospectus (and
any amendment or supplement to either of them); and the capital stock of the
Fund conforms to the description thereof in the Registration Statement and the
Prospectus (and any amendment or supplement to either of them).
(d) The Fund is a corporation duly organized and validly existing in
good standing under the laws of the State of Minnesota, with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus (and any
amendment or supplement to either of them), and is duly registered and qualified
to conduct its business and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its business requires such
registration or qualification; and the Fund has no subsidiaries.
(e) There are no legal or governmental proceedings pending or, to the
knowledge of the Fund, threatened, against the Fund, or to which the Fund or any
of its properties is subject, that are required to be described in the
Registration Statement or the Prospectus (and any amendment or supplement to
either of them), but are not described as required, and there are no
<PAGE> 8
8
agreements, contracts, indentures, leases or other instruments that are required
to be described in the Registration Statement or the Prospectus (and any
amendment or supplement to either of them), or to be filed as an exhibit to the
Registration Statement that are not described or filed as required by the 1933
Act, the 1940 Act or the Rules and Regulations.
(f) The Fund is not in violation of its Articles of Incorporation (the
"Articles"), the Statement or by-laws (the "By-Laws"), or other organizational
documents (together, the "Organizational Documents") of the Fund or of any law,
ordinance, administrative or governmental rule or regulation of any decree of
the Commission, the NASD, any state securities commission, any national
securities exchange, any arbitrator, any court or governmental agency, body or
official having jurisdiction over the Fund, or in default in any material
respect in the performance of any obligation, agreement or condition contained
in any bond, debenture, note or any other evidence of indebtedness or in any
material agreement, indenture, lease or other instrument to which the Fund is a
party or by which it or any of its properties may be bound.
(g) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement or any of the Fund Agreements by the
Fund, nor the consummation by the Fund of the transactions contemplated hereby
or thereby (A) requires any consent, approval, authorization or other order of
or registration or filing with, the Commission, the NASD, any state securities
commission, any national securities exchange, any arbitrator, any court,
regulatory body, administrative agency or other governmental body, agency or
official (except such as may have been obtained prior to the date hereof and
such as may be required for compliance with the state securities or blue sky
laws of various jurisdictions which have been or will be effected in accordance
with this Agreement) or conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, the Organizational Documents of the
Fund or (B) conflicts or will conflict with or constitutes or will constitute a
breach of, or a default under, any agreement, indenture, lease or other
instrument to which the Fund is a party or by which it or any of its properties
may be bound, or violates or will violate any statute, law, regulation or
judgment, injunction, order or decree applicable to the Fund or any of its
properties, or will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Fund pursuant to the terms of any
agreement or instrument to which it is a party or by which it may be bound or to
which any of its property or assets is subject. The Fund is not subject to any
order of any court or of any arbitrator, governmental authority or
administrative agency.
(h) The accountants, Ernst & Young, who have certified or shall certify
the financial statements included or incorporated by reference in the
Registration Statement and the Prospectus (or any amendment or supplement to
either of them), are independent public accountants as required by the 1933 Act,
the 1940 Act and the Rules and Regulations.
(i) The financial statements, together with related schedules and
notes, included or incorporated by reference in the Registration Statement and
the Prospectus (and any amendment or supplement to either of them), present
fairly the financial position, results of operations and changes in financial
position of the Fund on the basis stated or incorporated by reference in the
Registration Statement at the respective dates or for the respective periods to
which they apply; such statements and related schedules and notes have been
prepared in accordance with generally
<PAGE> 9
9
accepted accounting principles consistently applied throughout the periods
involved, except as disclosed therein; and the other financial and statistical
information and data included in the Registration Statement and the Prospectus
(and any amendment or supplement to either of them), are accurately presented
and prepared on a basis consistent with such financial statements and the books
and records of the Fund.
(j) The execution and delivery of, and the performance by the Fund of
its obligations under, this Agreement and the Fund Agreements have been duly and
validly authorized by the Fund, and this Agreement and the Fund Agreements have
been duly executed and delivered by the Fund and constitute the valid and
legally binding agreements of the Fund, enforceable against the Fund in
accordance with their terms, except as rights to indemnity and contribution
hereunder and thereunder may be limited by federal or state securities laws.
(k) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement to either of them),
the Fund has not incurred any liability or obligation, direct or contingent, or
entered into any transaction, not in the ordinary course of business, that is
material to the Fund, and there has not been any change in the capital stock, or
material increase in the short-term debt or long-term debt, of the Fund, or any
material adverse change, or any development involving or which may reasonably be
expected to involve, a prospective material adverse change, in the condition
(financial or other), business, prospects, properties, net assets or results of
operations of the Fund, whether or not arising in the ordinary course of
business.
(l) The Fund has filed all tax returns required to be filed, which
returns are complete and correct in all material respects, and the Fund is not
in material default in the payment of any taxes which were payable pursuant to
said returns or any assessments with respect thereto.
(m) The Fund is registered under the 1940 Act as a closed-end
diversified management investment company, and the 1940 Act Notification has
been duly filed with the Commission and, at the time of filing thereof and any
amendment or supplement thereto, conformed in all material respects with all
applicable provisions of the 1940 Act and the Rules and Regulations. The Fund
is, and at all times through the completion of the transactions contemplated
hereby, will be, in compliance in all material respects with the terms and
conditions of the 1933 Act and the 1940 Act. No person is serving or acting as
an officer, director or investment adviser of the Fund except in accordance with
the provisions of the 1940 Act and the Rules and Regulations and the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), and the rules and
regulations of the Commission promulgated under the Advisers Act (the "Advisers
Act Rules and Regulations").
(n) As required by Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"), the Fund is currently in compliance with the
requirements to qualify as a regulated investment company under the Code.
(o) The Fund's common shares are duly listed on the New York Stock
Exchange.
<PAGE> 10
10
(p) The Fund has not distributed and, prior to the later to occur of
(i) the Closing Date and (ii) completion of the distribution of the Shares, will
not distribute any offering material in connection with the offering and sale of
the Shares other than the Registration Statement, the Prepricing Prospectus, the
Prospectus or other materials, if any, permitted by the 1933 Act, the 1940 Act
or the Rules and Regulations.
(q) No holder of any security of the Fund has any right to require
registration of shares of common stock, shares of MuniPreferred or any other
security of the Fund because of the filing of the Registration Statement or
consummation of the transactions contemplated by this Agreement.
(r) The conduct by the Fund of its business (as described in the
Prospectus) does not require it to be the owner, possessor or licensee of any
patents, patent licenses, trademarks, service marks or trade names which it does
not own, possess or license.
(s) Except as stated in this Agreement and in the Prospectus (and any
amendment or supplement thereto), the Fund has not taken, nor will it take,
directly or indirectly, any action designed to or which might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
securities issued by the Fund to facilitate the sale or resale of the Shares,
and the Fund is not aware of any such action taken or to be taken by any
affiliates of the Fund.
