<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OR ABOUT MAY 4, 1999
REGISTRATION NOS.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
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REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
NUVEEN PREMIUM INCOME
MUNICIPAL FUND 4, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (312) 917-
COPY TO:
<TABLE>
<S> <C>
GIFFORD R. ZIMMERMAN DAVID A. STURMS
JOHN NUVEEN & CO. INCORPORATED VEDDER, PRICE, KAUFMAN & KAMMHOLZ
333 WEST WACKER DRIVE 222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60606 CHICAGO, ILLINOIS 60601
(NAME AND ADDRESS OF AGENT FOR SERVICE)
</TABLE>
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
NUVEEN LOGO
TWO NEW WAYS TO VOTE . . . IT'S EASIER THAN EVER!
In addition to the option of mailing your proxy card, there are now two other
ways to vote your proxy -- by telephone and by computer over the Internet.
Either way will save you time and helps reduce your fund's expenses. It's fast,
convenient, and your vote is immediately confirmed and posted. So after you read
the enclosed proxy statement, have your proxy cards handy and vote by telephone
or over the Internet!
BY TELEPHONE
Call the toll-free number listed on your proxy card.
Enter your 12-digit control number located on the right portion of your proxy
card.
Follow the simple recorded instructions.
OVER THE INTERNET
Go to www.proxyvote.com
Enter your 12-digit control number located on the right portion of your proxy
card.
Follow the simple instructions.
If you vote by telephone or over the Internet, you do not need to mail the proxy
card.
<PAGE> 3
NUVEEN LOGO
IMPORTANT INFORMATION FOR
NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, INC. AND
NUVEEN WASHINGTON PREMIUM INCOME MUNICIPAL FUND SHAREHOLDERS
The Nuveen Premium Income Municipal Fund 4, Inc. ("Premium Income 4") will host
its Annual Meeting of Shareholders jointly with the Nuveen Washington Premium
Income Municipal Fund ("Washington Premium" and together with Premium Income 4
the "Funds"), which will host a Special Meeting of Shareholders, on Wednesday,
July 28, 1999, at 10:30 a.m., Chicago time in the Grand Ballroom of the
Inter-Continental Hotel, 505 North Michigan Avenue, Chicago, Illinois (the
"Joint Meeting"). The purpose of the Joint Meeting is for both Funds to vote on
a reorganization of the Funds. The shareholders of Premium Income 4 will also
vote on an amendment to its charter and to elect directors and ratify the
selection of independent auditors.
The first few pages of this booklet summarize Nuveen's proposal and explain the
proxy process -- including how to cast your votes. Before you vote, please read
the full text of the proxy statement for a complete understanding of each
proposal.
Q. WHAT ARE SHAREHOLDERS OF THE FUNDS BEING ASKED TO VOTE ON AT THE UPCOMING
JOINT MEETING ON JULY 28, 1999?
A. The Board of Directors of Premium Income 4 and the Board of Trustees of
Washington Premium (collectively, the "Board") have called a Joint Meeting of
Shareholders for July 28, 1999 at which common and preferred shareholders of
Washington Premium and preferred shareholders of Premium Income 4 will be
asked to vote on a reorganization (the "Reorganization") of Washington
Premium into Premium Income 4.
Q. WHAT ELSE ARE SHAREHOLDERS OF PREMIUM INCOME 4 BEING ASKED TO VOTE ON AT THE
JOINT MEETING?
A. Common and preferred shareholders of Premium Income 4 will be asked to
approve an amendment to the Fund's Statement Establishing and Fixing the
Rights and Preferences of Municipal Auction Rate Cumulative Preferred Stock
("MuniPreferred") so that 10,000 shares of each series of Premium Income 4
MuniPreferred shares are authorized. If the amendment is approved, additional
shares of Premium Income 4, Series TH will be issued to holders of Series TH
MuniPreferred of Washington Premium in connection with the Reorganization. If
the amendment is not approved, shares of a newly created Series TH2 will be
issued in connection with the Reorganization. We believe that the amendment
would give the Fund the flexibility to issue additional shares of
MuniPreferred to adjust the Fund's leverage structure in response to market
conditions without the further need of amending the Fund's charter.
Q. ARE THERE ANY DIFFERENCES BETWEEN THE FUNDS?
A. Premium Income 4 is substantially the same as Washington Premium in its
philosophy, investment objectives and policies and day-to-day portfolio
management. The primary difference between the Funds is that Premium Income 4
invests in municipal bonds issued nationwide and Washington Premium invests
substantially all of its assets in municipal bonds issued by issuers from the
State of Washington.
Q. WHAT ADVANTAGES WILL THIS PRODUCE FOR FUND SHAREHOLDERS?
A. We expect the proposed Reorganization to (i) reduce management fees per
share, (ii) lower administrative expenses, (iii) increase efficiency and
flexibility in portfolio management and (iv) create a more liquid trading
market for common shares of the combined Fund. Given the relative sizes of
the Funds, Washington Premium would significantly benefit from the
Reorganization. The larger combined Fund would have a significantly larger
asset base than Washington Premium has currently. Based on data presented by
management of the Funds, the Board believes that administrative expenses of a
larger combined Fund comprised of the assets of both Funds would be less than
the aggregate expenses of Washington Premium, resulting in a lower expense
ratio for the combined Fund and corresponding higher earnings for its common
shareholders. The same is true, to a much lesser extent, for Premium Income
4. In addition, Premium Income 4 should see a slight increase in the credit
quality of its overall portfolio.
<PAGE> 4
Q. HAS THE BOARD APPROVED THE PROPOSAL?
A. The Board has agreed unanimously that this Reorganization is in your best
interests and recommends that you vote in favor of it.
Q. WHAT IS THE TIMETABLE FOR THE REORGANIZATION?
A. If approved by shareholders on July 28, 1999, the Reorganization is expected
to take effect on August 13, 1999.
Q. WILL WASHINGTON FUND SHAREHOLDERS RECEIVE NEW SHARES IN EXCHANGE FOR THEIR
CURRENT SHARES?
A. Yes. Upon approval and completion of the Reorganization, Washington Premium
common shareholders will receive shares equal to the same net asset value of
their current shares. Common shareholders of Washington Premium will exchange
their shares for shares of Premium Income 4 based upon a specified exchange
ratio determined by the ratio of the respective net asset values of the
Funds. Washington Premium shareholders will receive Premium Income 4 shares
whose aggregate net asset value at the time of issuance will equal the
aggregate value of their Washington Premium shares on that date.
MuniPreferred shareholders will receive one MuniPreferred share of Premium
Income 4, Series TH or Series TH2, for every MuniPreferred share of
Washington Premium.
Q. IF WASHINGTON PREMIUM SHAREHOLDERS OWN SHARES IN CERTIFICATE FORM, WILL THEY
NEED TO EXCHANGE THEM FOR CERTIFICATES OF PREMIUM INCOME 4?
A. Each holder of an outstanding certificate or certificates formerly
representing common shares or shares of MuniPreferred of Washington Premium
will be entitled to receive, upon surrender of his or her certificates, a
certificate or certificates representing the number of shares of Premium
Income 4 distributable with respect to such holder's shares of Washington
Premium, together with cash in lieu of any fractional Washington Premium
common shares. Promptly after approval and completion of the Reorganization,
the transfer agent will mail to each holder of certificates formerly
representing shares of Washington Premium a letter of transmittal for use in
surrendering his or her certificates for certificates representing shares of
Premium Income 4 and cash in lieu of any fractional Washington Premium common
shares.
PLEASE DO NOT SEND IN ANY SHARE CERTIFICATES AT THIS TIME. UPON CONSUMMATION
OF THE REORGANIZATION, HOLDERS OF SHARES OF WASHINGTON PREMIUM WILL BE
FURNISHED INSTRUCTIONS FOR EXCHANGING THEIR CERTIFICATES FOR CERTIFICATES OF
PREMIUM INCOME 4 AND, IF APPLICABLE, CASH IN LIEU OF FRACTIONAL WASHINGTON
PREMIUM COMMON SHARES.
Q. WILL I HAVE TO PAY ANY FEES OR EXPENSES IN CONNECTION WITH THE
REORGANIZATION?
A. No, shareholders will not directly bear any fees or expenses in connection
with the Reorganization. All of the Funds' expenses associated with the
Reorganization will be borne by Washington Premium and indirectly by
Washington Premium shareholders in as much as the benefits from the
Reorganization will accrue primarily to the holders of Washington Premium.
Q. HOW DO MANAGEMENT FEES AND OTHER FUND OPERATING EXPENSES COMPARE BETWEEN THE
TWO FUNDS?
A. The management fee schedule is the same for both Funds. The management fee as
a percentage of assets is lower for Premium Income 4. Upon approval and
completion of the proposed Reorganization, Washington Premium shareholders
will pay lower management fees as a percentage of net assets and will also
benefit from lower gross fund operating expenses as a percentage of net
assets, reflecting the larger net assets and greater economies of scale of
Premium Income 4.
Q. WILL THIS REORGANIZATION CREATE A TAXABLE EVENT FOR ME?
A. The Reorganization is intended to qualify as a tax-free reorganization. As a
result, you will recognize no gain or loss for federal income tax purposes as
a result of the Reorganization. In addition, the tax basis and holding period
of Premium Income 4 shares you receive will be the same as the tax basis and
holding period of your Washington Premium shares.
<PAGE> 5
Q. HOW DO I VOTE MY SHARES?
A. You can vote your shares by completing and signing the enclosed proxy
card(s), and mailing them in the enclosed postage-paid envelope. In addition,
you may vote by telephone by calling its toll free number on the proxy
card(s) or by computer over the Internet (www.proxyvote.com). If you need any
assistance, or have any questions regarding the proposals or how to vote your
shares, please call your financial adviser or Nuveen at (800) 257-8787
weekdays form 7:00 a.m. to 7:00 p.m. Central time.
Q. WILL NUVEEN CONTACT ME?
A. You may receive a call to verify that you received your proxy materials and
to answer any questions you may have about the Reorganization.
<PAGE> 6
NUVEEN LOGO
June 7, 1999
DEAR SHAREHOLDERS:
We are pleased to invite you to the Annual Meeting of Shareholders of Nuveen
Premium Income Municipal Fund 4, Inc. and a Special Meeting of Shareholders of
Nuveen Washington Premium Income Municipal Fund (the "Joint Meeting"). The Joint
Meeting is scheduled for Wednesday, July 28, 1999, at 10:30 a.m., Chicago time,
in the Grand Ballroom of the Inter-Continental Hotel, 505 North Michigan Avenue,
Chicago, Illinois.
At the Joint Meeting, you will be asked to consider and approve a very important
proposal. Subject to shareholder approval, Nuveen Premium Income Municipal Fund
4, Inc. (the "Acquiring Fund") will acquire substantially all of the assets and
assume substantially all of the liabilities of Nuveen Washington Premium Income
Municipal Fund (the "Acquired Fund") in exchange for newly issued shares of the
Acquiring Fund, which will be distributed to the shareholders of the Acquired
Fund.
The reorganization should allow the Acquired Fund shareholders to benefit from a
larger, more diversified portfolio with a lower management fee and total expense
ratio. Acquired Fund shareholders should also benefit from a significant
reduction in administrative expenses due to the economies of scale reached
through the reorganization. While the Acquiring Fund does not invest primarily
in municipal obligations issued by Washington (unlike the Acquired Fund),
Acquired Fund shareholders should not suffer any adverse tax consequences from
the reorganization since the State of Washington has no state income tax, nor is
the State proposing the imposition of an income tax.
Because the two portfolios have similar characteristics, the reorganization
would benefit Acquiring Fund shareholders, however, to a much smaller degree due
to the Acquiring Fund's size relative to the Acquired Fund. Acquiring Fund
shareholders would benefit through a nominally reduced total expense ratio, a
slight increase in credit quality and slightly improved call protection.
Because the benefits of the reorganization flow primarily to the Acquired Fund,
the Acquired Fund will pay all costs associated with the reorganization.
Acquiring Fund Shareholders will also be asked to approve an amendment to the
Fund's Articles of Incorporation to increase the number of preferred shares
outstanding, elect board members and ratify the selection of independent
auditors.
The attached Joint Proxy Statement -- Prospectus has been prepared to give you
information about these proposals.
YOU ARE, OF COURSE, WELCOME TO JOIN US AT THE MEETING, BUT MOST SHAREHOLDERS
CAST THEIR VOTES BY MARKING, SIGNING AND RETURNING THE ENCLOSED PROXY CARD(S).
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE NEED YOUR VOTE. BY VOTING
IMMEDIATELY, YOU CAN HELP YOUR FUND AVOID THE CONSIDERABLE EXPENSE OF A SECOND
PROXY SOLICITATION. PLEASE PROMPTLY MARK, SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO THAT THE MAXIMUM NUMBER
OF SHARES ARE VOTED. AS AN ALTERNATIVE TO USING THE ENCLOSED PAPER PROXY CARD TO
VOTE, YOU MAY VOTE EITHER BY TELEPHONE OR OVER THE INTERNET. INSTRUCTIONS FOR
VOTING BY TELEPHONE OR OVER THE INTERNET ARE PROVIDED [ON THE ENCLOSED PROXY
CARD].
We appreciate your continued support and confidence in Nuveen and our family of
investments.
Very truly yours,
/s/ TIMOTHY R. SCHWERTFEGER
Timothy R. Schwertfeger
President
<PAGE> 7
NOTICE OF JOINT MEETING
OF SHAREHOLDERS
JULY 28, 1999
NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, INC.
NUVEEN WASHINGTON PREMIUM INCOME MUNICIPAL FUND
June 7, 1999
TO THE SHAREHOLDERS:
Notice is hereby given that the Annual Meeting of Shareholders of Nuveen Premium
Income Municipal Fund 4, Inc. (the "Acquiring Fund") and a Special Meeting of
Shareholders of Nuveen Washington Premium Income Municipal Fund (the "Acquired
Fund" and, together with the Acquiring Fund, the "Funds"), will be held in the
Grand Ballroom of the Inter-Continental Hotel, 505 North Michigan Avenue,
Chicago, Illinois, on Wednesday, July 28, 1999, at 10:30 a.m., Chicago time (the
"Joint Meeting"), for the following purposes:
1. To approve an Agreement and Plan of Reorganization and Liquidation (the
"Agreement") between the Acquiring Fund and the Acquired Fund, whereby
the Acquiring Fund would acquire substantially all of the assets of the
Acquired Fund in exchange for up to common shares and
680 Municipal Auction Rate Cumulative Preferred Shares
("MuniPreferred"), Series TH or Series TH2, of the Acquiring Fund and
the Acquiring Fund's assumption of substantially all of the liabilities
of the Acquired Fund.
2. To approve the amendment of the Acquiring Fund's Statement Establishing
and Fixing the Rights and Preferences of Municipal Auction Rate
Cumulative Preferred Stock (the "Acquiring Fund Statement") so that
10,000 shares of each of MuniPreferred, Series M; MuniPreferred, Series
T; MuniPreferred, Series T2; MuniPreferred, Series W; MuniPreferred,
Series TH; MuniPreferred, Series F; and MuniPreferred, Series F2 are
authorized (Acquiring Fund only).
3. To elect seven (7) board members, with five (5) board members to be
elected by the holders of Preferred and Common Shares voting together
and two (2) board members to be elected by holders of Preferred Shares
only (Acquiring Fund only).
4. To ratify the selection of Ernst & Young LLP as independent auditors
for the current fiscal year (Acquiring Fund only).
5. To transact such other business as may properly come before the Joint
Meeting.