(t) The Fund has filed in a timely manner each document or report
required to be filed by it pursuant to the 1940 Act, the 1940 Act Rules and
Regulations, the 1934 Act and the rules and regulations of the Commission
promulgated thereunder (the "1934 Act Rules and Regulations"); each such
document or report at the time it was filed conformed to the requirements of the
1934 Act and the 1934 Act Rules and Regulations; and none of such documents or
reports contained an untrue statement of any material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading.
(u) All advertising, sales literature or other promotional material
(including "prospectus wrappers," "broker kits," "road show slides" and "road
show scripts") authorized in writing by or prepared by the Fund or the Adviser
for use in connection with the offering and sale of the Shares (collectively,
"sales material") complied and comply in all material respects with the
applicable requirements of the 1933 Act, the 1940 Act, the Rules and Regulations
and the rules and interpretations of the NASD and no such sales material
contained or contains an untrue statement of a material fact or omitted or omits
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(v) The Fund has implemented a comprehensive, detailed program to
analyze and address the risk that its computer hardware and software may be
unable to recognize and properly execute date-sensitive functions involving
certain dates prior to and any dates after December 31,
<PAGE> 11
11
1999 (the "Year 2000 Problem") and has determined that its computer hardware and
software are and will be able to process all date information prior to and after
December 31,1999 without any errors, aborts, delays or other interruptions in
operations associated with the Year 2000 Problem; and the Fund believes, after
due inquiry, that each supplier, vendor, customer or financial service
organization used by the Fund has remedied or will remedy on a timely basis the
Year 2000 Problem, except to the extent that a failure to remedy by any such
supplier, vendor, customer or financial service organization would not have a
material adverse effect on the Fund. The Fund is in compliance with the
Commission's staff legal bulletin No. 5 dated January 12, 1998 related to Year
2000 compliance, as amended to date.
7. Representations and Warranties of the Adviser. The Adviser
represents and warrants to the Underwriters as follows:
(a) The Adviser is a corporation duly incorporated and validly existing
in good standing under the laws of the State of Delaware, with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus (and any
amendment or supplement to either of them), and is duly registered and qualified
to conduct its business and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its business requires such
registration or qualification.
(b) The Adviser is duly registered with the Commission as an investment
adviser under the Advisers Act and is not prohibited by the Advisers Act, the
Advisers Act Rules and Regulations, the 1940 Act or the 1940 Act Rules and
Regulations from acting under the Investment Management Agreement for the Fund
as contemplated by the Prospectus (or any amendment or supplement thereto).
There does not exist any proceeding or any facts or circumstances the existence
of which could lead to any proceeding which might adversely affect the
registration of the Adviser with the Commission.
(c) There are no legal or governmental proceedings pending or, to the
knowledge of the Adviser, threatened against the Adviser, or to which the
Adviser or any of its properties is subject, that are required to be described
in the Registration Statement or the Prospectus (or any amendment or supplement
to either of them), but are not described as required or that may reasonably be
expected to involve a prospective material adverse change, in the condition
(financial or other), business, prospects, properties, assets or results of
operations of the Adviser or on the ability of the Adviser to perform its
obligations under this Agreement and the Investment Management Agreement.
(d) The Adviser is not in violation of its corporate charter or
by-laws, or other organizational documents, in default under any agreement,
indenture or instrument or in breach or violation of any judgment, decree,
order, rule or regulation of any court or governmental or self-regulatory agency
or body.
(e) Neither the execution, delivery or performance of this Agreement or
the Investment Management Agreement by the Adviser, nor the consummation by the
Adviser of the
<PAGE> 12
12
transactions contemplated hereby or thereby (A) requires the Adviser to obtain
any consent, approval, authorization or other order of or registration or filing
with, the Commission, the NASD, any state securities commission, any national
securities exchange, any arbitrator, any court, regulatory body, administrative
agency or other governmental body, agency or official or conflicts or will
conflict with or constitutes or will constitute a breach of or a default under,
the corporate charter or by-laws, or other organizational documents, of the
Adviser or (B) conflicts or will conflict with or constitutes or will constitute
a breach of or a default under, any agreement, indenture, lease or other
instrument to which the Adviser is a party or by which it or any of its
properties may be bound, or violates or will violate any statute, law,
regulation or filing or judgment, injunction, order or decree applicable to the
Adviser or any of its properties or will result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Adviser
pursuant to the terms of any agreement or instrument to which it is a party or
by which it may be bound or to which any of the property or assets of the
Adviser is subject. The Adviser is not subject to any order of any court or of
any arbitrator, governmental authority or administrative agency.
(f) The execution and delivery of, and the performance by the Adviser
of its obligations under, this Agreement and the Investment Management Agreement
have been duly and validly authorized by the Adviser, and this Agreement and the
Investment Management Agreement have been duly executed and delivered by the
Adviser and each constitutes the valid and legally binding agreement of the
Adviser, enforceable against the Adviser in accordance with its terms.
(g) The Adviser has the financial resources available to it necessary
for the performance of its services and obligations as contemplated in the
Prospectus (or any amendment or supplement thereto) and under this Agreement and
the Investment Management Agreement.
(h) The description of the Adviser in the Registration Statement and
the Prospectus (and any amendment or supplement thereto) complied and comply in
all material respects with the provisions the 1933 Act, the 1940 Act, the
Advisers Act, the Rules and Regulations and the Advisers Act Rules and
Regulations and did not and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(i) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement to either of them),
the Adviser has not incurred any liability or obligation, direct or contingent,
or entered into any transaction, not in the ordinary course of business, that is
material to the Adviser or the Fund and that is required to be disclosed in the
Registration Statement or the Prospectus and there has not been any material
adverse change, or any development involving or which may reasonably be expected
to involve, a prospective material adverse change, in the condition (financial
or other), business, prospects, properties, assets or results of operations of
the Adviser, whether or not arising in the ordinary course of business, or
which, in each case, could
<PAGE> 13
13
have a material adverse effect on the ability of the Adviser to perform its
obligations under this Agreement and the Investment Management Agreement.
8. Indemnification and Contribution. (a) The Fund and the Adviser,
jointly and severally, agree to indemnify and hold harmless each of the
Underwriters and each person, if any, who controls the Underwriters within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation), joint or several, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Prepricing Prospectus or in the Registration Statement or the
Prospectus or in any amendment or supplement thereto, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to the
Underwriters furnished in writing to the Fund by or on behalf of the
Underwriters expressly for use in connection therewith; provided, however, that
the indemnification contained in this paragraph (a) with respect to any
Prepricing Prospectus shall not inure to the benefit of the Underwriters (or to
the benefit of any person controlling the Underwriters) on account of any such
loss, claim, damage, liability or expense arising from the sale of the Shares by
the Underwriters to any person if a copy of the Prospectus shall not have been
delivered or sent to such person within the time required by the 1933 Act and
the 1933 Act Rules and Regulations, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Prepricing Prospectus was corrected in the Prospectus, provided that the Fund
has delivered the Prospectus to the Underwriters in requisite quantity on a
timely basis to permit such delivery or sending. The foregoing indemnity
agreement shall be in addition to any liability which the Fund or the Adviser
may otherwise have.
(b) If any action, suit or proceeding shall be brought against the
Underwriters or any person controlling any Underwriter in respect of which
indemnity may be sought against the Fund or the Adviser, the Underwriters or
such controlling person shall promptly notify the Fund or the Adviser, and the
Fund or the Adviser shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. The Underwriters or any such
controlling person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of the Underwriters or
such controlling person unless (i) the Fund or the Adviser has agreed in writing
to pay such fees and expenses, (ii) the Fund and the Adviser have failed to
assume the defense and employ counsel, or (iii) the named parties to any such
action, suit or proceeding (including any impleaded parties) include both the
Underwriters or such controlling person and the Fund or the Adviser and the
Underwriters or such controlling person shall have been advised by its counsel
that representation of such indemnified party and the Fund or the Adviser by the
same counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the Fund and the Adviser shall not have the right to assume the defense of
such action, suit or proceeding on behalf of the
<PAGE> 14
14
Underwriters or such controlling person). It is understood, however, that the
Fund and the Adviser shall, in connection with any one such action, suit or
proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
the Underwriters and controlling persons not having actual or potential
differing interests with you or among themselves, which firm shall be designated
in writing by the Representative, and that all such fees and expenses shall be
reimbursed as they are incurred. The Fund and the Adviser shall not be liable
for any settlement of any such action, suit or proceeding effected without its
written consent, but if settled with such written consent, or if there be a
final judgment for the plaintiff in any such action, suit or proceeding, the
Fund and the Adviser agree to indemnify and hold harmless the Underwriters, to
the extent provided in the preceding paragraph, and any such controlling person
from and against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) The Underwriters agree, severally and not jointly, to indemnify and
hold harmless the Fund and the Adviser, their directors, any officers who sign
the Registration Statement, and any person who controls the Fund or the Adviser
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act,
to the same extent as the foregoing indemnity from the Fund and the Adviser to
the Underwriters, but only with respect to information relating to the
Underwriters furnished in writing by or on behalf of the Underwriters expressly
for use in the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto. If any action, suit or
proceeding shall be brought against the Fund or the Adviser, any of their
directors, any such officer, or any such controlling person based on the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto, and in respect of which indemnity may be sought
against the Underwriters pursuant to this paragraph (c), the Underwriters shall
have the rights and duties given to the Fund and the Adviser by paragraph (b)
above (except that if the Fund or the Adviser shall have assumed the defense
thereof the Underwriters shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the Underwriters' expense), and the Fund
and the Adviser, their directors, any such officer, and any such controlling
person shall have the rights and duties given to the Underwriters by paragraph
(b) above. The foregoing indemnity agreement shall be in addition to any
liability which the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Fund and the Adviser on the one hand (treated jointly for this purpose as one
person) and the Underwriters on the other hand from the offering of the Shares,
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Fund and the Adviser on the one hand
<PAGE> 15
15
(treated jointly for this purpose as one person) and the Underwriters on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Fund and the
Adviser on the one hand (treated jointly for this purpose as one person) and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Fund bear to the total sales load received by the Underwriters, in each case as
set forth in the table on the cover page of the Prospectus. The relative fault
of the Fund and the Adviser on the one hand (treated jointly for this purpose as
one person) and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Fund and the Adviser on the one hand
(treated jointly for this purpose as one person) or by the Underwriters on the
other hand and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
(e) The Fund, the Adviser and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 8 were determined
by a pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in paragraph (d) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 8, the Underwriters
shall not be required to contribute any amount in excess of the amount by which
the total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which the Underwriters have otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
(f) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Fund and the Adviser set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of the Underwriters or any person
controlling the Underwriters, the Fund, the Adviser, their directors or
officers, or any person controlling the Fund or the Adviser, (ii) acceptance of
<PAGE> 16
16
any Shares and payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to the Underwriters or any person controlling any
Underwriter, or to the Fund, the Adviser, their directors or officers, or any
person controlling the Fund or the Adviser, shall be entitled to the benefits of
the indemnity, contribution, and reimbursement agreements contained in this
Section 8.
9 Conditions of Underwriters' Obligations. The obligation of the
Underwriters to purchase the Shares hereunder are subject to the following
conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
Registration Statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by the
Underwriters, and all filings, if any, required by Rules 497 and 430A under the
1933 Act and the 1933 Act Rules and Regulations shall have been timely made; no
stop order suspending the effectiveness of the Registration Statement or order
pursuant to Section 8(e) of the 1940 Act shall have been issued and no
proceeding for those purposes shall have been instituted or, to the knowledge of
the Fund, the Adviser or the Underwriters, threatened by the Commission, and any
request of the Commission for additional information (to be included in the
registration statement or the prospectus or otherwise) shall have been complied
with to the Underwriters' satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall not
have occurred (i) any change or any development involving a prospective change
in or affecting the condition (financial or other), business, prospects,
properties, net assets, or results of operations of the Fund or the Adviser not
contemplated by the Prospectus, which in the Underwriters' opinion would
materially, adversely affect the market for the Shares, or (ii) any event or
development relating to or involving the Fund or the Adviser or any officer or
director of the Fund or the Adviser which makes any statement made in the
Prospectus untrue or which, in the opinion of the Fund and its counsel or the
Underwriters and their counsel, requires the making of any addition to or change
in the Prospectus in order to state a material fact required by the 1933 Act,
the 1940 Act or the Rules and Regulations or any other law to be stated therein
or necessary in order to make the statements therein not misleading, if amending
or supplementing the Prospectus to reflect such event or development would, in
the Underwriters' opinion, materially adversely affect the market for the
Shares.
(c) The Fund shall have furnished to the Representative a report
showing compliance with the asset coverage requirements of the 1940 Act and a
Basic Maintenance Report (as defined in the Statement), each dated the Closing
Date and in form and substance satisfactory to the Representative. Each such
report may use portfolio holdings and valuations as of the close of business of
any day not more than six business days preceding the Closing Date, provided,
however, that the Fund represents in such report that its total net assets as of
the Closing Date have not declined by 5% or more from such valuation date.