Shareholders of record at the close of business on June 1, 1999 are entitled to
notice of and to vote at the Joint Meeting.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. IN ORDER TO AVOID
DELAY AND ADDITIONAL EXPENSE FOR YOUR FUND, AND TO ASSURE THAT YOUR SHARES ARE
REPRESENTED, PLEASE VOTE AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING. YOU MAY VOTE BY MAIL, TELEPHONE OR OVER THE INTERNET. TO
VOTE BY MAIL, PLEASE MARK, SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. TO VOTE BY TELEPHONE, PLEASE
CALL THE TOLL-FREE NUMBER LOCATED ON YOUR PROXY CARD, ENTER THE 12-DIGIT CONTROL
NUMBER FOUND ON THE RIGHT PORTION OF YOUR PROXY CARD, AND FOLLOW THE RECORDED
INSTRUCTIONS, USING YOUR PROXY CARD AS A GUIDE. TO VOTE OVER THE INTERNET, GO TO
WWW.PROXYVOTE.COM, ENTER THE 12-DIGIT CONTROL NUMBER FOUND ON THE RIGHT PORTION
OF YOUR PROXY CARD, AND FOLLOW THE INSTRUCTIONS, USING YOUR PROXY CARD AS A
GUIDE.
Gifford R. Zimmerman
Vice President and Secretary
<PAGE> 8
JOINT PROXY STATEMENT
MEETINGS OF SHAREHOLDERS TO BE HELD JULY 28, 1999
NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, INC.
NUVEEN WASHINGTON PREMIUM INCOME MUNICIPAL FUND
PROSPECTUS
NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, INC.
This Joint Proxy Statement -- Prospectus is being furnished to the shareholders
of Nuveen Premium Income Municipal Fund 4, Inc. (the "Acquiring Fund") and
Nuveen Washington Premium Income Municipal Fund (the "Acquired Fund" and,
together with the Acquiring Fund, the "Funds") in connection with the
solicitation of proxies by the Acquiring Fund's Board of Directors and the
Acquired Fund's Board of Trustees for use at the Annual Meeting of Shareholders
of the Acquiring Fund and a Special Meeting of Shareholders of the Acquired Fund
to be held on Wednesday, July 28, 1999, at 10:30 a.m., Chicago time (the "Joint
Meeting"), and at any and all adjournments thereof. At the Joint Meeting, the
preferred shareholders of the Acquiring Fund and the common and preferred
shareholders of the Acquired Fund will be asked to approve an Agreement and Plan
of Reorganization and Liquidation dated as of February 2, 1999. The Agreement
provides for (a) the Acquiring Fund's acquisition of substantially all of the
assets of the Acquired Fund in exchange for newly issued common shares and
Municipal Auction Rate Cumulative Preferred Shares ("MuniPreferred(R)")
(collectively, "Acquiring Fund Shares") and the Acquiring Fund's assumption of
substantially all of the liabilities of the Acquired Fund and (b) the
liquidation of the Acquired Fund and the distribution of the Acquiring Fund
common shares and shares of Acquiring Fund MuniPreferred held by the Acquired
Fund to its common and preferred shareholders, respectively. The transactions
contemplated by the Agreement are referred to herein as the "Reorganization."
The number of Acquiring Fund common shares to be issued to the Acquired Fund
would be that number having an aggregate per share net asset value equal to the
aggregate value of the net assets of the Acquired Fund transferred to the
Acquiring Fund. If Acquiring Fund shareholders approve an amendment to the
Acquiring Fund's Articles of Incorporation to authorize additional shares of
each series of MuniPreferred, shares of Acquiring Fund MuniPreferred would be
issued to the Acquired Fund on the basis of one newly issued share of Acquiring
Fund MuniPreferred, Series TH, for each share of Acquired Fund MuniPreferred,
Series TH, outstanding. The Acquiring Fund's Board of Directors has approved,
contingent upon Acquiring Fund shareholders not approving the amendment to the
Acquiring Fund's Articles of Incorporation to authorize additional shares of
MuniPreferred, Series TH, the creation of a new MuniPreferred, Series TH2, in
connection with the Reorganization. If Acquiring Fund shareholders do not
approve the authorization of additional shares of MuniPreferred, Series TH,
shares of Acquiring Fund MuniPreferred would be issued to the Acquired Fund on
the basis of one newly issued share of Acquiring Fund MuniPreferred, Series TH2,
for each share of Acquired Fund MuniPreferred, Series TH outstanding. The value
of the Acquired Fund's net assets shall be calculated net of the liquidation
preference (including accumulated and unpaid dividends) of all outstanding
shares of Acquired Fund MuniPreferred.
Common and preferred shareholders of the Acquiring Fund will also be asked to
approve the amendment of the Acquiring Fund Statement to authorize an additional
number of shares so that each series of MuniPreferred of the Acquiring Fund has
10,000 shares authorized, [except for Series W2 which was recently created and
already has 10,000 shares authorized.]
In addition, at the Joint Meeting, (a) common and preferred shareholders of the
Acquiring Fund will be asked to consider and vote upon the election of five (5)
directors ("Board Members") and the ratification of the selection of independent
auditors for their Fund and (b) preferred shareholders of the Acquiring Fund
will be asked to consider and vote upon the election of two (2) Board Members.
The Funds are both closed-end, diversified management investment companies, with
substantially similar objectives and policies; primarily to provide current
interest income exempt from regular Federal income taxes and secondarily to
enhance portfolio value relative to the municipal bond market, in the case of
the Acquiring Fund, and to enhance portfolio value relative to the Washington
municipal bond market, in the case of the Acquired Fund. The principal executive
office of each Fund is located at 333 West Wacker Drive, Chicago, Illinois
60606, and the telephone number of each Fund is (312) 917-7700. The shares of
the Acquiring Fund are listed on the New York Stock Exchange ("NYSE"); reports,
proxy statements and other information concerning the Acquiring Fund can be
inspected at the offices of the NYSE. The shares of the Acquired Fund are listed
on the American Stock Exchange ("AMEX"); reports, proxy statements and other
information concerning the Acquired Fund can be inspected at the offices of the
AMEX. See "Available Information."
<PAGE> 9
This Joint Proxy Statement -- Prospectus sets forth concisely the information
that shareholders of the Funds should know before voting on the proposals
described above. It should be read and retained for future reference. A
Statement of Additional Information dated , 1999 containing
additional information about the Funds has been filed with the Securities and
Exchange Commission (the "Commission") and is hereby incorporated by reference
in its entirety into this Joint Proxy Statement -- Prospectus. A copy of the
Statement of Additional Information may be obtained without charge by mailing a
written request to either of the Funds, Attention: Administration, 333 West
Wacker Drive, Chicago, Illinois 60606, or by calling (800) 257-8787.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT -- PROSPECTUS IS , 1999.
<PAGE> 10
JOINT PROXY STATEMENT-PROSPECTUS
JUNE 7, 1999
NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, INC.
NUVEEN WASHINGTON PREMIUM INCOME MUNICIPAL FUND
TABLE OF CONTENTS
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SUMMARY......................................... 1
The Joint Meeting........................... 1
The Reorganization.......................... 1
Reasons for the Reorganization.............. 2
Tax Consequences of the Reorganization...... 2
Comparison of the Acquiring Fund and the
Acquired Fund............................. 2
General................................ 2
Investment Objectives and Policies..... 3
Management of the Funds................ 3
Dividends and Distributions............ 3
Credit Quality......................... 4
Maturity and Duration.................. 4
Capitalization.............................. 4
Comparative Performance Information......... 5
Comparative Fee Table.................. 5
RISK FACTORS.................................... 6
Similarity of Risks......................... 6
Differences in Risks........................ 6
THE JOINT MEETING............................... 6
General..................................... 6
Voting; Proxies............................. 7
AVAILABLE INFORMATION........................... 8
PROPOSAL NO. 1 -- THE REORGANIZATION............ 8
General..................................... 8
Terms of the Reorganization................. 8
Reasons for the Reorganization.............. 10
Votes Required.............................. 12
Votes of Preferred Shareholders as a
Separate Class....................... 12
Combined Vote of Common and Preferred
Shareholders (Acquired Fund)......... 12
Rating Agency Considerations................ 12
Description of Common Shares Issued by the
Acquiring Fund............................ 12
General................................ 12
Distributions.......................... 13
Dividend Reinvestment Plan............. 13
Odd Lot Holdings....................... 14
Comparison of Rights of Holders of Common
Shares of the Acquiring Fund and the
Acquired Fund............................. 14
Description of MuniPreferred Issued by the
Acquiring Fund............................ 14
General................................ 14
Dividends and Dividend Periods......... 15
Designation of Special Rate Periods.... 18
Voting Rights.......................... 18
Redemption............................. 19
Liquidation............................ 20
</TABLE>
<TABLE>
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Rating Agency Guidelines............... 20
The Auction................................. 21
General................................ 21
Auction Procedures..................... 21
Secondary Market Trading and Transfer
of Acquiring Fund MuniPreferred...... 22
Comparison of Rights of Holders of
MuniPreferred of the Acquiring Fund and
the Acquired Fund......................... 23
Comparison of the Investment Objectives and
Policies of the Acquiring Fund and the
Acquired Fund............................. 23
General................................ 23
Portfolio Investments.................. 23
Municipal Obligations.................. 24
Investment Restrictions................ 25
Certain Provisions in the Acquiring Fund's
Articles of Incorporation................. 26
Surrender and Exchange of Acquired Fund
Share Certificates........................ 26
Expenses Associated with the
Reorganization............................ 27
Dissenting Shareholders' Rights of
Appraisal................................. 27
Tax Consequences of the Reorganization...... 27
Exchange of Acquired Fund Shares Solely
for Acquiring Fund Shares............ 27
Fractional Common Share Interests...... 28
PROPOSAL NO. 2 -- AMENDMENT OF THE ACQUIRING
FUND STATEMENT (ACQUIRING FUND SHAREHOLDERS
ONLY)......................................... 28
Vote Required............................... 28
PROPOSAL NO. 3 -- ELECTION OF BOARD MEMBERS OF
THE ACQUIRING FUND (ACQUIRING FUND
SHAREHOLDERS ONLY)............................ 29
PROPOSAL NO. 4 -- SELECTION OF INDEPENDENT
AUDITORS FOR THE ACQUIRING FUND............... 32
MANAGEMENT OF THE FUNDS......................... 32
Board Members and Officers.................. 32
Investment Adviser.......................... 33
Portfolio Management................... 33
Financial Highlights........................ 34
Repurchase of Common Shares; Conversion to
Open-End Fund............................. 35
Custodian, Transfer Agent, Dividend
Disbursing Agent and Redemption Agent..... 36
Tax Matters Associated with Investment in
the Funds................................. 36
LEGAL OPINIONS.................................. 36
EXPERTS......................................... 37
SHAREHOLDER PROPOSALS........................... 37
GENERAL......................................... 37
Annex A -- Agreement and Plan of Reorganization
and Liquidation............................... A-1
</TABLE>
<PAGE> 11
SUMMARY
The following is a summary of certain information contained in this Joint Proxy
Statement -- Prospectus. This summary is qualified in its entirety by the more
detailed information contained herein and in the attached Annexes. Shareholders
should read the entire Joint Proxy Statement -- Prospectus. Certain capitalized
terms used but not defined in this summary are defined elsewhere in the text of
this Joint Proxy Statement -- Prospectus or in the Acquiring Fund's Statement
Establishing and Fixing the Rights and Preferences of Municipal Auction Rate
Cumulative Preferred Stock (the "Acquiring Fund Statement") attached as Annex B
to the Statement of Additional Information.
THE JOINT MEETING
This Joint Proxy Statement -- Prospectus is being furnished to the shareholders
of each of the Funds in connection with the solicitation by the Boards of the
Funds of proxies to be voted at the Joint Meeting. Holders of record of shares
of each Fund as of the close of business on June 1, 1999 will be entitled to
notice of and to vote at the Joint Meeting, as described elsewhere in this Joint
Proxy Statement -- Prospectus. Holders of the outstanding common and preferred
shares of the Acquired Fund and holders of the preferred shares of the Acquiring
Fund will be asked to approve the Agreement. Holders of the outstanding common
and preferred shares of the Acquiring Fund will be asked to approve the
amendment of the Acquiring Fund Statement to authorize additional shares of each
existing series of Acquiring Fund MuniPreferred. Common and preferred
shareholders of the Acquiring Fund also will be asked to consider and vote upon
the election of five (5) Board Members, and the ratification of the selection of
independent auditors for their Fund. In addition, preferred shareholders of the
Acquiring Fund will be asked to consider and vote upon the election of two (2)
Board Members. The details of each proposal to be voted on by the shareholders
of each Fund and the vote required for approval of each proposal are set forth
under the description of each proposal in this Joint Proxy
Statement -- Prospectus.
THE REORGANIZATION
The Agreement provides that, subject to the satisfaction of certain conditions,
including shareholder approval and confirmation of the ratings assigned by
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's, a division of
the McGraw Hill Companies ("S&P") to the shares of Acquiring Fund MuniPreferred,
(a) the Acquiring Fund would acquire substantially all of the assets of the
Acquired Fund in exchange for newly issued common shares and newly issued shares
of MuniPreferred of the Acquiring Fund and the Acquiring Fund's assumption of
substantially all of the liabilities of the Acquired Fund, and (b) the Acquired
Fund would liquidate and distribute to its shareholders pro rata by class the
Acquiring Fund Shares received. The number of Acquiring Fund common shares to be
issued to the Acquired Fund would be that number having an aggregate per share
net asset value equal to the aggregate value of the assets of the Acquired Fund
transferred to, net of the Acquired Fund's liabilities assumed by, the Acquiring
Fund as of the time such assets and liabilities are transferred and assumed (the
"Effective Time"). The value of the Acquired Fund's net assets shall be
calculated net of the liquidation preference (including accumulated and unpaid
dividends) of all outstanding shares of Acquired Fund MuniPreferred. If
Acquiring Fund shareholders approve an amendment to the Acquiring Fund's
Articles of Incorporation to authorize additional shares of MuniPreferred,
Series TH, shares of Acquiring Fund MuniPreferred would be issued to the
Acquired Fund on the basis of one newly issued share of Acquiring Fund
MuniPreferred, Series TH, for each share of Acquired Fund MuniPreferred, Series
TH, outstanding as of the Effective Time. In the event that Acquiring Fund
shareholders do not approve the amendment to the Acquiring Fund's Articles of
Incorporation to authorize additional shares of MuniPreferred, Series TH, the
Acquiring Fund's Board of Directors has approved the creation of a new
MuniPreferred, Series TH2 in connection with the Reorganization and shares of
Acquiring Fund MuniPreferred TH2 would be issued to the Acquired Fund on the
basis of one newly issued share of Acquiring Fund MuniPreferred, Series TH2, for
each share of Acquired Fund MuniPreferred, Series TH outstanding. Shareholder
approval is not required for the creation of the new Acquiring Fund
MuniPreferred Series TH2.
If additional shares of the existing Acquiring Fund's MuniPreferred, Series TH
is issued in connection with the Reorganization, the dividend rate for shares of
MuniPreferred, Series TH, issued in connection with the Reorganization will be
equal to the dividend rate for shares of the Acquiring Fund's existing
MuniPreferred, Series TH established in the first Auction for shares of Series
TH preceding the date of issuance of additional shares of Series TH to Acquired
Fund shareholders in connection with the Reorganization. If shares of a new
Acquiring Fund MuniPreferred, Series TH2 is issued in connection with the
Reorganization, the Initial Rate Period of the shares of Acquiring Fund
MuniPreferred, Series TH2, will be a period consisting of the number of days
following the day on which the Effective Time occurs that would have remained in
the rate period of the shares of Acquired Fund MuniPreferred, Series TH, in
effect immediately prior to the Effective Time. The dividend rate for the shares
of Acquiring Fund MuniPreferred, Series TH2, for the Initial Rate Period thereof
will be the dividend rate in effect immediately prior to the Effective Time for
the shares of Acquired Fund MuniPreferred, Series TH. The initial Auction for
the shares of Acquiring Fund MuniPreferred, Series TH2, will be held on the day
on which the auction next succeeding the Effective Time would have been held for
the shares of Acquired Fund MuniPreferred, Series TH. The shares of Acquiring
Fund MuniPreferred issued in connection with the Reorganization (either Series
TH or Series TH2) are subject to mandatory and optional redemption under certain
circumstances. See "Proposal No. 1 -- The Reorganization -- Description of
MuniPreferred Issued by the Acquiring Fund -- Redemption."