<PAGE> 17
17
(d) Morgan, Lewis & Bockius LLP, counsel to the Fund, shall have
furnished to the Representative on the Closing Date their opinion addressed to
the Underwriters and dated the Closing Date, to the effect that:
(i) The Fund has been duly organized and is validly existing and
in good standing as a corporation under the laws of the State of
Minnesota, with full corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus (and any amendment or
supplement to either of them), and is duly registered and qualified to
conduct its business and is in good standing in each jurisdiction or
place where the nature of its properties or the conduct of its business
requires such registration or qualification;
(ii) The Fund has no subsidiaries;
(iii) All of the outstanding shares of capital stock of the Fund
have been duly authorized and validly issued, are fully paid and
nonassessable and are free of any preemptive or similar rights;
(iv) The Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance
with the terms of the Underwriting Agreement, will be validly issued,
fully paid and nonassessable and free of any preemptive or similar
rights. Except as set forth in the Articles and the Statement, there
are no restrictions upon the transfer of any Shares pursuant to the
Articles or By-Laws of the Fund or any agreement or other outstanding
instrument known to such counsel; and the certificate evidencing the
Shares complies with all formal requirements of Minnesota law;
(v) The Shares conform in all material respects to the description
thereof in the Registration Statement and the Prospectus (and any
amendment or supplement to either of them) and the capital stock of the
Fund (including the MuniPreferred and any other outstanding series of
preferred stock) conforms in all material respects to the description
thereof in the Registration Statement and the Prospectus (and any
amendment or supplement to either of them); and the authorized and
outstanding capital stock of the Fund is as set forth in the
Prospectus;
(vi) The Registration Statement is effective under the 1933 Act
and the 1940 Act; any required filing of the Prospectus pursuant to
Rule 497 of the Rules and Regulations has been made within the time
periods required by Rule 497; to the best of such counsel's knowledge,
no stop-order suspending the effectiveness of the Registration
Statement or order pursuant to Section 8(e) of the 1940 Act has been
issued and no proceeding for any such purpose has been instituted or is
pending or threatened by the Commission;
<PAGE> 18
18
(vii) The 1940 Act Notification, the Registration Statement and
the Prospectus and each amendment or supplement to the Registration
Statement and the Prospectus as of their respective or issue dates
(except that no opinion need be expressed as to the financial
statements or other financial data contained therein) complied as to
form in all material respects with the requirements of the 1933 Act,
the 1940 Act and the Rules and Regulations;
(viii) The statements made in the Prospectus under the captions
"The Auction" and "Description of MuniPreferred", insofar as they
purport to summarize the provisions of the Statement or other documents
or agreements specifically referred to therein, constitute accurate
summaries of the terms of any such documents;
(ix) The statements made in the Prospectus under the caption
"Prospectus Summary-Taxation" and both captions entitled "Tax Matters",
insofar as they constitute matters of law or legal conclusions, have
been reviewed by such counsel and constitute accurate statements of any
such matters of law or legal conclusions, and fairly present the
information called for with respect thereto by Form N-2;
(x) To the best of such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Fund, or to
which the Fund or any of its properties is subject, that are required
to be described in the Registration Statement or the Prospectus (and
any amendment or supplement to either of them), but are not described
as required;
(xi) To the best of such counsel's knowledge, there are no
agreements, contracts, indentures, leases or other instruments that are
required to be described in the Registration Statement or the
Prospectus (and any amendment or supplement to either of them), or to
be filed as an exhibit to the Registration Statement that are not
described or filed as required by the 1933 Act, the 1940 Act or the
Rules and Regulations;
(xii) To the best of such counsel's knowledge, the Fund is not in
violation of its Articles, the Statement or its By-Laws, or other
organizational documents of the Fund or of any law, ordinance,
administrative or governmental rule or regulation, of any decree of the
Commission, the NASD, any state securities commission, any national
securities exchange, any arbitrator, any court or governmental agency,
body or official having jurisdiction over the Fund, or in default in
any material respect in the performance of any obligation, agreement or
condition contained in any bond, debenture, note or any other evidence
of indebtedness or in any material agreement, indenture, lease or other
instrument to which the Fund is a party or by which it or any of its
properties may be bound;
<PAGE> 19
19
(xiii) The Underwriting Agreement and the Fund Agreements have
each been duly and validly authorized, executed and delivered by the
Fund, each complies with all applicable provisions of the 1940 Act and
each constitutes the valid and legally binding agreement of the Fund,
enforceable against the Fund in accordance with its terms, except as
rights to indemnity and contribution under the Underwriting Agreement
and the Fund Agreements may be limited by federal or state securities
laws, subject as to enforcement to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles;
(xiv) The Fund is registered under the 1940 Act as a closed-end
diversified management investment company; the provisions of the
Articles, Statement and By-Laws of the Fund and the investment policies
and restrictions described in the Prospectus under the caption
"Prospectus Summary-Investment Objectives", "The Fund " and "Risk
Factors ", both captions entitled "Investment Objectives and Policies",
and the captions entitled "Municipal Bonds", "Portfolio Investments ",
"Insured Funds: Municipal Bond Insurance ", "Investment Restrictions "
and "Certain Trading Strategies of the Funds" comply with the
requirements of the 1940 Act;
(xv) To the best of such counsel's knowledge, no person is serving
or acting as an officer, director or investment adviser of the Fund
except in accordance with the provisions of the 1940 Act and the 1940
Act Rules and Regulations and the Investment Advisers Act and the
Advisers Act Rules and Regulations.
(xvi) Neither the issuance and sale of the Shares, the execution,
delivery or performance of the Underwriting Agreement or any of the
Fund Agreements by the Fund, nor the consummation by the Fund of the
transactions contemplated in the Underwriting Agreement or any of the
Fund Agreements (A) requires any consent, approval, authorization, or
other order of or registration or filing with, the Commission, the
NASD, any state securities commission, any national securities
exchange, any arbitrator, any court, regulatory body, administrative
agency or governmental body, agency or official (except such as may
have been obtained prior to the date hereof and such as may be required
for compliance with the state securities or blue sky laws of various
jurisdictions in accordance with the Underwriting Agreement) or
conflicts or will conflict with or constitutes or will constitute a
breach of, or a default under, the Organizational Documents of the Fund
or (B) conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, any agreement, indenture,
lease or other instrument to which the Fund is a party or by which it
or any of its properties may be bound, or violates or will violate any
statute, law, regulation or judgment, injunction, order or decree
applicable to the Fund or any of its properties, or will result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Fund pursuant to the terms of any agreement
or instrument to which it is a party or
<PAGE> 20
20
by which it may be bound or to which any of its property or assets is
subject. The Fund is not subject to any order of any court or of any
arbitrator, governmental authority or administrative agency;
(xvii) No holder of any security of the Fund has any right to
require registration of shares of common stock, shares of MuniPreferred
or any other security of the Fund because of the filing of the
Registration Statement or consummation of the transactions contemplated
by the Underwriting Agreement; and
(xviii) Such counsel shall also state that they have participated
in conferences with officers and employees of the Fund, representatives
of the independent accountants for the Fund, Minnesota counsel to the
Fund, the Underwriters and counsel for the Underwriters at which the
contents of the Registration Statement and the Prospectus and related
matters were discussed and, although they are not passing upon, and do
not assume any responsibility for, the accuracy, completeness or
fairness of the statements contained in the Registration Statement or
the Prospectus, except to the limited extent otherwise covered by
paragraphs (v), (vii), (viii), (ix) and (xiv), and have made no
independent check or verification thereof, and on the basis of the
foregoing, no facts have come to their attention that would have led
them to believe that the Registration Statement or any amendment or
supplement thereto, at the time it became effective, contained an
untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the statements
contained therein not misleading or that the Prospectus or any
amendment or supplement thereto, as of its issue date and as of the
Closing Date, contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact required to be stated
therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading, except
that they express no belief with respect to the financial statements,
schedules and other financial information and statistical data included
therein or excluded therefrom or the exhibits to the Registration
Statement, including the information under the caption "Taxable
Equivalent Yield Table" in Appendix A to the Prospectus.