1
<PAGE> 12
As a result of the Reorganization, the assets of the Acquiring Fund and the
Acquired Fund would be combined and the shareholders of the Acquired Fund would
become shareholders of the Acquiring Fund. The investment objectives and
policies of the Funds are substantially similar except that the Acquired Fund
invests primarily in tax-exempt Washington Municipal Obligations. The Board
Members and officers of the larger combined entity would be identical to those
of the Funds. The general portfolio characteristics of the larger combined
entity would be similar to both Funds except that the combined entity would not
be as heavily invested in Washington Municipal Obligations as the Acquired Fund.
The Agreement may be terminated and the Reorganization abandoned, whether before
or after approval by the Funds' shareholders, at any time prior to the Effective
Time (a) by the written consent of the Boards of both Funds, (b) by either Fund
if any condition to that Fund's obligations under the Agreement has not been
satisfied or waived and it reasonably appears that such condition will not be
satisfied or (c) by either Fund if the Reorganization has not occurred by August
13, 1999. If the proposals relating to the Agreement are approved, the Effective
Time is expected to be the close of business on August 13, 1999.
The Board of each Fund, including the Board Members of that Fund who are not
"interested persons," as that term is defined by the 1940 Act, has approved the
Reorganization based on its conclusion that the Reorganization is in the best
interests of that Fund and that the interests of shareholders would not be
diluted as a result of the Reorganization. ACCORDINGLY, THE BOARD OF EACH FUND
RECOMMENDS THAT THE SHAREHOLDERS OF THAT FUND VOTE FOR THE APPROVAL OF THE
PROPOSAL RELATING TO THE AGREEMENT. See "Proposal No. 1 -- The Reorganization."
REASONS FOR THE REORGANIZATION
In approving the Reorganization, the respective Boards of the Funds, which
consist of the same individuals, identified certain benefits that are likely to
result from the Reorganization, including reduced management fees per share,
lower administrative expenses, greater efficiency and flexibility in portfolio
management and a more liquid trading market for common shares of the combined
Fund. Given the relative sizes of the Funds, the Acquired Fund would
significantly benefit from the Reorganization. The larger combined Fund that
would result from the Reorganization would have a significantly larger asset
base than the Acquired Fund has currently. Based on data presented by management
of the Funds, the Board believes that administrative expenses of a larger
combined Fund comprised of the assets of both Funds would be less than the
aggregate expenses of the Acquired Fund, resulting in a lower expense ratio for
the combined Fund and corresponding higher earnings for its common shareholders.
The same is true, to a much lesser extent, for the Acquiring Fund. Based upon
the fiscal years ended October 31, 1998 and May 31, 1998, respectively, the
expense ratio for the Acquiring Fund and the Acquired Fund was .79% and .91%.
The pro-forma expense ratio for the combined Fund for the 12-month period ended
October 31, 1998 would have been .79%.
The Board considered the adverse tax consequences of the Reorganization on
Acquired Fund shareholders loosing the exemption from Washington state taxes.
The Acquired Fund shareholders, however, should not suffer any adverse tax
consequences from the Reorganization since the State of Washington has no state
income tax, nor is the State proposing the imposition of an income tax.
The Boards also considered the possible adverse effects and estimated costs of
combining the Funds and determined that the Reorganization is likely to provide
benefits to the shareholders of each Fund that outweigh such possible adverse
effects and the costs presented by the Reorganization, all of which will be
borne by the Acquired Fund. See "Proposal No. 1 -- The Reorganization -- Reasons
for the Reorganization."
TAX CONSEQUENCES OF THE REORGANIZATION
The Funds have received an opinion of Vedder, Price, Kaufman & Kammholz to the
effect that the proposed Reorganization will qualify as a tax-free
reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, neither Fund will recognize gain or loss for
Federal income tax purposes as a result of the Reorganization. In addition,
shareholders of the Acquired Fund who receive Acquiring Fund Shares pursuant to
the Reorganization will recognize no gain or loss, except with respect to the
cash received for a fractional Acquiring Fund common share interest, if any. See
"Proposal No. 1 -- The Reorganization -- Tax Consequences of the
Reorganization."
COMPARISON OF THE ACQUIRING FUND AND THE ACQUIRED FUND
General. The Acquiring Fund and the Acquired Fund are both closed-end,
diversified management investment companies. The Acquiring Fund common shares
are listed and trade on the NYSE under the symbol NPT and the Acquired Fund
common shares are listed and trade on the AMEX under the symbol NPW. The
Acquiring Fund is organized as a corporation under the laws of the State of
Minnesota. The Acquired Fund is organized as a business trust under the laws of
the Commonwealth of Massachusetts. The common shares of each Fund have equal
voting rights and equal rights with respect to the payment of dividends and
distribution of assets upon liquidation and have no preemptive, conversion or
exchange rights or rights to cumulative voting. All outstanding shares of
Acquiring Fund MuniPreferred and Acquired Fund MuniPreferred are rated "aaa" by
Moody's and AAA by S&P. The shares of Acquiring Fund MuniPreferred issued to the
Acquired Fund pursuant to
2
<PAGE> 13
the Reorganization will have rights and preferences, including liquidation
preferences, that are substantially similar to those of the outstanding shares
of Acquired Fund MuniPreferred. See"Proposal No. 1 -- The Reorganization."
Investment Objectives and Policies. The Acquiring Fund and the Acquired Fund
have similar investment objectives. Both Funds' primary investment objective is
to provide, through investment in a professionally managed portfolio of
tax-exempt Municipal Obligations, current income exempt from regular Federal
income tax, consistent with the Fund's investment policies. The secondary
investment objective of the Acquiring Fund is the enhancement of portfolio value
relative to the municipal bond market through investments in tax-exempt
Municipal Obligations. The secondary investment objective of the Acquired Fund
is the enhancement of portfolio value relative to the Washington municipal bond
market through investments in tax-exempt Washington Municipal Obligations. The
primary difference between the Funds is that the Acquired Fund invests
substantially all of its assets in Washington Municipal Obligations and the
Acquiring Fund invests in Municipal Obligations of various issuers.
The Acquiring Fund and the Acquired Fund have similar investment policies. The
Acquiring Fund, as a fundamental policy, invests substantially all (in excess of
80%) of its assets in tax-exempt Municipal Obligations. The Acquired Fund, as a
fundamental policy, invests substantially all (in excess of 80%) of its assets
in tax-exempt Washington Municipal Obligations. Both Funds purchase only quality
municipal bonds that at the time of purchase are either rated within the four
highest grades by Moody's or S&P, or unrated but in the opinion of the Adviser,
have credit characteristics equivalent to, and are of comparable quality to,
Municipal Obligations rated within the four highest grades by Moody's or S&P,
provided that the neither Fund invests more than 20% of its assets in such
unrated Municipal Obligations.
Management of the Funds. The Acquiring Fund and the Acquired Fund have the same
Board Members and officers. In addition, Nuveen Advisory Corp. (the "Adviser")
acts as the investment adviser for, and manages the investment and reinvestment
of the assets of, each Fund. Pursuant to an Investment Management Agreement
between the Adviser and each Fund, each Fund pays an annual management fee for
the services and facilities furnished by the Adviser on a monthly basis at the
following annual rates:
<TABLE>
<CAPTION>
MANAGEMENT FEE SCHEDULE
- --------------------------------------------------------------
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 Acquiring Fund paid aggregate management fees of $5,712,194 for the fiscal
year ended October 31, 1998, for an effective management fee rate of .63%. The
Acquired Fund paid aggregate management fees of $333,129 for the fiscal year
ended May 31, 1998, for an effective management fee rate of .65%.
Dividends and Distributions. The Funds have identical dividend policies with
respect to the payment of dividends on their common shares. Each Fund's present
policy, which may be changed by its Board, is to make regular monthly cash
distributions to holders of its common shares at a level rate that reflects the
past and projected performance of such Fund, which over time will result in the
distribution of all net investment income of such Fund. While the Adviser
expects the level of monthly distributions to remain relatively stable due to
the similar composition of each Fund's portfolio, the level of distributions
over the life of each Fund may be affected to the extent adjustments are made to
such portfolio. Holders of common shares of each Fund may elect to have all
distributions automatically reinvested in common shares of that Fund at the
prevailing market price, plus customary brokerage charges, pursuant to that
Fund's Dividend Reinvestment Plan. See "Proposal No. 1 -- The
Reorganization -- Description of Common Shares Issued by the Acquiring
Fund -- Distributions" and "-- Dividend Reinvestment Plan" and "Additional
Information About the Funds -- Tax Matters Associated with Investment in the
Funds."
The dividend rates on shares of each Fund's MuniPreferred, including the shares
of Acquiring Fund MuniPreferred, Series TH or Series TH2, issued pursuant to the
Reorganization, are determined on the basis of auctions, which typically are
held weekly. See "Proposal No. 1 -- The Reorganization -- Description of
MuniPreferred Issued by the Acquiring Fund" and "-- The Auction" and the
Statement of Additional Information.
3
<PAGE> 14
Credit Quality. A comparison of the credit quality of the respective portfolios
of the Acquiring Fund and the Acquired Fund, as of March 31, 1999, is set forth
in the table below.
<TABLE>
- ---------------------------------------------------------------------------------------
ACQUIRING ACQUIRED
CREDIT RATING FUND FUND PRO-FORMA(1)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aaa/AAA 49.87% 66.63% 50.38%
Aa/AA 17.21 27.28 18.14
A/A 16.40 2.86 15.68
Baa/Bbb 7.68 3.23 7.66
Unrated 8.84 -- 8.14
------ ------ ------
TOTAL 100.00% 100.00% 100.00%
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Reflects the effect of the Reorganization.
Maturity and Duration. A comparison of the maturity and duration of the
respective portfolios of the Acquiring Fund and the Acquired Fund, as of March
31, 1999, is set forth in the table below.
<TABLE>
- -------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
WEIGHTED AVERAGE EFFECTIVE MODIFIED
FUND MATURITY MATURITY DURATION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Acquiring 19.22 17.58 6.20
Acquired 18.97 17.59 6.38
Pro-forma(1) 19.21 17.58 6.21
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects the effect of the Reorganization.
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Funds as of
October 31, 1998 and the pro forma combined capitalization of the combined Fund
as if the Reorganization had occurred on that date. The table reflects a pro
forma exchange ratio of approximately 1.019564 shares of the Acquiring Fund
issued for each share of the Acquired Fund. If the Reorganization is
consummated, the actual exchange ratio may vary from the ratio indicated below.
See "Pro Forma Financial Information" included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
ACQUIRING FUND ACQUIRED FUND ACQUIRING FUND
(ACTUAL) (ACTUAL) (AS ADJUSTED)(1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY:
Common Shares, $.01 par value per share; 40,847,681 shares
outstanding for Acquiring Fund (Actual)
2,320,051 shares outstanding for Acquired Fund (Actual)
43,213,121 shares outstanding for Acquiring Fund
(Adjusted) $ 408,477 $ 23,201 $ 432,131(2)
Preferred shares $25,000 stated value per share, at
liquidation value 308,400,000 17,000,000 325,400,000
Paid-in surplus 564,371,822 31,971,262 596,342,631(3)
Undistributed net investment income 1,228,635 93,503 1,228,635(4)
Net realized gain (loss) from investment transactions (13,261,796) (451,047) (13,712,843)(5)
Net unrealized appreciation of investments 61,856,537 3,954,046 65,810,583
------------ ----------- ------------
Net Assets $923,003,675 $52,590,965 $975,501,137
============ =========== ============
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The adjusted balances are presented as if the Reorganization were effective
as of October 31, 1998 for information purposes only. The actual Effective
Time of the Reorganization is expected to be August 13, 1999, at which time
the results would be reflective of the actual composition of shareholders'
equity at that date.
(2) Assumes the issuance of 45,389 Acquiring Fund Common shares in exchange for
the net assets of the Acquired Fund, which number is based on the net asset
value of the Acquiring Fund Common shares, and the net asset value of the
Acquired Fund, as of October 31, 1998, after adjustment for the
distributions referred to in (4) below. The issuance of such number of
Acquiring Fund Common shares would result in the distribution of 1.019564
Acquiring Fund Common shares for each Common share of the Acquired Fund upon
liquidation of the Acquired Fund.
(3) Includes the impact of estimated Reorganization costs of $149,950.
(4) Assumes the Acquired Fund distributes all of its undistributed net
investment income ($93,503) to its shareholders,
(5) Assumes the Acquired Fund carries forward all of its net realized losses
from investment transactions ($451,047) to the Acquiring Fund, as permitted
under applicable tax regulations.
4
<PAGE> 15
COMPARATIVE PERFORMANCE INFORMATION
Comparative investment performance for the Funds for certain periods ended
October 31, 1998 for the Acquiring Fund and May 31, 1998 for the Acquired Fund,
are shown below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN ON MARKET VALUE TOTAL RETURN ON NET ASSET VALUE
---------------------------------------- ---------------------------------------
ONE THREE FIVE LIFE OF ONE THREE FIVE LIFE OF
YEAR YEARS YEARS FUND YEAR YEARS YEARS Fund
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Acquiring Fund 17.29% 16.54% 10.54% 9.03% 11.15% 11.42% 9.18% 9.89%
Acquired Fund 15.26% 11.83% 3.12% 3.97% 12.64% 8.78% 7.06% 6.83%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Total Investment Return on Market Value is the average annual combination of
reinvested dividend income, reinvested capital gains distributions, if any, and
changes in price per share. Total Return on Net Asset Value is the average
annual combination of reinvested dividend income, reinvested capital gains
distributions, if any, and changes in net asset value per share. Life of Fund is
calculated from February 19, 1993 for the Acquiring Fund and March 18, 1993 for
the Acquired Fund. Past performance information is not necessarily indicative of
future results.
COMPARATIVE FEE TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
10/31/98
10/31/98 5/31/98 PRO-FORMA
ACQUIRING FUND ACQUIRED FUND ACQUIRING FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ANNUAL EXPENSES
(as a percentage of net assets)
Management Fees .63 .65 .63
Other Expenses .16 .26 .16
Total Annual Expenses .79 .91 .79
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Example: The following table illustrates the expenses on a $1,000 investment
based upon the fees and expenses shown above and assuming a 5% annual return.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Acquiring Fund $8.07 $25.23 $43.87 $ 97.79
Acquired Fund $9.29 $29.01 $50.39 $111.96
Pro-Forma Acquiring Fund $8.07 $25.23 $43.87 $ 97.79
- ------------------------------------------------------------------------------------------------------
</TABLE>
The purpose of the comparative fee table is to assist you in understanding the
various costs and expenses of investing in shares of the Funds. The information
in the table is based upon annualized expenses for the fiscal year ended October
31, 1998 for the Acquiring Fund and the fiscal year ended May 31, 1998 for the
Acquired Fund. The figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less than those shown.
The Funds' actual rate of return may be greater or less than the hypothetical 5%
annual return shown in the Example.
5
<PAGE> 16
RISK FACTORS
The Boards of each of the Acquiring Fund and the Acquired Fund have identified
certain benefits to the respective shareholders of each Fund as a result of the
Reorganization. The portfolio characteristics of the Acquiring Fund, after
Reorganization, would reflect the blended characteristics of both Funds.
Compared to the Acquiring Fund, the combined portfolio would have a marginally
lower gross portfolio yield, marginally longer duration and slightly higher
credit quality. Compared to the Acquired Fund, the combined portfolio would have
a higher yield and slightly lower credit quality. The following risks and
special considerations should be considered by shareholders of each Fund in
their evaluation of the Reorganization:
SIMILARITY OF RISKS
The Acquiring Fund and the Acquired Fund have similar investment objectives.
Both Funds' primary investment objective is to provide, through investment in a
professionally managed portfolio of tax-exempt Municipal Obligations, current
income exempt from regular Federal income tax. The Acquiring Fund and the
Acquired Fund have similar investment policies. The Acquiring Fund will, as a
fundamental policy, invest substantially all (in excess of 80%) of its assets in
tax-exempt Municipal Obligations. The Acquired Fund, as a fundamental policy,
invests substantially all (in excess of 80%) of its assets in tax-exempt
Washington Municipal Obligations. Both Funds purchase only quality municipal
bonds that at the time of purchase are either rated within the four highest
grades by Moody's or S&P, or unrated but in the opinion of the Adviser, have
credit characteristics equivalent to, and will be of comparable quality to,
Municipal Obligations rated within the four highest grades by Moody's or S&P,
provided that neither Fund may invest more than 20% of its assets in such
unrated Municipal Obligations. To the extent that the investment objectives and
investment policies are the same, the risks associated with an investment in the
Funds are substantially the same.
Both Funds emphasize investments in Municipal Obligations with long-term
maturities in order to maintain an average portfolio maturity of 20-30 years.
Funds with longer average maturities and durations will generally be subject to
greater interest rate risk.
Investment in either Fund may not be appropriate for all investors. The Funds
are not intended to be a complete investment program, and investors should
consider their long-term investment goals and financial needs when making an
investment decision with respect to the Funds. An investment in either Fund is
intended to be a long-term investment and should not be used as a trading
vehicle.
DIFFERENCES IN RISKS
The Acquiring Fund and the Acquired Fund engage in some dissimilar investment
practices. To the extent that the investment practices of the Funds differ, the
risks associated with an investment in the Acquiring Fund are different from the
risks associated with an investment in the Acquired Fund.
The secondary investment objective of the Acquiring Fund is the enhancement of
portfolio value relative to the municipal bond market through investments in
tax-exempt Municipal Obligations. The secondary investment objective of the
Acquired Fund is the enhancement of portfolio value relative to the Washington
municipal bond market through investments in tax-exempt Washington Municipal
Obligations. The primary difference between the Funds is that the Acquired Fund
invests substantially all of its assets in Washington Municipal Obligations and
the Acquiring Fund invests in Municipal Obligations of various issuers. The
Acquired Fund is therefore more susceptible to political, economic and
regulatory factors affecting issuers of Washington Municipal Obligations. The
Acquired Fund shareholders, however, should not suffer any adverse tax
consequences from the Reorganization since the State of Washington has no state
income tax, nor is the State proposing the imposition of an income tax. The
Acquiring Fund, however, is less likely to benefit from political economic or
regulatory events that beneficially affect issues in which it invests because it
generally invests a smaller percentage of its assets in each issuer in which it
invests.
THE JOINT MEETING
GENERAL
This Joint Proxy Statement -- Prospectus is furnished in connection with the
solicitation by the Boards of the Funds of proxies to be voted at the Joint
Meeting to be held in the Grand Ballroom of the Inter-Continental Hotel, 505
North Michigan Avenue, Chicago, Illinois, on Wednesday, July 28, 1999 at 10:30
a.m., Chicago time, and at any and all adjournments of such Joint Meeting. The
cost of preparing, printing and mailing the enclosed proxy, accompanying notice
and Joint Proxy Statement -- Prospectus, and all other costs in connection with
the solicitation of proxies, to the extent they are not incremental costs
related to the Reorganization, will be paid by the Funds pro rata based on the
number of each Fund's shareholder accounts. Incremental costs related to the
Reorganization will be paid by the Acquired Fund. Additional solicitation may be
made by letter, telephone or telegraph by officers of the Funds, by officers or
employees of the Adviser or
6
<PAGE> 17
Nuveen, or by dealers and their representatives. The Funds have engaged D.F.
King to assist in the solicitation of proxies at an estimated cost of $9,000
plus reasonable expenses.
The Board of each Fund has fixed the close of business on June 1, 1999 as the
record date (the "Record Date") for determining holders of such Fund's common
shares and shares of MuniPreferred entitled to notice of and to vote at the
Joint Meeting. Each shareholder will be entitled to one vote for each common
share or share of MuniPreferred held. At the close of business on the Record
Date, (a) the Acquiring Fund had outstanding common shares and shares
of MuniPreferred as follows: Series M-2,200 shares; Series T-2,000 shares;
Series T2-1,328 shares; Series W-1,680 shares; Series W2-760 shares; Series
TH-2,000 shares; Series F-1,800 shares; Series F2-1,328 shares, and (b) the
Acquired Fund had outstanding common shares and 680 shares of
MuniPreferred Series TH. This Joint Proxy Statement -- Prospectus is first being
mailed to shareholders of the Funds on or about , 1999. THE
ACQUIRING FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS OCTOBER 31, 1998
ANNUAL REPORT AND APRIL 30, 1999 SEMI-ANNUAL REPORT (WHICH WILL BE AVAILABLE ON
OR BEFORE JUNE 30, 1999) UPON REQUEST. THE ACQUIRED FUND WILL FURNISH WITHOUT
CHARGE, A COPY OF ITS MAY 31, 1998 ANNUAL REPORT AND NOVEMBER 31, 1998
SEMI-ANNUAL REPORT UPON REQUEST. SUCH WRITTEN OR ORAL REQUEST SHOULD BE DIRECTED
TO SUCH FUND AT 333 WEST WACKER DRIVE, CHICAGO, ILLINOIS 60606 OR BY CALLING
1-800-257-8787.
VOTING; PROXIES
Common shares and shares of MuniPreferred of the Acquiring Fund entitled to vote
at the Joint Meeting that are represented by properly executed proxies will,
unless such proxies have been revoked, be voted in accordance with the
shareholder's instructions indicated on such proxies. If no contrary
instructions are indicated, all such shares will be voted FOR approval of the
Agreement, FOR approval of amendment of the Acquiring Fund Statement, FOR the
election of Board Member nominees and FOR ratification of the Acquiring Fund's
selection of independent auditors.
Common shares and shares of MuniPreferred of the Acquired Fund entitled to vote
at the Joint Meeting that are represented by properly executed proxies will,
unless such proxies have been revoked, be voted in accordance with the
shareholder's instructions indicated on such proxies. If no contrary
instructions are indicated, all such shares will be voted FOR approval of the
Agreement.
A quorum of shareholders is required to take action at the Joint Meeting. A
majority of the shares of each Fund entitled to vote at the Joint Meeting,
represented in person or by proxy, will constitute a quorum of shareholders at
the Joint Meeting, except that for the election of the two (2) nominees to be
elected by holders of Acquiring Fund MuniPreferred, 33 1/3% of the MuniPreferred
shares entitled to vote and represented in person or by proxy will constitute a
quorum. Votes cast by proxy or in person at the Joint Meeting will be tabulated
by the inspectors of election appointed for the Joint Meeting. The inspectors of
election will determine whether or not a quorum is present at the Joint Meeting.
The inspectors of election will treat abstentions and "broker non-votes" (i.e.,
shares held by brokers or nominees, typically in "street name," as to which (i)
instructions have not been received from the beneficial owners or persons
entitled to vote and (ii) the broker or nominee does not have discretionary
voting power on a particular matter) as present for purposes of determining a
quorum.
For purposes of determining the approval of the matters submitted to
shareholders for a vote, in the case of the Acquiring Fund, (i) abstentions and
broker non-votes will have the same effect as a vote against the Agreement, (ii)
abstention and broker non-votes will have the same effect as a vote against the
amendment of the Acquiring Fund Statement, (iii) abstentions and broker
non-votes will have the same effect as a vote against the election of Board
Members, and (iv) abstentions and broker non-votes will have the same effect as
a vote against the ratification of the selection of independent auditors. In the
case of the Acquired Fund, abstentions and broker non-votes will have the same
effect as a vote against the Agreement.
Shares of a series of MuniPreferred of the Acquired Fund held in "street name"
for which voting instructions have not been received as of one business day
before the meeting, or, if adjourned, one business day before the day to which
the meeting is adjourned, and that would otherwise be treated as "broker
non-votes" may, pursuant to Rule 452 of the NYSE, be voted by the broker on each
item in the same proportion as the votes cast by all MuniPreferred shareholders
of that series of the Acquired Fund who have voted on the item. Rule 452 permits
proportionate voting for a series of MuniPreferred with respect to a particular
item if, among other things, (i) a minimum of 30% of the shares of MuniPreferred
of that series outstanding has been voted by the holders of such shares with
respect to such item and (ii) less than 10% of the shares of MuniPreferred of
that series outstanding has been voted by the holders of such shares against
such item. For the purpose of meeting the 30% test, abstentions will be treated
as shares "voted" and, for the purpose of meeting the 10% test, abstentions will
not be treated as shares "voted" against the item.
The details of each proposal to be voted on by the shareholders of each Fund and
the vote required for approval of each proposal are set forth under the
description of each proposal below. Shareholders of either Fund who execute
proxies may revoke them at any time before they are voted by filing with their
Fund a written notice of revocation, by delivering a duly executed proxy bearing
a later date or by attending the meeting and voting in person.
7
<PAGE> 18
AVAILABLE INFORMATION
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Investment
Company Act of 1940, as amended (the "1940 Act"), and in accordance therewith is
required to file reports, proxy statements and other information with the
Commission. Any such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549-6009, and
at the Commission's Northeast Regional Office, Suite 1300, Seven World Trade
Center, New York, New York 10048 and Midwest Regional Office, Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Copies
of such materials can be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the SEC
maintains a web site (http://www.sec.gov) that contains reports, other
information and proxy statements filed by the Funds. The shares of the Acquiring
Fund are listed on the NYSE, and such reports, proxy statements and other
information concerning the Acquiring Fund can also be inspected at the offices
of the NYSE, 20 Broad Street, New York, New York 10005. The shares of the
Acquired Fund are listed on the AMEX [and such reports, proxy statements and
other information concerning the Acquired Fund can also be inspected at the
offices of the AMEX, .]
The Acquiring Fund has filed with the Commission a registration statement on
Form N-14 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended
("Securities Act"), relating to the Acquiring Fund shares to be issued pursuant
to the Reorganization. This Joint Proxy Statement -- Prospectus and the related
Statement of Additional Information does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Acquiring Fund shares to be issued pursuant to
the Reorganization, reference is hereby made to the Registration Statement.
Statements contained in the Joint Proxy Statement -- Prospectus and the related
Statement of Additional Information as to the content of any contract or other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document included as an
Annex hereto or filed as an exhibit to the Registration Statement.
The information in this Joint Proxy Statement -- Prospectus concerning the
Acquiring Fund has been furnished by the Acquiring Fund, and the information
concerning the Acquired Fund has been furnished by the Acquired Fund. This Joint
Proxy Statement -- Prospectus constitutes a prospectus of the Acquiring Fund
with respect to the Acquiring Fund Shares issued pursuant to the Reorganization.
PROPOSAL NO. 1 -- THE REORGANIZATION
The terms and conditions of the Reorganization are set forth in the Agreement
and Plan of Reorganization and Liquidation. Significant provisions of the
Agreement are summarized below; however, this summary is qualified in its
entirety by reference to the Agreement, a copy of which is attached as Annex A
to this Joint Proxy Statement -- Prospectus.
GENERAL
The Agreement sets forth the terms of the Reorganization, under which (a) the
Acquiring Fund would acquire substantially all of the assets of the Acquired
Fund in exchange for newly issued common shares and newly issued shares of
MuniPreferred, Series TH or Series TH2, of the Acquiring Fund and the Acquiring
Fund's assumption of substantially all of the liabilities of the Acquired Fund;
and (b) the Acquired Fund would liquidate and distribute to its shareholders pro
rata by class the Acquiring Fund Shares received. As a result of the
Reorganization, the assets of the Acquiring Fund and the Acquired Fund would be
combined and the shareholders of the Acquired Fund would become shareholders of
the Acquiring Fund. The Board Members and officers of the Acquiring Fund are
identical to those of the Acquired Fund. The investment objectives and policies
of the Agency Fund are substantially similar to the Acquired Fund except that
the Acquired Fund primarily invests in Washington Municipal Obligation. Other
than the Acquired Fund's concentration in Washington Municipal Obligations, the
general portfolio characteristics of the Acquiring Fund, after the
Reorganization, would be substantially similar to, the Acquired Fund. If the
proposals relating to the Agreement are approved, the Effective Time is expected
to be the close of business on August 13, 1999. Following the Reorganization,
the Acquired Fund would terminate its registration as an investment company
under the 1940 Act by filing a Form N-8F with the Commission.
TERMS OF THE REORGANIZATION
If the Reorganization is approved and the other conditions are satisfied or
waived, at the Effective Time the Acquiring Fund will acquire substantially all
of the assets of the Acquired Fund, including cash (other than cash used to pay
certain Reorganization expenses of the Acquired Fund and to make a final
distribution of net tax-exempt income, net ordinary taxable income and net
capital gains to the shareholders of the Acquired Fund accrued as of the
Effective Time), cash equivalents, Municipal Obligations and other securities,
receivables and other property owned by the Acquired Fund. In exchange, the
Acquiring Fund would assume from the Acquired Fund all debts, liabilities,
obligations and duties of the
8
<PAGE> 19
Acquired Fund (other than certain expenses incurred by the Acquired Fund in
connection with the Reorganization and the Acquired Fund's obligation to
distribute any net tax-exempt income, net ordinary taxable income and net
capital gains accrued as of the Effective Time), and the Acquiring Fund would
issue to the Acquired Fund common shares and shares of MuniPreferred, Series TH
or Series TH2, of the Acquiring Fund. The number of Acquiring Fund common shares
to be issued to the Acquired Fund would be that number having an aggregate per
share net asset value equal to the aggregate value of the Acquired Fund's assets
transferred to, net of the Acquired Fund's liabilities assumed by, the Acquiring
Fund as of the Effective Time. The value of the Acquired Fund's net assets shall
be calculated net of the liquidation preference (including accumulated and
unpaid dividends) of all outstanding shares of Acquired Fund MuniPreferred. If
Acquiring Fund shareholders approve an amendment to the Acquiring Fund's
Articles of Incorporation to authorize additional shares of MuniPreferred,
Series TH, shares of Acquiring Fund MuniPreferred would be issued to the
Acquired Fund on the basis of one newly issued share of Acquiring Fund
MuniPreferred, Series TH, for each share of Acquired Fund MuniPreferred, Series
TH, outstanding as of the Effective Time. The Acquiring Fund's Board of
Directors has approved, contingent upon Acquiring Fund shareholders not
approving the amendment to the Acquiring Fund's Articles of Incorporation to
authorize additional shares of MuniPreferred, Series TH, the creation of a new
MuniPreferred, Series TH2, in connection with the Reorganization. If Acquiring
Fund shareholders do not approve the authorization of additional shares of
MuniPreferred, Series TH, shares of Acquiring Fund MuniPreferred would be issued
to the Acquired Fund on the basis of one newly issued share of Acquiring Fund
MuniPreferred, Series TH2, for each share of Acquired Fund MuniPreferred, Series
TH outstanding.
The value of the Acquired Fund's assets to be acquired and liabilities to be
assumed by the Acquiring Fund, and the net asset value per common share to be
issued by the Acquiring Fund, will be determined by The Chase Manhattan Bank
("Chase"), the custodian for each Fund, as of the Effective Time. Net asset
value per Acquiring Fund common share shall be computed by dividing the value of
the Acquiring Fund's total assets, less liabilities and less the aggregate
liquidation preference of all outstanding shares of Acquiring Fund MuniPreferred
and any accumulated and unpaid dividends thereon, by the number of Acquiring
Fund common shares outstanding. In determining net asset value per Acquiring
Fund common share and the value of the Acquired Fund's assets, Chase utilizes
the valuations of portfolio securities furnished by a pricing service approved
by the Boards of the respective Funds. 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 constitute a majority of the
securities held by the Funds) are valued at fair value as determined by the
pricing service using methods which include consideration of yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating; indications as to value from dealers; and general market conditions. The
pricing service may employ electronic data processing techniques or a matrix
system, or both, to determine valuations. The procedures of the pricing service
and its valuations are reviewed periodically by the officers of each Fund under
the general supervision of that Fund's Board. The number of Acquiring Fund
common shares to be issued to the Acquired Fund pursuant to the Reorganization
will be calculated based upon the determinations of Chase.