Such opinion shall also contain a statement that such counsel has no
reason to believe that the 1940 Act Notification contains any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading.
In giving such opinion, Morgan, Lewis & Bockius LLP may rely on the
opinion of Dorsey & Whitney as to matters of Minnesota law, provided that
Morgan, Lewis & Bockius LLP furnish a copy thereof to the Underwriters and state
that such opinion is satisfactory in substance and form and that the
Underwriters and counsel for the Underwriters are entitled to rely thereon.
<PAGE> 21
21
(e) Gifford Zimmerman, Esq., Vice President and Secretary of the
Adviser, shall have furnished to the Representative on the Closing Date his
opinion addressed to the Underwriters and dated the Closing Date, to the effect
that:
(i) The Adviser has been duly organized and is validly existing
and in good standing as a corporation under the laws of the State of
Delaware, with full corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus (and any amendment or
supplement to either of them), and is duly registered and qualified to
conduct its business and is in good standing in each jurisdiction or
place where the nature of its properties or the conduct of its business
requires such registration or qualification;
(ii) The Adviser is duly registered and in good standing with the
Commission as an investment adviser under the Advisers Act and is not
prohibited by the Advisers Act, the Advisers Act Rules and Regulations,
the 1940 Act or the 1940 Act Rules and Regulations from acting under
the Investment Management Agreement for the Fund as contemplated by the
Prospectus (or any amendment or supplement thereto); there does not
exist any proceeding or any facts or circumstances the existence of
which could lead to any proceeding which might adversely affect the
registration of the Adviser with the Commission;
(iii) To the best of such counsel's knowledge, there are no legal
or governmental proceedings pending or threatened against the Adviser,
or to which the Adviser or any of its properties is subject, that are
required to be described in the Registration Statement or the
Prospectus (or any amendment or supplement to either of them), but are
not described as required or that may reasonably be expected to involve
a prospective material adverse change, in the condition (financial or
other), business, prospects, properties, assets or results of
operations of the Adviser or on the ability of the Adviser to perform
its obligations under the Underwriting Agreement and the Investment
Management Agreement;
(iv) To the best of such counsel's knowledge, the Adviser is not
in violation of its corporate charter or by-laws, or other
organizational documents, nor is the Adviser in default under any
agreement, indenture or instrument or in breach or violation of any
judgment, decree, order, rule or regulation of any court or
governmental or self-regulatory agency or body;
(v) The Underwriting Agreement and the Investment Management
Agreement have each been duly and validly authorized, executed and
delivered by the Adviser, each complies with all applicable provisions
of the 1940 Act and the Advisers Act and the 1940 Act Rules and
Regulations and the Advisers Act Rules and Regulations and each
constitutes the valid and legally binding agreement of the Adviser,
enforceable against the Adviser in accordance with its terms, subject
as to
<PAGE> 22
22
enforcement to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to
general equity principles;
(vi) The description of the Adviser in the Registration Statement
and the Prospectus (and any amendment or supplement thereto) complied
and comply in all material respects with the provisions of the 1933
Act, the 1940 Act, the Advisers Act, the Rules and Regulations and the
Advisers Act Rules and Regulations and did not and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(vii) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them),
subsequent to the respective dates as of which such information is
given in the Registration Statement and the Prospectus (or any
amendment or supplement to either of them), the Adviser has not
incurred any liability or obligation, direct or contingent, or entered
into any transaction, not in the ordinary course of business, that is
material to the Adviser or the Fund and that is required to be
disclosed in the Registration Statement or the Prospectus and there has
not been any material adverse change, or any development involving or
which may reasonably be expected to involve, a prospective material
adverse change, in the condition (financial or other), business,
prospects, properties, assets or results of operations of the Adviser,
whether or not arising in the ordinary course of business, or which, in
each case, could have a material adverse effect on the ability of the
Adviser to perform its obligations under the Underwriting Agreement and
the Investment Management Agreement; and
(viii) Neither the execution, delivery or performance of the
Underwriting Agreement or the Investment Management Agreement by the
Adviser, nor the consummation by the Adviser of the transactions
contemplated in the Underwriting Agreement or the Investment Management
Agreement (A) requires the Adviser to obtain any consent, approval,
authorization or other order of or registration or filing with, the
Commission, the NASD, any state securities commission, any national
securities exchange, any arbitrator, any court, regulatory body,
administrative agency or other governmental body, agency or official or
conflicts or will conflict with or constitutes or will constitute a
breach of or a default under, the corporate charter or by-laws, or
other organizational documents, of the Adviser or (B) conflicts or will
conflict with or constitutes or will constitute a breach of or a
default under, any agreement, indenture, lease or other instrument to
which the Adviser is a party or by which it or any of its properties
may be bound, or violates or will violate any statute, law, regulation
or filing or judgment, injunction, order or decree applicable to the
Adviser or any of its properties or will result in the creation or
imposition of any lien, charge or encumbrance upon any
<PAGE> 23
23
property or assets of the Adviser pursuant to the terms of any
agreement or instrument to which it is a party or by which it may be
bound or to which any of the property or assets of the Adviser is
subject. The Adviser is not subject to any order of any court or of any
arbitrator, governmental authority or administrative agency.
(f) The Representative shall have received on the Closing Date an
opinion of Simpson Thacher & Bartlett, counsel for the Underwriters, dated the
Closing Date and addressed to the Underwriters, with respect to such matters as
the Underwriters may reasonably request.
(g) The Fund shall have furnished to the Representative on the Closing
Date a certificate, dated the Closing Date, of its President or a Vice President
and its Controller or Treasurer stating that:
(i) The representations, warranties and agreements of the Fund in
Section 6 hereof are true and correct as of the Closing Date; the Fund
has complied with all its agreements contained herein; and the
conditions set forth in Section 9(a) have been fulfilled; and
(ii) They have carefully examined the Registration Statement and
the Prospectus and, in their opinion, (A) as of the date of its
effectiveness (or the most recent post-effective amendment thereto),
the Registration Statement did not include any untrue statement of a
material fact and did not omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading and on such Closing Date, the Prospectus did not include any
untrue statement of a material fact and did not omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, and (B) since the date of effectiveness of the
Registration Statement (or the most recent post-effective amendment
thereto), no event has occurred which should have been set forth in a
supplement to or amendment of the Prospectus which has not been set
forth in such a supplement or amendment.
(h) The Adviser shall have furnished to the Representative on the
Closing Date a certificate, dated the Closing Date, of its Chairman of the
Board, President or a Vice President and its Controller or Treasurer stating
that:
(i) The representations, warranties and agreements of the Adviser
in Sections 6 and 7 hereof are true and correct as of such Closing Date
and the Adviser has complied with all its agreements contained herein;
and
(ii) They have carefully examined the Registration Statement and
the Prospectus and, in their opinion, (A) as of the date of its
effectiveness (or the most recent post-effective amendment thereto),
the Registration Statement did not include any untrue statement of a
material fact and did not omit to state any material fact
<PAGE> 24
24
required to be stated therein or necessary to make the statements
therein not misleading and on such Closing Date, the Prospectus did not
include any untrue statement of a material fact and did not omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading, and (B) since the date of its
effectiveness, (or the most recent post-effective amendment thereto)
the Registration Statement, no event has occurred which should have
been set forth in a supplement to or amendment of the Prospectus which
has not been set forth in such a supplement or amendment.