In the event the Reorganization is consummated, as soon as practicable after the
Effective Time, the Acquired Fund will liquidate and distribute pro rata to its
common shareholders of record the Acquiring Fund common shares it receives, and
pro rata by class to its preferred shareholders of record the shares of
Acquiring Fund MuniPreferred it receives. Such liquidation and distribution will
be accomplished by opening accounts on the books of the Acquiring Fund in the
names of the shareholders of the Acquired Fund and transferring to those
shareholder accounts the Acquiring Fund Shares previously credited on those
books to the account of the Acquired Fund. Each common shareholder account will
receive the respective pro rata number of Acquiring Fund common shares (rounded
down, in the case of fractional Acquiring Fund common shares, to the next
largest number of whole Acquiring Fund common shares) due such Acquired Fund
common shareholder, and each preferred shareholder account will receive one
newly issued share of Acquiring Fund MuniPreferred, Series TH or Series TH2, for
each share of Acquired Fund MuniPreferred, Series TH, held by such preferred
shareholder.
No fractional Acquiring Fund common shares will be issued. In lieu thereof, the
Acquired Fund's transfer agent, Chase, will aggregate all fractional Acquiring
Fund common shares and sell the resulting whole Acquiring Fund common shares on
the NYSE for the account of all shareholders of fractional interests, and each
such shareholder will be entitled to his or her pro rata share of the proceeds
of such sale upon surrender of his or her Acquired Fund common share
certificates.
Dividends will accumulate on shares of Acquired Fund MuniPreferred, Series TH,
up to and including the day on which the Effective Time occurs and will be paid,
together with the dividends then payable in respect of the shares of Acquiring
Fund MuniPreferred, Series TH, to the holders thereof on the Dividend Payment
Date in respect of the Initial Rate Period of such shares. If additional shares
of the existing Acquiring Fund's MuniPreferred, Series TH is issued in
connection with the Reorganization, the dividend rate for shares of
MuniPreferred, Series TH, issued in connection with the Reorganization for the
Initial Rate Period will be equal to the dividend rate for shares of the
Acquiring Fund's existing MuniPreferred, Series TH established in the first
Auction for shares of Series TH preceding the date of issuance of additional
shares of Series TH to Acquired Fund shareholders in connection with the
Reorganization. If shares of a new Acquiring Fund MuniPreferred, Series TH2 is
issued in connection with the Reorganization, the Initial Rate Period of the
shares of Acquiring Fund MuniPreferred, Series TH2, will be a period consisting
of the number of days following the day on which the Effective Time occurs that
would have remained in the rate period of the shares of Acquired Fund
MuniPreferred, Series TH, in effect immediately prior to the Effective Time. The
dividend rate for the shares of Acquiring Fund MuniPreferred, Series TH2, for
such Initial Rate
9
<PAGE> 20
Period thereof will be the dividend rate in effect immediately prior to the
Effective Time for the shares of Acquired Fund MuniPreferred, Series TH. The
initial Auction for the shares of Acquiring Fund MuniPreferred, Series TH2,
issued pursuant to the Reorganization will be held on the day on which the
auction next succeeding the Effective Time would have been held for the shares
of Acquired Fund MuniPreferred, Series TH, but for the Reorganization.
Following the Reorganization, every common shareholder of the Acquired Fund
would own common shares of the Acquiring Fund that, except for cash payments
received in lieu of fractional Acquiring Fund common shares, will have an
aggregate per share net asset value immediately after the Effective Time equal
to the aggregate per share net asset value of that shareholder's Acquired Fund
common shares immediately prior to the Effective Time. See "Description of
Common Shares Issued by the Acquiring Fund" for a description of the rights of
such shareholders. Since the Acquiring Fund common shares issued to the common
shareholders of the Acquired Fund would be issued at net asset value in exchange
for net assets of the Acquired Fund having a value equal to the aggregate per
share net asset value of those Acquiring Fund common shares so issued, the net
asset value of the Acquiring Fund common shares should remain virtually
unchanged by the Reorganization. Thus, the Reorganization should result in no
dilution of net asset value of any common shareholder's holdings. See "Pro Forma
Financial Information" in the Statement of Additional Information. However, as a
result of the Reorganization, common shareholders of both Funds would hold
reduced percentages of ownership in the larger combined entity than they held in
the Acquiring Fund or the Acquired Fund, as the case may be.
Following the Reorganization, every preferred shareholder of the Acquired Fund
would own the same number of shares of Acquiring Fund MuniPreferred, Series TH
or Series TH2, as he or she held of Acquired Fund MuniPreferred, Series TH, and
the shares of Acquiring Fund MuniPreferred, Series TH or Series TH2, would have
rights and preferences substantially similar to those of the shares of Acquired
Fund MuniPreferred, Series TH. If shares of Acquiring Fund MuniPreferred, Series
TH2 is issued in connection with this Reorganization, holders of shares of
Acquiring Fund MuniPreferred, Series TH2, would be entitled to receive, on the
date that, but for the Reorganization, would have been the next dividend payment
date in respect of the shares of Acquired Fund MuniPreferred, Series TH,
dividends accumulated in respect of the shares of Acquired Fund MuniPreferred,
Series TH, (up to and including the day on which the Effective Time occurs), and
in respect of such shares of Acquiring Fund MuniPreferred, Series TH2 (for an
Initial Rate Period beginning the day after the day on which the Effective Time
occurs), which together equal the amount of dividends that would have been paid
on such date with respect to the shares of Acquired Fund MuniPreferred, Series
TH, but for the Reorganization. See "Description of MuniPreferred Issued by the
Acquiring Fund" and "Comparison of Rights of Holders of MuniPreferred of the
Acquiring Fund and the Acquired Fund."
See "Surrender and Exchange of Acquired Fund Share Certificates" for a
description of the procedures to be followed by Acquired Fund shareholders to
obtain certificates representing their Acquiring Fund Shares (and cash in lieu
of fractional Acquiring Fund common shares, if any).
Under the terms of the Agreement, the Reorganization is conditioned upon (a)
approval by the shareholders of the Acquiring Fund and the Acquired Fund, as
described under "Votes Required" below, (b) the Funds' receipt of written advice
from Moody's and S&P (i) confirming that consummation of the Reorganization will
not impair the "aaa" and AAA ratings assigned to the outstanding shares of
Acquiring Fund MuniPreferred, Series M, Series T, Series T2, Series W, Series
W2, Series TH, Series F or Series F2 and (ii) assigning "aaa" or AAA ratings to
the shares of Acquiring Fund MuniPreferred, Series TH2, if issued pursuant to
the Reorganization, (c) the Funds' receipt of an opinion to the effect that the
Reorganization will qualify as a tax-free reorganization under the Code (which
opinion has already been received), (d) the absence of legal proceedings
challenging the Reorganization and (e) the Funds' receipt of certain routine
certificates and legal opinions. See "Rating Agency Considerations" and "Tax
Consequences of the Reorganization."
The Agreement may be terminated and the Reorganization abandoned, whether before
or after approval by the Funds' shareholders, at any time prior to the Effective
Time (a) by the written consent of the Boards of both Funds, (b) by either Fund
if any condition to that Fund's obligations under the Agreement has not been
satisfied or waived and it reasonably appears that such condition will not be
satisfied or (c) by either Fund if the Reorganization has not occurred by
.
REASONS FOR THE REORGANIZATION
The respective Boards of the Acquiring Fund and the Acquired Fund, which consist
of the same individuals, have concluded that the Reorganization is in the best
interests of their respective Funds and unanimously recommend that the
shareholders of their respective Funds vote FOR approval of the proposals
relating to the Agreement.
The reorganization should allow the Acquired Fund shareholders to benefit from a
larger, more diversified portfolio with a lower management fee and total expense
ratio. Acquired Fund shareholders should also benefit from a significant
reduction in administrative expenses due to the economies of scale reached
through the reorganization.
Because the two portfolios have similar characteristics, the reorganization
would benefit Acquiring Fund shareholders to a much smaller degree due to the
Acquiring Fund's size relative to the Acquired Fund. Acquiring Fund shareholders
would benefit through a nominally reduced total expense ratio, a slight increase
in credit quality and slightly improved call
10
<PAGE> 21
protection. Because the benefits of the Reorganization flow primarily to the
Acquired Fund, the Acquired Fund will pay for all of the costs associated with
the Reorganization. See "Expenses Associated with the Reorganization."
Common shareholders of the Acquired Fund should benefit from a lower investment
management rate as a result of the Reorganization. Acquired Fund Shareholders
will realize a management fee breakpoint. Under the Acquiring Fund's Investment
Management Agreement, the management fees payable by the Acquiring Fund are
.6500% of average daily net assets for net assets of up to $125 million, .6375%
for net assets in excess of $125 million (but less than $250 million), .6250%
for net assets in excess of $250 million, (but less than $500 million), .6125%
for net assets in excess of $500 million (but less than $1 billion), .6000% for
net assets in excess of $1 billion (but less than $2 billion) and .5875% for net
assets in excess of $2 billion. As of April 15, 1999, the Acquiring Fund had net
assets of approximately $916 million and the Acquired Fund had net assets of
approximately $52 million. Management projections estimate that the Acquiring
Fund will have net assets in excess of $975 million upon completion of the
Reorganization. At this level, management fees for Acquired Fund shareholders
will fall to .63% from .65%.
Based upon data presented by management of the Funds, the Boards believe that
administrative expenses of a larger combined Fund comprised of the assets of
both Funds will be less than the aggregate expenses of the Acquired Fund,
resulting in a lower expense ratio and corresponding higher earnings for its
common shareholders. For the fiscal years ended October 31, 1998 and May 31,
1998, the expense ratios for the Acquiring Fund and the Acquired Fund were .79%
and .91%, respectively. The pro-forma expense ratio for the combined Fund the 12
month period ended October 31, 1998 would have been .79%.
Data prepared by management of the Funds indicates that market prices of common
shares of smaller funds are likely to experience greater spreads between the bid
and the offer than market prices of common shares of larger funds, and that the
Reorganization would result in a higher average daily trading volume, a narrower
average spread between the bid and the offer and reduced price volatility for
Acquired Fund common shareholders. There can be no assurance that the
Reorganization will produce these anticipated benefits. However, the Boards
believe that these results, if obtained, would benefit holders of Acquired Fund
common shares by affording them a more liquid trading market for their shares
and the opportunity for more favorable price execution in trading the common
shares.
The Board also considered the adverse tax consequences of the Reorganization on
Acquired Fund shareholders from losing the exemption from Washington state
taxes. Acquired Fund shareholders, however, should not suffer any adverse tax
consequences from the Reorganization since the State of Washington currently has
no state income tax and the state is not proposing the imposition of an income
tax.
In addition, Acquired Fund shareholders will experience a slight reduction in
portfolio credit quality and slightly reduced call protection. However, the
Board believes that the advantages of the Reorganization for Acquired Fund
shareholders greatly outweigh these portfolio functions.
Acquiring Fund shareholders will also benefit from the Reorganization, although
to a smaller degree than Acquired Fund shareholders. Acquiring Fund shareholders
will benefit from a nominally reduced total expense ratio, a slight increase in
average credit quality and a slightly improved call protection over the next
four years.
In approving the Reorganization, the respective Boards determined that the
Reorganization should result in no dilution of the interests of the respective
Funds' existing shareholders. See "Pro Forma Financial Information" in the
Statement of Additional Information. Although the Reorganization is expected to
result in a reduction in net asset value per Acquiring Fund common share (and
per Acquired Fund common share equivalent) of approximately $0.01 as a result of
the estimated costs of the Reorganization, management of the Funds has advised
the Boards that it expects such costs to be approximately $150,000. The Acquired
Fund will pay for all of the costs associated with the Reorganization. See
"Expenses Associated with the Reorganization."
In approving the Reorganization, the Boards considered a report of the Funds'
management indicating that the Reorganization should not have a materially
adverse overall effect on the financial status and ongoing performance of either
Fund, and considered such measures as gross portfolio yield, net portfolio
earnings rate as a percentage of net asset value, monthly net earnings, monthly
dividends, dividend rates as a percentage of the initial offering and market
price, management fees, expense ratios and undistributed net investment income
balances. The Boards also examined the relative credit strength, maturity
characteristics, preferred share asset coverages, mix of type and purpose, and
yield of the Funds' portfolios of Municipal Obligations and the costs involved
in the Reorganization. The Boards noted the many similarities between the Funds,
including their similar investment objectives and policies, common management
and similar portfolios of Municipal Obligations. Based on these factors, the
Boards determined that the Reorganization is likely to provide benefits to the
shareholders of each Fund, as discussed above, that outweigh the possible
adverse effects and the costs presented by the Reorganization.
11
<PAGE> 22
VOTES REQUIRED
VOTES OF PREFERRED SHAREHOLDERS AS A SEPARATE CLASS
Preferred shareholders of both Funds are being asked to approve the Agreement as
a "plan of reorganization" under the 1940 Act. Section 18(a)(2)(D) of the 1940
Act provides that the terms of preferred shares issued by a registered
closed-end investment company must contain provisions requiring approval by the
vote of a majority of such shares, voting as a class, of any plan of
reorganization adversely affecting such shares. The 1940 Act makes no
distinction between a plan of reorganization that has an adverse effect as
opposed to a materially adverse effect. While the respective Boards do not
believe that the holders of shares of MuniPreferred of either Fund would be
materially adversely affected by the Reorganization, it is possible that there
may be insignificant adverse effects (such as where the asset coverage with
respect to the shares of Acquiring Fund MuniPreferred issued pursuant to the
Reorganization is slightly more or less than the asset coverage with respect to
the shares of Acquired Fund MuniPreferred for which they are exchanged). Each
Fund is seeking approval of the Agreement by the holders of shares of each
series of that Fund's MuniPreferred, each such series voting separately as a
class. Such approval requires the affirmative vote of the holders of at least a
majority of the outstanding shares of that Fund's MuniPreferred entitled to vote
on the proposal, each such series voting separately as a class.
COMBINED VOTE OF COMMON AND PREFERRED SHAREHOLDERS (ACQUIRED FUND)
Consummation of the Reorganization is also subject to approval of the Agreement
by the common and preferred shareholders of the Acquired Fund. Adoption of this
proposal requires the affirmative vote of the holders of at least a majority of
the outstanding common shares and shares of MuniPreferred of the Acquired Fund
entitled to vote on the proposal, voting together as a single class.
RATING AGENCY CONSIDERATIONS
Under the terms of the Agreement, the Reorganization is conditioned upon (a)
approval by the shareholders of the Acquiring Fund and the Acquired Fund, as
described under "Votes Required" above, (b) the Funds' receipt of written advice
from Moody's and S&P (i) confirming that consummation of the Reorganization will
not impair the "aaa" and AAA ratings assigned to the outstanding shares of
Acquiring Fund MuniPreferred, Series M, Series T, Series T2, Series W, Series
W2, Series TH, Series F or Series F2 and (ii) assigning "aaa" or AAA ratings to
the shares of Acquiring Fund MuniPreferred, Series TH2, if issued pursuant to
the Reorganization, (c) the Funds' receipt of an opinion to the effect that the
Reorganization will qualify as a tax-free reorganization under the Code, (d) the
absence of legal proceedings challenging the Reorganization and (e) the Funds'
receipt of certain routine certificates and legal opinions. See "Rating Agency
Considerations" and "Tax Consequences of the Reorganization."
DESCRIPTION OF COMMON SHARES ISSUED BY THE ACQUIRING FUND
GENERAL
The Articles of Incorporation (the "Articles") of the Acquiring Fund authorizes
the issuance of 200,000,000 common shares in a single class, par value $.01 per
share. As of April 15, 1999, there were issued and outstanding 40,884,796 common
shares of the Acquiring Fund. If the Reorganization is approved, at the
Effective Time the Acquiring Fund will issue additional common shares. The
number of such additional Acquiring Fund common shares will be based on the
relative aggregate per share net asset values of the Acquiring Fund and the
Acquired Fund, in each case as of the Effective Time. Based on the relative per
share net asset values as of the Acquiring Fund would have issued
approximately additional common shares if the Reorganization had
occurred as of that date.
The terms of the Acquiring Fund common shares to be issued pursuant to the
Reorganization will be identical to the terms of the Acquiring Fund common
shares that are then outstanding. All of the Acquiring Fund common shares have
equal rights with respect to the payment of dividends and the distribution of
assets upon liquidation. The Acquiring Fund common shares are, when issued,
fully paid and non-assessable and have no preemptive, conversion or exchange
rights or right to cumulative voting. The Acquiring Fund will not be permitted
to declare, pay or set apart for payment any cash dividend or distribution on
the Acquiring Fund common shares, unless (a) cumulative dividends on all
outstanding shares of Acquiring Fund MuniPreferred have been paid in full and
(b) the Acquiring Fund meets the asset coverage test described in the Statement
of Additional Information under "Description of MuniPreferred Issued by the
Acquiring Fund -- Dividends -- Restrictions on Dividends and Other Payments."
This latter limitation on the Acquiring Fund's ability to make distributions on
common shares could under certain circumstances impair the ability of the
Acquiring Fund to maintain its qualification for taxation as a regulated
investment company under the Code. See "Tax Matters Associated with Investment
in the Funds" under "Additional Information About the Funds" below and in the
Statement of Additional Information.
12
<PAGE> 23
DISTRIBUTIONS
It is each Fund's present policy, which may be changed by its Board, to make
regular monthly cash distributions' to the holders of its common shares of net
investment income at a level rate that reflects past and projected performance
of the Fund, which over time will result in the distribution of all net
investment income of the Fund (net investment income remaining after the payment
of dividends on shares of MuniPreferred, when such shares are outstanding), and
to distribute at least annually net capital gains, if any, to the extent such
net capital gains are not necessary to satisfy the dividend, redemption or
liquidation preferences of shares of MuniPreferred. Each Fund's distribution
level is determined by the Board of the Fund after giving consideration to a
number of factors, including the Fund's undistributed net investment income and
historical and projected investment income, expenses and dividend payments on
shares of MuniPreferred. Net income for each Fund consists of all interest
income accrued on portfolio assets less all expenses of the Fund. Expenses of
each Fund are accrued each day.
To permit each Fund to maintain a more stable monthly distribution, the Fund may
from time to time distribute less than the entire amount of net investment
income earned in a particular period. Such undistributed net investment income
would be available to supplement future distributions, including distributions
which might otherwise have been reduced by a decrease in such Fund's monthly net
income due to fluctuations in investment income or expenses, or due to an
increase in the dividend rate on the outstanding shares of MuniPreferred. As a
result, the distributions paid by each Fund for any particular monthly period
may be more or less than the amount of net investment income actually earned by
the Fund during such period. Undistributed net investment income is added to
each Fund's net asset value, and, correspondingly, distributions from
undistributed net investment income are deducted from the Fund's net asset
value.
For tax purposes, each Fund is currently required to allocate net capital gains
and other taxable income, if any, between common shares and shares of
MuniPreferred of the Fund in proportion to total distributions paid to each
class for the year in which such net capital gains or other taxable income is
realized. See "Tax Matters Associated with Investment in the Funds" under
"Additional Information About the Funds" below and in the Statement of
Additional Information.
Fund management does not expect the level of monthly distributions to the common
shareholders of the Acquiring Fund and the Acquired Fund to be affected by the
Reorganization. There can be no assurance, however, that a stable level of
distributions may be maintained over the life of a Fund.
DIVIDEND REINVESTMENT PLAN
Under each Fund's Dividend Reinvestment Plan (the "Plan"), each common
shareholder of the Fund may elect to have all dividends or capital gains
distributions, or both, automatically reinvested by Chase, as agent for the
common shareholders of the Fund (the "Plan Agent"), in additional common shares.
A Fund common shareholder may make this election by completing a Dividend
Reinvestment Plan Application Form. Common shareholders of the Acquired Fund who
participate in the Acquired Fund's Dividend Reinvestment Plan will automatically
be enrolled in the Plan upon consummation of the Reorganization and any unpaid
dividends at the time of the Reorganization will be reinvested in shares of the
Acquiring Fund as if subject to the Plan. Other common shareholders of the
Acquired Fund will be given the opportunity to enroll in the Plan following the
Effective Time. An Acquired Fund common shareholder who does not elect to
participate in the Plan will receive all dividends and capital gains
distributions in cash paid by check mailed directly to the record shareholder by
Chase, as dividend paying agent.
Under the Plan, the number of shares equivalent to the cash distribution is
determined as follows:
(a) If the Fund common shares are trading at net asset value or at a
premium above net asset value at the time of valuation, the Fund will
issue new common shares at the then current market price; or
(b) If the Fund common shares are trading at a discount from net asset
value at the time of valuation, the Plan Agent will receive the
dividend or distribution in cash and apply it to the purchase of Fund
common shares in the open market, on the NYSE or AMEX or elsewhere,
for the participants' accounts. As a result of increases in the market
price prior to the time the Plan Agent has completed its purchases,
the average purchase price per share paid by the Plan Agent may exceed
the market price at the time of valuation, resulting in the
acquisition of fewer Fund common shares than if the dividend or
distribution had been paid in common shares issued by the Fund. The
Plan Agent will use all dividends and distributions received in cash
to purchase Fund common shares in the open market within 30 days of
the dividend payment date. Interest will not be paid on any uninvested
cash payments.
Participants in the Plan may withdraw from the Plan upon written or telephone
notice to the Plan Agent. When a participant withdraws from the Plan or upon
termination of the Plan, certificates for whole Fund common shares credited to
his or her account under the Plan will be issued and a cash payment will be made
for any fraction of a Fund common share credited to such account; or, if a
participant so desires, the Plan Agent will sell his or her Fund common shares
in the Plan and send the proceeds to the participant, less brokerage commissions
and a $2.50 service fee.
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<PAGE> 24
The Plan Agent maintains all Fund common shareholder accounts in the Plan and
furnishes written confirmation of all transactions in the accounts, including
information needed by such common shareholders for tax records. The Fund common
shares in the account of each Plan participant are held by the Plan Agent in
non-certificated form in the name of the participant, and each such common
shareholder's proxy includes those Fund common shares received pursuant to the
Plan.
In the case of Fund common shareholders such as banks, brokers or nominees that
hold Fund common shares for others who are the beneficial owners, the Plan Agent
administers the Plan on the basis of the number of Fund common shares certified
from time to time by the record shareholders as representing the total amount
registered in the record common shareholder's name and held for the account of
beneficial owners who participate in the Plan.
There will be no brokerage charges with respect to shares issued directly by the
Fund as a result of dividends or capital gains distributions payable either in
shares or in cash. However, each participant pays a pro rata share of brokerage
commissions incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of dividends or capital gains distributions.
The automatic reinvestment of dividends and distributions does not relieve
participants of any income taxes that may be payable on dividends or
distributions.
Experience under the Plan may indicate that changes are desirable. Accordingly,
each Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants.
Additional information about the Plan may be obtained from Chase, c/o Nuveen
Investor Services, P.O. Box 5186, Bowling Green Station, New York, New York
10274.
ODD LOT HOLDINGS
In connection with the Reorganization, a common shareholder of the Acquired Fund
might receive a number of Acquiring Fund common shares in the Reorganization
which consists of or includes an "odd lot" (i.e., less than 100 shares). Such
odd lot holders may participate in the Acquiring Fund's Dividend Reinvestment
Plan for the limited purpose of purchasing a sufficient number of Acquiring Fund
common shares to bring their odd lot shares up to a 100-share "round lot." Each
such odd lot holder would send in the certificates representing his or her odd
lot shares and direct the Plan Agent to reinvest dividends only until a
sufficient number of Acquiring Fund common shares have been acquired to form a
round lot. When this is accomplished, (a) certificates representing the round
lot of Acquiring Fund common shares would be issued to the holder, (b) any
excess Acquiring Fund common shares or fractional Acquiring Fund common shares
would be sold and a check for the sale issued to the holder, and (c) dividend
reinvestment on behalf of such holder would be discontinued.
COMPARISON OF RIGHTS OF HOLDERS OF COMMON SHARES OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
Notwithstanding that the Acquiring Fund is organized as a corporation under the
laws of the State of Minnesota and the Acquired Fund is organized as a business
trust under the laws of the Commonwealth of Massachusetts, the common shares of
each Fund have equal voting rights and equal rights with respect to the payment
of dividends and distribution of assets upon liquidation and have no preemptive,
conversion or exchange rights or rights to cumulative voting. The provisions of
the Articles of the Acquiring Fund are substantially similar to the provisions
of the Declaration of the Acquired Fund, and both contain, among other things,
identical super-majority voting provisions, as described under "Certain
Provisions in the Acquiring Fund's Articles of Incorporation" below. The full
text of each Fund's Articles or Declaration, as the case may be, is on file with
the Commission and may be obtained as described under "Available Information."
The terms of the Acquiring Fund's Dividend Reinvestment Plan are identical to
the terms of the Acquired Fund's Dividend Reinvestment Plan.
DESCRIPTION OF MUNIPREFERRED ISSUED BY THE ACQUIRING FUND
The following is a brief description of the terms of the shares of the Acquiring
Fund MuniPreferred, including the shares of Acquiring Fund MuniPreferred, Series
TH or Series TH2, to be issued pursuant to the Reorganization. This description
assumes that the Reorganization will be consummated and that the Acquiring Fund
will issue shares of its MuniPreferred pursuant to the Reorganization. This
description does not purport to be complete and is subject to and qualified in
its entirety by reference to the more detailed description of the shares of
Acquiring Fund MuniPreferred in the Statement of Additional Information and in
the Acquiring Fund Statement attached as Annex B to the Statement of Additional
Information. Capitalized terms used but not defined herein have the meanings
given them above or in the Acquiring Fund Statement.
GENERAL
The Acquiring Fund's Articles authorizes the issuance of 1,000,000 preferred
shares, par value $.01 per share, which may be issued from time to time in such
series and with such designations, preferences and other rights, qualifications,
limitations and restrictions as are determined in a resolution of the Acquiring
Fund's Board. The Acquiring Fund currently has outstanding shares of
MuniPreferred as follows: Series M-2,200; Series T-2,000; Series T2-1,328;
Series W-1,680;
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<PAGE> 25
Series W2-760; Series TH-2,000; Series F-1,800; and Series F2-1,328. If the
Reorganization and the amendment to the Acquiring Fund's Articles of
Incorporation to authorize additional shares of MuniPreferred, Series TH is
approved, at the Effective Time, the Acquiring Fund will issue to the Acquired
Fund 680 shares of MuniPreferred, Series TH, which the Acquired Fund will then
distribute to the holders of shares of Acquired Fund MuniPreferred, Series TH.
If the amendment to the Acquiring Fund's Articles of Incorporation is not
approved with respect to MuniPreferred, Series TH and the Reorganization is
approved, at the Effective Time, the Acquiring Fund will issue to the Acquired
Fund 680 shares of MuniPreferred, Series TH2, which the Acquired Fund would then
distribute to the holders of shares of Acquired Fund MuniPreferred, Series TH.
All shares of Acquiring Fund MuniPreferred issued pursuant to the Reorganization
will have a liquidation preference of $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared).
The shares of Acquiring Fund MuniPreferred, Series TH or Series TH2, issued
pursuant to the Reorganization will rank parity with shares of any other series
of Acquiring Fund MuniPreferred, and with any other series of preferred shares
of the Acquiring Fund as to the payment of dividends and the distribution of
assets upon liquidation. All shares of Acquiring Fund MuniPreferred carry one
vote per share on all matters on which such shares are entitled to be voted.
Shares of Acquiring Fund MuniPreferred are, when issued, fully paid and
non-assessable and have no preemptive, conversion or exchange rights or rights
to cumulative voting.
DIVIDENDS AND DIVIDEND PERIODS
General. If additional shares of the existing Acquiring Fund's MuniPreferred,
Series TH are issued in connection with the Reorganization, the dividend rate
for shares of MuniPreferred, Series TH, issued in connection with the
Reorganization for the Initial Rate Period will be equal to the dividend rate
for shares of the Acquiring Fund's existing MuniPreferred, Series TH established
in the first Auction for shares of Series TH preceding the date of issuance of
additional shares of Series TH to Acquired Fund shareholders in connection with
the Reorganization.
If shares of a new Acquiring Fund MuniPreferred, Series TH2 are issued in
connection with the Reorganization, the Initial Rate Period of the shares of
Acquiring Fund MuniPreferred, Series TH2, issued pursuant to the Reorganization
will be a period consisting of the number of days following the day on which the
Effective Time occurs that would have remained in the rate period of the shares
of Acquired Fund MuniPreferred, Series TH, in effect immediately prior to the
Effective Time. Any Subsequent Rate Period of shares of Acquiring Fund
MuniPreferred, Series TH2, as well as any Subsequent Rate Period of shares of
outstanding Acquiring Fund MuniPreferred, Series M, Series T, Series T2, Series
W, Series TH, Series F and Series F2 will be a Minimum Rate Period (7 Rate
Period Days), unless the Acquiring Fund, subject to certain conditions,
designates such Subsequent Rate Period as a Special Rate Period. See
"Designation of Special Rate Periods" below.
Dividends on shares of Acquiring Fund MuniPreferred issued pursuant to the
Reorganization will be payable, when, as and if declared by the Acquiring Fund's
Board out of funds legally available therefor in accordance with the Acquiring
Fund's Articles, including the Acquiring Fund Statement, and applicable law. If
MuniPreferred, Series TH is issued in connection with the Reorganization,
dividends will be payable on Friday, August 20, 1999, and thereafter on each
Friday. If MuniPreferred, Series TH2 is issued in connection with the
Reorganization, dividends will be payable on the first Friday following the end
of the Initial Rate Period and thereafter on each Friday. However, in either
case, (i) if the Friday on which dividends would otherwise be payable as set
forth above is not a Business Day, then dividends shall be payable on the first
Business Day that falls prior to such Friday, and (ii) the Acquiring Fund may
specify different Dividend Payment Dates in respect of any Special Rate Period
of any series of Acquiring Fund MuniPreferred of more than 28 Rate Period Days.
The amount of dividends per share payable on shares of each series of Acquiring
Fund MuniPreferred on any date on which dividends shall be payable on shares of
such series shall be computed by multiplying the Applicable Rate for shares of
such series in effect for such Dividend Period or Dividend Periods or part
thereof for which dividends have not been paid by a fraction, the numerator of
which shall be the number of days in such Dividend Period or Dividend Periods or
part thereof and the denominator of which shall be 365 if such Dividend Period
consists of 7 Rate Period Days and 360 for all other Dividend Periods, and
applying the rate obtained against $25,000.
Dividends will be paid through the Securities Depository on each Dividend
Payment Date in accordance with its normal procedures, which currently provide
for it to distribute dividends in next-day funds to Agent Members, who in turn
are expected to distribute such dividend payments to the persons for whom they
are acting as agents. Each of the current Broker-Dealers, however, has indicated
to the Acquiring Fund that such Broker-Dealer or the Agent Member designated by
such Broker-Dealer will make such dividend payments available in same-day funds
on each Dividend Payment Date to customers that use such Broker-Dealer or its
designee as Agent Member.