(i) The Representative shall have received letters addressed to the
Underwriters, and dated the date hereof and the Closing Date from Ernst &
Young, independent certified public accountants, substantially in the forms
heretofore approved by the Representative.
(j) Subsequent to the date of effectiveness of the Registration
Statement (or the most recent post-effective amendment thereto), there shall
not have occurred any change, or any development involving a prospective
change, in or affecting particularly the business or financial affairs of
the Fund or the Adviser which, in the opinion of the Underwriters, would
materially and adversely affect the market for the Shares.
(k) (i) No order suspending the effectiveness of the Registration
Statement or prohibiting or suspending the use of the Prospectus (or any
amendment or supplement thereto) or any Prepricing Prospectus or any sales
material shall have been issued and no proceedings for such purpose or for the
purpose of commencing an enforcement action against the Fund, the Adviser or,
with respect to the transactions contemplated by the Prospectus (or any
amendment or supplement thereto) and this Agreement, the Underwriters, may be
pending before or, to the knowledge of the Fund, the Adviser or the Underwriters
or in the reasonable view of counsel to the Underwriters, shall be threatened or
contemplated by the Commission at or prior to the Closing Date and that any
request for additional information on the part of the Commission (to be included
in the Registration Statement, the Prospectus or otherwise) be complied with to
the satisfaction of the Underwriters; (ii) there shall not have been any change
in the capital stock of the Fund nor any material increase in the short-term or
long-term debt of the Fund (other than in the ordinary course of business) from
that set forth or contemplated in the Registration Statement or the Prospectus
(or any amendment or supplement thereto); (iii) there shall not have been,
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto), except as may otherwise be stated in the Registration Statement and
Prospectus (or any amendment or supplement thereto), any material adverse change
in the condition (financial or other), business, prospects, properties, net
assets or results of operations of the Fund or the Adviser; (iv) the Fund shall
not have any liabilities or obligations, direct or contingent (whether or not in
the ordinary course of business), that are material to the Fund, other than
those reflected in the Registration Statement or the Prospectus (or any
amendment or supplement to either of them); and (v) all the representations and
warranties of the Fund and the Adviser contained in this Agreement shall be true
and correct
<PAGE> 25
25
on and as of the date hereof and on and as of the Closing Date as if made on and
as of the Closing Date.
(l) Neither the Fund nor the Adviser shall have failed at or prior to
the Closing Date to have performed or complied in all material respects with any
of its agreements herein contained and required to be performed or complied with
by it hereunder at or prior to the Closing Date.
(m) The Fund shall have delivered and the Underwriters shall have
received evidence satisfactory to the Representative that the shares of
MuniPreferred are rated `aaa' by Moody's and AAA by S&P as of the Closing Date,
and there shall not have been given any notice of any intended or potential
downgrading, or of any review for a potential downgrading, in the rating
accorded to any outstanding shares of capital stock of the Fund by any Rating
Agency.
(n) The Fund and the Adviser shall have furnished or caused to be
furnished to the Underwriters such further certificates and documents as the
Representative shall have reasonably requested.
(o) The issuance of the Shares will not impair the rating for any
outstanding shares of capital stock of the Fund .
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to the Representative and the Underwriters' counsel.
Any certificate or document signed by any officer of the Fund or the
Adviser and delivered to the Underwriters, or to counsel for the Underwriters,
shall be deemed a representation and warranty by the Fund or the Adviser to the
Underwriters as to the statements made therein.
10 Expenses. The Fund agrees to pay the costs incident to the
authorization, issuance, sale and delivery of the Shares to be sold by the Fund
to the Underwriters and any taxes payable in that connection; the costs incident
to the preparation, printing and filing under the 1933 Act and 1940 Act of the
Registration Statement and any amendments and exhibits thereto; the costs of
preparing, printing and distributing the Registration Statement as originally
filed and each amendment and any post-effective amendment thereto (including
exhibits), any Prepricing Prospectus, the Prospectus and any amendment or
supplement to the Prospectus; the costs of printing this Agreement and
distributing the terms of agreements relating to the organization of any
underwriting syndicate by mail, telex or other means of communication; the fees
paid to Rating Agencies in connection with the rating of the Shares; the fees
and expenses of qualifying the Shares under the securities laws of the several
jurisdictions as provided in this Section and of preparing and printing a blue
sky survey (including related fees and expenses of counsel to the Underwriters);
the fees and expenses of the Auction Agent as set forth in the Auction Agency
Agreement; and all other costs and expenses incident to the performance of the
obligations of the Fund under this Agreement; provided that (i) the Fund, the
Adviser and each Underwriter shall
<PAGE> 26
26
pay its own costs and expenses in attending any information meeting relating to
the Fund, (ii) each Underwriter shall pay the costs and expenses of any sales
material prepared by it in connection with the public offering of the Shares,
(iii) the Underwriters shall pay the costs and expenses of any "tombstone"
advertisements, and (iv) except as provided in this Section and in Section 5
hereof, the Underwriters shall pay their own costs and expenses, including the
fees and expenses of their counsel and any transfer taxes on the Shares which
they may sell.
If notice shall have been given pursuant to Paragraph 12 terminating
the Underwriters' obligations hereunder, or if the sale of the Shares provided
for herein is not consummated because of any failure, refusal or inability on
the part of the Fund or Adviser to perform any agreement on its part to be
performed or if the Underwriters shall decline to purchase the Shares for any
reason permitted under this Agreement, the Fund shall reimburse the Underwriters
for the fees and expenses of their counsel and for such other out-of-pocket
expenses as shall have been incurred by them in connection with this Agreement
and the proposed purchase of the Shares, and upon demand the Fund shall pay the
full amount thereof to the Underwriters; it being understood that the Fund shall
not in any event be liable to any of the Underwriters for damages on account of
loss of anticipated profits from the sale by them of the Shares. If the Fund
fails to reimburse the Underwriters for such fees and expenses, the Adviser
shall upon demand, pay the full amount thereof to the Underwriters.
11 Effective Date of Agreement. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
Registration Statement or a post-effective amendment thereto to be declared
effective before the offering of the Shares may commence, when notification of
the effectiveness of the Registration Statement or such post-effective amendment
has been released by the Commission. Until such time as this Agreement shall
have become effective, it may be terminated by the Fund, by notifying the
Underwriters, or by the Underwriters, by notifying the Fund.