Dividends on the shares of Acquiring Fund MuniPreferred issued pursuant to the
Reorganization shall accumulate from the day following the day on which the
Effective Time occurs. If MuniPreferred, Series TH2 is issued in connection with
the Reorganization, the dividend rate for such shares for the Initial Rate
Period thereof will be the dividend rate in effect immediately prior to the
Effective Time for the shares of Acquired Fund MuniPreferred, Series TH. For
each Subsequent Rate Period of shares of any series of Acquiring Fund
MuniPreferred, the dividend rate will be the Applicable Rate for shares of
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<PAGE> 26
such series that the Auction Agent advises the Acquiring Fund results from an
Auction, except as provided below. The Applicable Rate that results from an
Auction for shares of any series of Acquiring Fund MuniPreferred will not be
greater than the Maximum Rate, which is:
(a) in the case of any Auction Date which is not the Auction Date
immediately prior to the first day of any proposed Special Rate
Period, the product of (i) the Reference Rate on such Auction Date for
the next Rate Period of shares of such series and (ii) the
Rate Multiple on such Auction Date, unless shares of such series have
or had a Special Rate Period (other than a Special Rate Period of 28
Rate Period Days or fewer) and an Auction at which Sufficient Clearing
Bids existed has not yet occurred for a Minimum Rate Period of shares
of such series after such Special Rate Period, in which case the
higher of:
(A) the dividend rate on shares of such series for the then-ending Rate
Period; and
(B) the product of (x) the higher of (I) the Reference Rate on such
Auction Date for a Rate Period equal in length to the then-ending
Rate Period of shares of such series, if such then-ending Rate
Period was 364 Rate Period Days or fewer, or the Treasury Note Rate
on such Auction Date for a Rate Period equal in length to the then
ending Rate Period of shares of such series, if such then-ending
Rate Period was more than 364 Rate Period Days, and (II) the
Reference Rate on such Auction Date for a Rate Period equal in
length to such Special Rate Period of shares of such series, if
such Special Rate Period was 364 Rate Period Days or fewer, or the
Treasury Note Rate on such Auction Date for a Rate Period equal in
length to such Special Rate Period, if such Special Rate Period was
more than 364 Rate Period Days and (y) the Rate Multiple on such
Auction Date; or
(b) in the case of any Auction Date which is the Auction Date immediately
prior to the first day of any proposed Special Rate Period, the
product of (i) the highest of (x) the Reference Rate on such Auction
Date for a Rate Period equal in length to the then-ending Rate Period
of shares of such series, if such then-ending Rate Period was 364 Rate
Period Days or fewer, or the Treasury Note Rate on such Auction Date
for a Rate Period equal in length to the then-ending Rate Period of
shares of such series, if such then-ending Rate Period was more than
364 Rate Period Days, (y) the Reference Rate on such Auction Date for
the Special Rate Period for which the Auction is being held if such
Special Rate Period is 364 Rate Period Days or fewer or the Treasury
Note Rate on such Auction Date for the Special Rate Period for which
the Auction is being held if such Special Rate Period is more than 364
Rate Period Days, and (z) the Reference Rate on such Auction Date for
Minimum Rate Periods and (ii) the Rate Multiple on such Auction Date.
If an Auction for any Subsequent Rate Period of shares of any series of
Acquiring Fund MuniPreferred is not held for any reason other than as described
below, the dividend rate on shares of such series for such Subsequent Rate
Period will be the Maximum Rate for shares of such series on the Auction Date
for such Subsequent Rate Period.
If the Acquiring Fund fails to pay in a timely manner to the Auction Agent the
full amount of any dividend on, or the redemption price of, any shares of any
series of Acquiring Fund MuniPreferred during any Rate Period thereof (other
than any Special Rate Period of more than 364 Rate Period Days or any Rate
Period succeeding any Special Rate Period of more than 364 Rate Period Days
during which such a failure occurred that has not been cured), and, prior to
12:00 Noon on the third Business Day next succeeding the date such failure
occurred, such failure shall have been cured and the Acquiring Fund shall have
paid a late charge, as described more fully under "Description of MuniPreferred
Issued by the Acquiring Fund -- Dividends -- Determination of Dividend Rate" in
the Statement of Additional Information, no Auction will be held in respect of
shares of such series for the first Subsequent Rate Period thereof thereafter
and the dividend rate for shares of such series for such Subsequent Rate Period
will be the Maximum Rate for shares of such series on the Auction Date for such
Subsequent Rate Period.
If the Acquiring Fund fails to pay in a timely manner to the Auction Agent the
full amount of any dividend on, or the redemption price of, any shares of any
series of Acquiring Fund MuniPreferred during any Rate Period thereof (other
than any Special Rate Period of more than 364 Rate Period Days or any Rate
Period succeeding any Special Rate Period of more than 364 Rate Period Days
during which such a failure occurred that has not been cured), and, prior to
12:00 Noon on the third Business Day next succeeding the date on which such
failure occurred, such failure shall not have been cured or the Acquiring Fund
shall not have paid a late charge, as described more fully under "Description of
MuniPreferred Issued by the Acquiring Fund -- Dividends -- Determination of
Dividend Rate" in the Statement of Additional Information, no Auction will be
held in respect of shares of such series for the first Subsequent Rate Period
thereof thereafter (or for any Rate Period thereof thereafter to and including
the Rate Period during which such failure is so cured and such late charge so
paid), 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 on the Auction
Date for shares of such series for each such Subsequent Rate Period (but with
the prevailing rating for shares of such series, for purposes of determining
such Maximum Rate, being deemed to be "Below, ba3'/ BB --").
If the Acquiring Fund fails to pay in a timely manner to the Auction Agent the
full amount of any dividend on, or the redemption price of, any shares of any
series of Acquiring Fund MuniPreferred during a Special Rate Period thereof of
more
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<PAGE> 27
than 364 Rate Period Days, or during any Rate Period thereof succeeding any
Special Rate Period of more than 364 Rate Period Days during which such a
failure occurred that has not been cured, and such failure shall not have been
cured or the Acquiring Fund shall not have paid a late charge, as described more
fully under "Description of MuniPreferred Issued by the Acquiring
Fund -- Dividends -- Determination of Dividend Rate" in the Statement of
Additional Information, no Auction will be held in respect of shares of such
series for such Subsequent Rate Period thereof (or for any Rate Period thereof
thereafter to and including the Rate Period during which such failure is so
cured and such late charge so paid), and the dividend rate for shares of such
series for each such Subsequent Rate Period shall be a rate per annum equal to
the Maximum Rate for shares of such series on the Auction Date for each such
Subsequent Rate Period (but with the prevailing rating for shares of such
series, for purposes of determining such Maximum Rate, being deemed to be
"Below, ba3'/BB --").
A failure to pay dividends on or the redemption price of shares of any series of
Acquiring Fund MuniPreferred shall have been cured with respect to any Rate
Period thereof if, within the respective time periods described under
"Description of MuniPreferred Issued by the Acquiring
Fund -- Dividends -- Determination of Dividend Rate" in the Statement of
Additional Information, the Acquiring Fund shall have paid to the Auction Agent
(a) all accumulated and unpaid dividends on the shares of such series and (b)
without duplication, the redemption price for shares, if any, of such series for
which notice of redemption has been mailed by the Acquiring Fund; provided,
however, that the foregoing clause (b) shall not apply to the Acquiring Fund's
failure to pay the redemption price in respect of shares of Acquiring Fund
MuniPreferred when the related notice of redemption provides that redemption of
such shares is subject to one or more conditions precedent and any such
condition precedent shall not have been satisfied at the time or times and in
the manner specified in such notice of redemption.
Gross-up Payments. Holders of shares of Acquiring Fund MuniPreferred are
entitled to receive, when, as and if declared by the Acquiring Fund's Board, out
of funds legally available therefor in accordance with the Acquiring Fund's
Declaration, including the Acquiring Fund Statement and applicable law,
dividends in an amount equal to the aggregate Gross-up Payments in accordance
with the following:
If, in the case of any Minimum Rate Period or any Special Rate Period of 28 Rate
Period Days or fewer, the Acquiring Fund allocates any net capital gains or
other income taxable for Federal income tax purposes to a dividend paid on
shares of Acquiring Fund MuniPreferred without having given advance notice
thereof to the Auction Agent as described under "The Auction -- Auction
Procedures" (a "Taxable Allocation") below solely by reason of the fact that
such allocation is made retroactively as a result of the redemption of all or a
portion of the outstanding shares of Acquiring Fund MuniPreferred or the
liquidation of the Acquiring Fund, the Acquiring Fund will, prior to the end of
the calendar year in which such dividend was paid, provide notice thereof to the
Auction Agent and direct the Acquiring Fund's dividend disbursing agent to send
such notice with a Gross-up Payment to each holder of shares (initially Cede &
Co., as nominee of the Securities Depository) that was entitled to such dividend
payment during such calendar year at such holder's address as the same appears
or last appeared on the record books of the Acquiring Fund.
If, in the case of any Special Rate Period of more than 28 Rate Period Days, the
Acquiring Fund makes a Taxable Allocation to a dividend paid on shares of
Acquiring Fund MuniPreferred, the Acquiring 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 Acquiring 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 record books of the Acquiring Fund.
The Acquiring 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
Acquiring Fund.
A "Gross-up Payment" means payment to a holder of shares of Acquiring Fund
MuniPreferred of an amount which, when taken together with the aggregate amount
of Taxable Allocations made to such holder to which such Gross-up Payment
relates, would cause such holder's dividends in dollars (after Federal income
tax consequences) from the aggregate of such Taxable Allocations and the related
Gross-up Payment to be equal to the dollar amount of the dividends which would
have been received by such holder if the amount of the aggregate Taxable
Allocations had been excludable from the gross income of such holder. Such
Gross-up Payment shall be calculated: (a) without consideration being given to
the time value of money; assuming that no holder of shares of Acquiring Fund
MuniPreferred is subject to the Federal alternative minimum tax with respect to
dividends received from the Acquiring Fund; and (c) assuming that each Taxable
Allocation and each Gross-up Payment (except to the extent such Gross-up Payment
is designated as an exempt-interest dividend under Section 852(b)(5) of the Code
or successor provisions) would be taxable in the hands of each holder of shares
of Acquiring Fund MuniPreferred at the maximum marginal regular Federal income
tax rate, if any, applicable to ordinary income (taking into account the Federal
income tax deductibility of state taxes paid or incurred) 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 during the calendar year in question.
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<PAGE> 28
Restrictions on Dividends and Other Distributions. Except as otherwise
described herein, for so long as any shares of Acquiring Fund MuniPreferred are
outstanding, the Acquiring Fund may not declare, pay or set apart for payment
any dividend or other distribution (other than a dividend or distribution paid
in, or in options, warrants or rights to subscribe for or purchase, its common
shares) in respect of its common shares or call for redemption, redeem, purchase
or otherwise acquire for consideration any of its common shares (except by
conversion into or exchange for shares of the Acquiring Fund ranking junior to
the shares of Acquiring Fund MuniPreferred as to the payment of dividends and
the distribution of assets upon liquidation), unless (a) full cumulative
dividends on shares of each series of Acquiring Fund MuniPreferred through its
most recently ended Dividend Period shall have been paid or shall have been
declared and sufficient funds for the payment thereof deposited with the Auction
Agent; (b) the Acquiring Fund shall have redeemed the full number of shares of
Acquiring Fund MuniPreferred required to be redeemed by any provision for
mandatory redemption pertaining thereto; and (c) immediately after such
transaction the Discounted Value of the Acquiring Fund's portfolio would at
least equal the MuniPreferred Basic Maintenance Amount in accordance with
guidelines of the rating agency or agencies then rating the shares of Acquiring
Fund 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 Acquiring Fund
shares ranking, as to the payment of dividends, on a parity with shares of
Acquiring Fund MuniPreferred for any period unless full cumulative dividends
have been or contemporaneously are declared and paid on the shares of each
series of Acquiring Fund MuniPreferred through its most recent Dividend Payment
Date. When dividends are not paid in full upon the shares of each series of
Acquiring Fund MuniPreferred through its most recent Dividend Payment Date or
upon the shares of any other class or series of shares ranking on a parity as to
the payment of dividends with shares of Acquiring Fund MuniPreferred through
their most recent respective dividend payment dates, all dividends declared upon
shares of Acquiring Fund MuniPreferred and any such other class or series of
shares ranking on a parity as to the payment of dividends with shares of
Acquiring Fund MuniPreferred shall be declared pro rata so that the amount of
dividends declared per share on shares of Acquiring Fund MuniPreferred and such
other class or series of shares shall in all cases bear to each other the same
ratio that accumulated dividends per share on the shares of Acquiring Fund
MuniPreferred and such class or series of shares bear to each other.
DESIGNATION OF SPECIAL RATE PERIODS
The Acquiring Fund, at its option, may designate any succeeding Subsequent Rate
Period of shares of either series of Acquiring Fund MuniPreferred as a Special
Rate Period consisting of a specified number of Rate Period Days evenly
divisible by seven and not more than 1,820 (approximately 5 years), subject to
certain adjustments. A designation of a Special Rate Period shall be effective
only if, among other things, (a) the Acquiring Fund shall have given certain
notices to the Auction Agent, (b) an Auction for shares of such series shall
have been held on the Auction Date immediately preceding the first day of such
proposed Special Rate Period and Sufficient Clearing Bids for shares of such
series shall have existed in such Auction and (c) if the Acquiring Fund shall
have mailed a notice of redemption with respect to any shares of such series,
the redemption price with respect to such shares shall have been deposited with
the Auction Agent.
VOTING RIGHTS
In addition to voting rights described under "Certain Provisions in the
Acquiring Fund's Articles of Incorporation" and "Additional Information About
the Funds -- Investment Objectives and Policies" below and in the Statement of
Additional Information under "Investment Objectives and Policies -- Investment
Restrictions," holders of Acquiring Fund preferred shares, including shares of
Acquiring Fund MuniPreferred, voting as a separate class, are entitled to elect
(a) two directors of the Acquiring Fund at all times and (b) a majority of the
directors if at any time dividends on Acquiring Fund preferred shares shall be
unpaid in an amount equal to two years dividends thereon, and to continue to be
so represented until all dividends in arrears shall have been paid or otherwise
provided for. In all other cases, directors shall be elected by holders of
Acquiring Fund common shares and preferred shares (including shares of Acquiring
Fund MuniPreferred), voting together as a single class. Except as otherwise
specified under "Certain Provisions in the Acquiring Fund's Articles of
Incorporation" below, the Acquiring Fund may not, among other things, without
the approval of the holders of a "majority of the outstanding" shares of
Acquiring Fund MuniPreferred, voting as a separate class, approve any plan of
reorganization adversely affecting shares of Acquiring Fund MuniPreferred.
The Acquiring Fund may not, without the affirmative vote of the holders of at
least a majority of the shares of Acquiring Fund MuniPreferred outstanding at
the time (voting separately as one class): (a) authorize, create or issue any
class or series of shares ranking prior to or on a parity with the Acquiring
Fund MuniPreferred with respect to the payment of dividends or the distribution
of assets upon liquidation or increase the authorized amount of any series of
Acquiring Fund MuniPreferred or (b) amend, alter or repeal the provisions of the
Acquiring Fund's Articles, including the Acquiring Fund Statement, whether by
merger, consolidation or otherwise, so as to affect any preference, right or
power of shares of Acquiring Fund MuniPreferred or the holders thereof. The
Acquiring Fund may not, without the affirmative vote of the holders of at least
66 2/3% of the shares of Acquiring Fund MuniPreferred outstanding at the time
(voting separately as one class) file a voluntary application for relief under
Federal bankruptcy law or any similar application under state law for so long as
the Acquiring Fund is solvent and does not foresee becoming insolvent.
Notwithstanding clause (a) of the first sentence of this
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<PAGE> 29
paragraph, but subject to the written confirmation from Moody's or S&P, or both,
as appropriate, that any such action would not impair the ratings then assigned
to outstanding Acquiring Fund MuniPreferred, the Acquiring Fund, without the
vote or consent of the holders of Acquiring Fund MuniPreferred, may from time to
time authorize and create, and the Acquiring 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 Acquiring Fund MuniPreferred
with respect to the payment of dividends and the distribution of assets upon
liquidation of the Acquiring 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 Acquiring Fund outstanding after any
such issuance, exclusive of accumulated and unpaid dividends, may not exceed
$[308,400,000] (after giving effect to the Reorganization). For purposes of
clause (b) of the first sentence of this paragraph, (i) none of the actions
permitted by the exception to clause (a) of the first sentence of this paragraph
will be deemed to affect such preferences, rights or powers and (ii) the
authorization, creation and issuance of classes or series of stock ranking
junior to shares of Acquiring Fund MuniPreferred with respect to the payment of
dividends and the distribution of assets upon liquidation of the Acquiring Fund,
will be deemed to affect such preferences, rights or powers only if Moody's or
S&P is then rating shares of Acquiring Fund MuniPreferred and such issuance
would, at the time thereof, cause the Acquiring Fund not to satisfy the 1940 Act
MuniPreferred Asset Coverage or the MuniPreferred Basic Maintenance Amount. If
any action set forth above would adversely affect the rights of one or more
series of Acquiring Fund MuniPreferred in a manner different from any other
series of Acquiring Fund MuniPreferred, the Acquiring Fund will not approve any
such action without the affirmative vote of the holders of at least a majority
of the shares of each such series of Acquiring Fund MuniPreferred (voting
separately as a class).