If either of the Underwriters shall fail or refuse to purchase Shares
which it is obligated to purchase hereunder on the Closing Date, and the
aggregate number of Shares which such defaulting Underwriter is obligated but
fails or refuses to purchase is not more than one-tenth of the aggregate number
of Shares which the Underwriters are obligated to purchase on the Closing Date,
the non-defaulting Underwriter shall be obligated to purchase the Shares which
such defaulting Underwriter is obligated, but fails or refuses, to purchase. If
either of the Underwriters shall fail or refuse to purchase Shares which it is
obligated to purchase on the Closing Date and the number of Shares with respect
to which such default occurs is more than one-tenth of the aggregate number of
Shares which the Underwriters are obligated to purchase on the Closing Date and
arrangements satisfactory to the Representative and the Fund for the purchase of
such Shares by the non-defaulting Underwriter or other party or parties approved
by you and the Fund are not made within 36 hours after such default, this
Agreement will terminate without liability on the part of the non-defaulting
Underwriter or the Fund. In any such case which does not result in termination
of this Agreement, either the Representative or the Fund shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and the
Prospectus or any other
<PAGE> 27
27
documents or arrangements may be effected. Any action taken under this paragraph
shall not relieve the defaulting Underwriter from liability in respect of any
such default of any such Underwriter under this Agreement. The term
"Underwriter" as used in this Agreement includes, for all purposes of this
Agreement, any party not listed in Schedule I hereto who, with your approval and
the approval of the Fund, purchases Shares which a defaulting Underwriter is
obligated, but fails or refuses, to purchase.
Any notice under this Section 11 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
12 Termination of Agreement. This Agreement shall be subject to
termination in the Representative's absolute discretion, without liability on
the part of the Underwriters to the Fund or the Adviser, by notice to the Fund
or the Adviser, if prior to the Closing Date (i) trading in securities generally
on the New York Stock Exchange, the American Stock Exchange or the Nasdaq
National Market shall have been suspended or materially limited, (ii) a general
moratorium on commercial banking activities in New York shall have been declared
by either federal or state authorities, or (iii) there shall have occurred any
outbreak or escalation of hostilities or other international or domestic
calamity, crisis or change in political, financial or economic conditions, the
effect of which on the financial markets of the United States is to make it, in
the Representative's judgment, impracticable or inadvisable to commence or
continue the offering of the Shares at the offering price to the public set
forth on the cover page of the Prospectus or to enforce contracts for the resale
of the Shares by the Underwriters. Notice of such termination may be given to
the Fund by telegram, telecopy or telephone and shall be subsequently confirmed
by letter.
13 Information Furnished by the Underwriters. The statements set forth
in the first and third paragraphs under the caption "Underwriting" in any
Prepricing Prospectus and in the Prospectus, constitute the only information
furnished by or on behalf of the Underwriters as such information is referred to
in Sections 6(b) and 8 hereof.
14 Miscellaneous. Except as otherwise provided in Sections 5, 11 and 12
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Fund or the Adviser, at the office
of the Fund at 333 West Wacker Drive, Chicago, IL 60606, Attention: Gifford R.
Zimmerman, Vice President and Secretary; or (ii) if to the Underwriters, to
Salomon Smith Barney Inc, 388 Greenwich Street, New York, New York 10013,
Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Fund, the Adviser, their directors and officers, and the other
controlling persons referred to in Section 8 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from the Underwriters of any of the Shares in his
status as such purchaser.
<PAGE> 28
28
15 Applicable Law; Counterparts. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
[End of Text]
<PAGE> 29
Please confirm that the foregoing correctly sets forth the agreement
among the Fund, the Adviser and the Underwriters.
Very truly yours,
NUVEEN INSURED MUNICIPAL
OPPORTUNITY FUND, INC.
By:
---------------------------------------
Name:
Title :
NUVEEN ADVISORY CORP.
By:
---------------------------------------
Name:
Title :
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
SALOMON SMITH BARNEY INC.
By:
-------------------------------------------
Name:
Title :
For itself and the other Underwriters
named in Schedule I to the foregoing
Agreement
<PAGE> 30
SCHEDULE I
NUVEEN INSURED MUNICIPAL OPPORTUNITY FUND, INC.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ------
<S> <C>
Salomon Smith Barney Inc.................................
A.G. Edwards & Sons, Inc.................................
BT Alex. Brown...........................................
Goldman, Sachs & Co......................................
John Nuveen and Co., Incorporated........................
Legg Mason Wood Walker Incorporated......................
PainWebber Incorporated..................................
Prudential Securities....................................
Raymond James & Associates, Inc..........................
Total....................................................
</TABLE>
<PAGE> 1
EXHIBIT 99.2j.3
[THE CHASE MANHATTAN BANK, N.A. LETTERHEAD]
April 16, 1996
Mr. Giff Zimmerman
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606
Dear Giff:
On September 2, 1995, The United States Trust Company of New York (UST) was
merged into Chase Manhattan Bank, N.A. (Chase). As a result of this
transaction, Chase succeeded by operation of law, all rights and
responsibilities of UST under all Transfer Agency, Custodian and Fund
Accounting agreements between US Trust and John Nuveen & Co.'s managed
investment companies.
Sincerely,
/s/ ANDREW M. MASSA
Andrew M. Massa
Vice President
<PAGE> 1
EXHIBIT 99.2l.1
[MLB LETTERHEAD]
Nuveen Insured Municipal Opportunity Fund, Inc.
333 West Wacker Drive
Chicago, IL 60606
RE: NUVEEN INSURED MUNICIPAL OPPORTUNITY FUND, INC.
REGISTRATION STATEMENT ON FORM N-2
(REGISTRATION NOS. 333-75987 AND 811-06379)
Ladies and Gentlemen:
We are acting as counsel for Nuveen Insured Municipal Opportunity Fund,
Inc. (the "Fund"), in connection with the Fund's filing of a registration
statement on Form N-2 (the "Registration Statement") with the Securities and
Exchange Commission covering the registration of 3,240 authorized but unissued
shares of Municipal Auction Rate Cumulative Preferred Stock, of Series W2, $.01
par value per share, with a liquidation preference of $25,000 per share, of the
Fund (the "MuniPreferred"). In that capacity, we have examined such corporate
records, certificates and other documents, and have made such other factual and
legal investigations as we have deemed necessary and appropriate for the
purposes of this opinion. Insofar as this opinion pertains to matters governed
by the laws of the State of Minnesota, we are relying with your consent, upon
the opinion of Dorsey & Whitney dated _____, 1999, which opinion is satisfactory
in substance and form to us.
Based upon the foregoing, it is our opinion that:
(1) The Fund is validly existing as a corporation in good standing under
the laws of the State of Minnesota.
(2) The MuniPreferred, when issued and delivered by the Fund pursuant to
and upon satisfaction of the conditions in, the Purchase Agreement against
payment of the consideration set forth therein, will be legally issued, fully
paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 1.1 to the
Registration Statement and to the reference to us under the caption "Legal
Opinions" in the prospectus contained in the Registration Statement.
Very truly yours,
MORGAN LEWIS & BOCKIUS LLP
<PAGE> 1
[ARTICLE] 6
[LEGEND]
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
[/LEGEND]
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-31-1998
[INVESTMENTS-AT-COST] 1722730
[INVESTMENTS-AT-VALUE] 1888524
[RECEIVABLES] 39049
[ASSETS-OTHER] 117
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1927690
[PAYABLE-FOR-SECURITIES] 26880
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8222
[TOTAL-LIABILITIES] 35102
[SENIOR-EQUITY] 600000
[PAID-IN-CAPITAL-COMMON] 1121669
[SHARES-COMMON-STOCK] 80588
[SHARES-COMMON-PRIOR] 79981
[ACCUMULATED-NII-CURRENT] 1000
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 4126
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 165794
[NET-ASSETS] 1892589
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 111523
[OTHER-INCOME] 0
[EXPENSES-NET] 14453
[NET-INVESTMENT-INCOME] 97070
[REALIZED-GAINS-CURRENT] 4892
[APPREC-INCREASE-CURRENT] 17253
[NET-CHANGE-FROM-OPS] 119215
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 77561
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 607
[NET-CHANGE-IN-ASSETS] 30818
[ACCUMULATED-NII-PRIOR] 2134
[ACCUMULATED-GAINS-PRIOR] (766)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 11495
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 14453
[AVERAGE-NET-ASSETS] 1876874
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 0
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
EXHIBIT 99.2s
NUVEEN LEVERAGED EXCHANGE-TRADED FUNDS
POWER OF ATTORNEY
RE
PREFERRED STOCK
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director/trustee of each
of the closed-end investment companies listed on Attachment A, hereby
constitutes and appoints TIMOTHY R. SCHWERTFEGER, ANTHONY T. DEAN, GIFFORD R.
ZIMMERMAN, ALAN G. BERKSHIRE and LARRY W. MARTIN and each of them (with full
power to each of them to act alone) his true and lawful attorney-in-fact and
agent, for her on her behalf and in her name, place and stead, in any and all
capacities, to sign and file one or more Registration Statements relating to
shares of preferred stock on Form N-2 under the Securities Act of 1933 and the
Investment Company Act of 1940, including any amendment or amendments thereto,
with all exhibits, and any and all other documents required to be filed with any
regulatory authority, federal or state, relating to the registration thereof, or
the issuance of preferred shares thereof, without limitation, granting unto said
attorneys, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
in order to effectuate the same as fully to all intents and purposes as she
might or could do if personally present, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, may lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director/trustee of the listed
organizations has hereunto set her hand this 12th day of March, 1999.
/s/ Anne E. Impellizzeri
------------------------------
Anne E. Impellizzeri
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 12th day of March, 1999, personally appeared before me, a Notary Public
in and for said County and State, the person named above who is known to me to
be the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be her voluntary act and deed for the
intent and purposes therein set forth.
"OFFICIAL SEAL"
Virginia L. Corcoran /s/ Virginia L. Corcoran
Notary Public, State of Illinois ------------------------
My Commission Expires: 10/27/01 Notary Public
<PAGE> 2
NUVEEN LEVERAGED EXCHANGE-TRADED FUNDS
POWER OF ATTORNEY
RE
PREFERRED STOCK
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director/trustee of
each of the closed-end investment companies listed on Attachment A, hereby
constitutes and appoints TIMOTHY R. SCHWERTFEGER, ANTHONY T. DEAN, GIFFORD R.
ZIMMERMAN, ALAN G. BERKSHIRE and LARRY W. MARTIN and each of them (with full
power to each of them to act alone) his true and lawful attorney-in-fact and
agent, for her on her behalf and in her name, place and stead, in any and all
capacities, to sign and file one or more Registration Statements relating to
shares of preferred stock on Form N-2 under the Securities Act of 1933 and the
Investment Company Act 1940, including any amendment or amendments thereto,
with all exhibits and any and all other documents required to be filed with any
regulatory authority, federal or state, relating to the registration thereof, or
the issuance of preferred shares thereof, without limitation, granting unto said
attorneys, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises in order to effectuate the same as fully to all intents and purposes
as she might or could do if personally present, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director/trustee of the listed
organizations has hereunto set her hand this 10th day of March, 1999.
/s/ Judith M. Stockdale
--------------------------
Judith M. Stockdale
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 10th day of March, 1999, personally appeared before me, a Notary Public
in and for said County and State, the person named above who is known to me to
be the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be her voluntary act and deed for the
intent and purposes therein set forth.
"OFFICIAL SEAL"
Virginia L. Corcoran /s/ Virginia L. Corcoran
Notary Public, State of Illinois -------------------------------
My Commission Expires: 10/27/01 Notary Public
<PAGE> 3
ATTACHMENT A
Nuveen Performance Plus Municipal Fund, Inc.
Nuveen California Performance Plus Municipal Fund, Inc.
Nuveen New York Performance Plus Municipal Fund, Inc.
Nuveen Insured Municipal Opportunity Fund, Inc.
Nuveen Municipal Market Opportunity Fund, Inc.
Nuveen California Municipal Market Opportunity Fund, Inc.
Nuveen Municipal Advantage Fund, Inc.
Nuveen Insured Quality Municipal Fund, Inc.
Nuveen Premium Income Municipal Fund, Inc.
Nuveen Investment Quality Municipal Fund, Inc.
Nuveen Florida Investment Quality Municipal Fund
Nuveen Pennsylvania Investment Quality Municipal Fund
Nuveen Premium Income Municipal Fund 2, Inc.
Nuveen California Select Quality Municipal Fund, Inc.
Nuveen New York Select Quality Municipal Fund, Inc.
Nuveen Select Quality Municipal Fund, Inc.
Nuveen California Quality Income Municipal Fund, Inc.
Nuveen New York Quality Income Municipal Fund, Inc.
Nuveen New Jersey Investment Quality Municipal Fund, Inc.
Nuveen California Investment Quality Municipal Fund, Inc.
Nuveen New York Investment Quality Municipal Fund, Inc.
Nuveen Quality Income Municipal Fund, Inc.
Nuveen Florida Quality Income Municipal Fund, Inc.
Nuveen Michigan Quality Income Municipal Fund, Inc.
Nuveen Texas Quality Income Municipal Fund, Inc.
Nuveen Premier Insured Municipal Income Fund, Inc.
Nuveen Premier Municipal Income Fund, Inc.
Nuveen Premium Income Municipal Fund 4, Inc.
Nuveen Insured Premium Income Municipal Fund 2
<PAGE> 4
Assistant Secretary's Certificate
The undersigned, Karen L. Healy, hereby certifies that she is a duly elected
and acting Assistant Secretary of the Nuveen Exchange-Traded Funds and that the
following resolution was duly adopted by the Board of Directors at a meeting
duly called and held on December 18, 1998, at which meeting a quorum was
present and acting throughout, and that such resolution has not been amended,
modified or rescinded and remains in full force and effect:
RESOLVED, that each director or officer of the Fund who may be
required to execute any registration statement on Form N-2, or
any amendment or amendments thereto, be, and each of them hereby
is, authorized to execute a power of attorney appointing Timothy
R. Schwertfeger, Anthony T. Dean, Alan G. Berkshire, Larry W.
Martin, Gifford R. Zimmerman, and Thomas S. Harman, and each of
them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign the
registration statement, and any and all amendments thereto, and
to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he
might or could do in person, and ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
/s/ Karen L. Healy
-----------------------------------
Karen L. Healy, Assistant Secretary
Dated: April 20, 1999