REDEMPTION
Mandatory Redemption. In the event the Acquiring Fund does not timely cure a
failure to maintain (a) a Discounted Value of its portfolio equal to the
MuniPreferred Basic Maintenance Amount or (b) the 1940 Act MuniPreferred Asset
Coverage, in each case in accordance with the requirements of the rating agency
or agencies then rating the shares of Acquiring Fund MuniPreferred, shares of
Acquiring Fund MuniPreferred will be subject to mandatory redemption on a date
specified by the Acquiring Fund's Board, out of funds legally available therefor
in accordance with the Acquiring Fund's Articles, including the Acquiring Fund
Statement and applicable law, at the redemption price of $25,000 per share plus
an amount equal to accumulated but unpaid dividends thereon (whether or not
earned or declared) to (but not including) the date fixed for redemption. Any
such redemption will be limited to the number of shares of Acquiring Fund
MuniPreferred necessary to restore the required Discounted Value or the 1940 Act
MuniPreferred Asset Coverage, as the case may be.
Optional Redemption. Shares of Acquiring Fund MuniPreferred of each series are
redeemable, at the option of the Acquiring Fund:
(a) as a whole or from time to time in part, on the second Business Day
preceding any Dividend Payment Date for shares of such series, out of
funds legally available therefor in accordance with the Acquiring
Fund's Articles, including the Acquiring Fund Statement and applicable
law, at the redemption price of $25,000 per share plus an amount equal
to accumulated but unpaid dividends thereon (whether or not earned or
declared) to (but not including) the date fixed for redemption;
provided, however, that (i) shares of such series may not be redeemed
in part if after such partial redemption fewer than 500 shares of such
series would remain outstanding and (ii) the notice establishing a
Special Rate Period of shares of such series, as delivered to the
Auction Agent and filed with the Secretary of the Acquiring Fund, may
provide that shares of such series shall not be redeemable during the
whole or any part of such Special Rate Period (except as provided in
clause (b) below) or shall be redeemable during the whole or any part
of such Special Rate Period only upon payment of such redemption
premium or premiums as shall be specified therein; and
(b) as a whole but not in part, out of funds legally available therefor in
accordance with the Acquiring Fund's Articles, including the Acquiring
Fund Statement and applicable law, on the first day following any
Dividend Period thereof included in a Rate Period of more than 364
Rate Period Days if, on the date of determination of the Applicable
Rate for shares of such series for such Rate Period, such Applicable
Rate equaled or exceeded on such date of determination the Treasury
Note Rate for such Rate Period, at a redemption price of $25,000 per
share plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date
fixed for redemption.
Notwithstanding the foregoing, if any dividends on shares of any series of
Acquiring Fund 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 Acquiring 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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<PAGE> 30
LIQUIDATION
Subject to the rights of holders of any series or class or classes of shares
ranking on a parity with shares of Acquiring Fund MuniPreferred with respect to
the distribution of assets upon liquidation of the Acquiring Fund, upon a
liquidation of the Acquiring Fund, whether voluntary or involuntary, the holders
of shares of Acquiring Fund MuniPreferred then outstanding will be entitled to
receive and to be paid out of the assets of the Acquiring Fund available for
distribution to its shareholders, before any payment or distribution shall be
made on the Acquiring Fund common shares, an amount equal to the liquidation
preference with respect to such shares ($25,000 per share), plus an amount equal
to all dividends thereon (whether or not earned or declared) accumulated but
unpaid to (but not including) the date of final distribution in same-day funds,
together with any applicable Gross-up Payments in connection with the
liquidation of the Acquiring Fund. After the payment to the holders of shares of
Acquiring Fund MuniPreferred of the full preferential amounts provided for as
described herein, the holders of shares of Acquiring Fund MuniPreferred as such
shall have no right or claim to any of the remaining assets of the Acquiring
Fund.
Neither the sale of all or substantially all the property or business of the
Acquiring Fund, nor the merger or consolidation of the Acquiring Fund into or
with any other corporation nor the merger or consolidation of any corporation
into or with the Acquiring Fund, shall be a liquidation, whether voluntary or
involuntary, for the purposes of the foregoing paragraph.
RATING AGENCY GUIDELINES
The Acquiring Fund is required under Moody's and S&P guidelines to maintain
assets having in the aggregate a Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount. Moody's and S&P have each established
separate guidelines for determining Discounted Value as described in the
Statement of Additional Information under "Description of MuniPreferred Issued
by the Acquiring Fund -- Rating Agency Guidelines." To the extent any particular
portfolio holding does not satisfy the applicable rating agency's guidelines,
all or a portion of such holding's value will not be included in the calculation
of Discounted Value (as defined by such rating agency). The Moody's and S&P
guidelines do not impose any limitations on the percentage of the Acquiring
Fund's assets that may be invested in holdings not eligible for inclusion in the
calculation of the Discounted Value of the Acquiring Fund's portfolio. The
amount of such assets included in the portfolio at any time may vary depending
upon the rating, diversification and other characteristics of the eligible
assets included in the portfolio, although it is not anticipated that in the
normal course of business the value of such assets would exceed 20% of the
Acquiring Fund's total assets. The MuniPreferred Basic Maintenance Amount
includes the sum of (a) the aggregate liquidation preference of shares of
Acquiring Fund MuniPreferred then outstanding and (b) certain accrued and
projected payment obligations of the Acquiring Fund.
The Acquiring Fund is also required under rating agency guidelines to maintain,
with respect to shares of Acquiring Fund MuniPreferred, as of the last Business
Day of each month in which any such shares are outstanding, asset coverage of at
least 200% with respect to senior securities which are shares, including
Acquiring Fund MuniPreferred (or such other asset coverage as may in the future
be specified in or under the 1940 Act as the minimum asset coverage for senior
securities which are shares of a closed-end investment company as a condition of
declaring dividends on its common shares) ("1940 Act MuniPreferred Asset
Coverage"). Based on the composition of the respective portfolios of the
Acquiring Fund and the Acquired Fund and market conditions as of ,
1940 Act MuniPreferred Asset Coverage with respect to shares of Acquiring Fund
MuniPreferred, assuming the issuance on the date thereof of all shares of
Acquiring Fund MuniPreferred contemplated to be issued pursuant to the
Reorganization, would have been computed as follows:
<TABLE>
<S> <C> <C> <C> <C>
Value of Acquiring Fund assets less liabilities
not constituting senior securities = $916,144,171 = 297%
Senior securities representing indebtedness plus liquidation $308,400,000
value of the shares of Acquiring Fund MuniPreferred
</TABLE>
In the event the Acquiring Fund does not timely cure a failure to maintain (a) a
Discounted Value of its portfolio equal to the MuniPreferred Basic Maintenance
Amount or (b) the 1940 Act MuniPreferred Asset Coverage, in each case in
accordance with the requirements of the rating agency or agencies then rating
the shares of Acquiring Fund MuniPreferred, the Acquiring Fund will be required
to redeem shares of Acquiring Fund MuniPreferred as described under
"Redemption -- Mandatory Redemption" above.
The Acquiring Fund may, but is not required to, adopt any modifications to the
guidelines that may hereafter be established by Moody's or S&P. Failure to adopt
any such modifications, however, may result in a change in the ratings described
under "Rating Agency Considerations" above or a withdrawal of ratings
altogether. In addition, any rating agency providing a rating for the shares of
Acquiring Fund MuniPreferred may, at any time, change or withdraw any such
rating. The Acquiring Fund's Board may, without shareholder approval, amend,
alter or repeal any or all of the definitions and related provisions which have
been adopted by the Acquiring Fund pursuant to the rating agency guidelines in
the event the Acquiring Fund receives written confirmation from Moody's or S&P,
or both, as appropriate, that any such amendment, alteration or repeal would not
impair the ratings then assigned by Moody's and S&P to shares of Acquiring Fund
MuniPreferred.
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<PAGE> 31
As recently described by Moody's and S&P, a preferred share rating is an
assessment of the capacity and willingness of an issuer to pay preferred share
obligations. The ratings on the shares of Acquiring Fund MuniPreferred are not
recommendations to purchase, hold or sell those shares, inasmuch as the ratings
do not comment as to market price or suitability for a particular investor. The
rating agency guidelines described above also do not address the likelihood that
an owner of shares of Acquiring Fund MuniPreferred will be able to sell such
shares in an Auction or otherwise. The ratings are based on current information
furnished to Moody's and S&P by the Acquiring Fund and the Adviser and
information obtained from other sources. The ratings may be changed, suspended
or withdrawn as a result of changes in, or the unavailability of, such
information.
A rating agency's guidelines will apply to shares of Acquiring Fund
MuniPreferred only so long as such rating agency is rating such shares. The
Acquiring Fund will pay certain fees to Moody's or S&P, or both, for rating
shares of Acquiring Fund MuniPreferred.
THE AUCTION
GENERAL
The Acquiring Fund Statement provides that, except as otherwise described
herein, the Applicable Rate for the shares of each series of Acquiring Fund
MuniPreferred, including the shares of Acquiring Fund MuniPreferred, Series TH,
to be issued pursuant to the Reorganization, for each Rate Period after the
Initial Rate Period thereof shall be equal to the rate per annum that the
Auction Agent advises has resulted on the Business Day preceding the first day
of such Subsequent Rate Period (an "Auction Date") from implementation of the
auction procedures (the "Auction Procedures") set forth in the Acquiring Fund
Statement and summarized below, in which persons determine to hold or offer to
sell or, based on dividend rates bid by them, offer to purchase or sell shares
of such series. Each periodic implementation of the Auction Procedures is
referred to herein as an "Auction." See the Acquiring Fund Statement attached as
Annex to the Statement of Additional Information for a more complete
description of the Auction process.
AUCTION PROCEDURES
Prior to the Submission Deadline on each Auction Date for shares of a series of
Acquiring Fund MuniPreferred, each customer of a Broker-Dealer who is listed on
the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a
holder of shares of such series (a "Beneficial Owner") may submit orders
("Orders") with respect to shares of such series to that Broker-Dealer as
follows:
- Hold Order -- indicating its desire to hold shares of such series
without regard to the Applicable Rate for shares of such series for the
next Rate Period thereof.
- Bid -- indicating its desire to sell shares of such series at $25,000
per share if the Applicable Rate for shares of such series for the next
Rate Period thereof is less than the rate specified in such Bid (also
known as a hold-at-a-rate order).
- Sell Order -- indicating its desire to sell shares of such series at
$25,000 per share without regard to the Applicable Rate for shares of
such series for the next Rate Period thereof.
A Beneficial Owner may submit different types of Orders to its Broker-Dealer
with respect to shares of a series of Acquiring Fund MuniPreferred then held by
such Beneficial Owner. A Beneficial Owner of shares of such series that submits
a Bid with respect to shares of such series to its Broker-Dealer having a rate
higher than the Maximum Rate for such shares on the Auction Date therefor will
be treated as having submitted a Sell Order with respect to shares of such
series to its Broker dealer. A Beneficial Owner of shares of such series that
fails to submit an Order with respect to such shares of such series to its
Broker-Dealer will be deemed to have submitted a Hold Order for shares of such
series to its Broker-Dealer; provided, however, that if a Beneficial Owner of
shares of such series fails to submit an Order with respect to shares of such
series to its Broker-Dealer for an Auction relating to a Rate Period of more
than 28 Rate Period Days, such Beneficial Owner will be deemed to have submitted
a Sell Order with respect to such shares to its Broker-Dealer. A Sell Order
shall constitute an irrevocable offer to sell the shares of Acquiring Fund
MuniPreferred subject thereto. A Beneficial Owner that offers to become the
Beneficial Owner of additional shares of Acquiring Fund MuniPreferred is, for
purposes of such offer, a Potential Beneficial Owner as discussed below.
A customer of a Broker-Dealer that is not a Beneficial Owner of shares of a
series of Acquiring Fund MuniPreferred but that wishes to purchase shares of
such series, or that is a Beneficial Owner of shares of such series that wishes
to purchase additional shares of such series (in each case, a "Potential
Beneficial Owner"), may submit Bids to its Broker-Dealer in which it offers to
purchase shares of such series at $25,000 per share if the Applicable Rate for
shares of such series for the next Rate Period thereof is not less than the rate
specified in such Bid. A Bid placed by a Potential Beneficial Owner of shares of
such series specifying a rate higher than the Maximum Rate for shares of such
series on the Auction Date therefor will not be accepted.
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<PAGE> 32
The Broker-Dealers in turn will submit the Orders of their respective customers
who are Beneficial Owners and Potential Beneficial Owners to the Auction Agent,
designating themselves (unless otherwise permitted by the Acquiring Fund) as
Existing Holders in respect of shares subject to Orders submitted or deemed
submitted to them by Beneficial Owners and as Potential Holders in respect of
shares subject to Orders submitted to them by Potential Beneficial Owners.
However, neither the Acquiring Fund nor the Auction Agent will be responsible
for a Broker-Dealer's failure to comply with the foregoing. Any Order placed
with the Auction Agent by a Broker-Dealer as or on behalf of an Existing Holder
or a Potential Holder will be treated in the same manner as an Order placed with
a Broker-Dealer by a Beneficial Owner or Potential Beneficial Owner. Similarly,
any failure by a Broker-Dealer to submit to the Auction Agent an Order in
respect of any shares of Acquiring Fund MuniPreferred held by it or customers
who are Beneficial Owners will be treated in the same manner as a Beneficial
Owner's failure to submit to its Broker-Dealer an Order in respect of shares of
Acquiring Fund MuniPreferred held by it. A Broker-Dealer may also submit Orders
to the Auction Agent for its own account as an Existing Holder or Potential
Holder, provided it is not an affiliate of the Acquiring Fund.
If Sufficient Clearing Bids for shares of a series of Acquiring Fund
MuniPreferred exist (that is, the number of shares of such series subject to
Bids submitted or deemed submitted to the Auction Agent by Broker-Dealers as or
on behalf of Potential Holders with rates equal to or lower than the Maximum
Rate for shares of such series is at least equal to the number of shares of such
series subject to Sell Orders submitted or deemed submitted to the Auction Agent
by Broker-Dealers as or on behalf of Existing Holders), the Applicable Rate for
shares of such series for the next succeeding Rate Period thereof will be the
lowest rate specified in the Submitted Bids which, taking into account such rate
and all lower rates bid by Broker dealers as or on behalf of Existing Holders
and Potential Holders, would result in Existing Holders and Potential Holders
owning all the shares of such series available for purchase in the Auction. If
Sufficient Clearing Bids for shares of a series of Acquiring Fund MuniPreferred
do not exist, the Applicable Rate for shares of such series for the next
succeeding Rate Period thereof will be the Maximum Rate for shares of such
series on the Auction Date therefor. In such event, Beneficial Owners of shares
of such series that have submitted or are deemed to have submitted Sell Orders
may not be able to sell in such Auction all shares of such series subject to
such Sell Orders. If Broker-Dealers submit or are deemed to have submitted to
the Auction Agent Hold Orders with respect to all Existing Holders of shares of
a series of Acquiring Fund MuniPreferred, the Applicable Rate for shares of such
series for the next succeeding Rate Period thereof will be the All Hold Order
Rate.
The Auction Procedures include a pro rata allocation of shares for purchase and
sale, which may result in an Existing Holder continuing to hold or selling, or a
Potential Holder purchasing, a number of shares of a series of Acquiring Fund
MuniPreferred that is fewer than the number of shares of such series specified
in its Order. To the extent the allocation procedures have that result,
Broker-Dealers that have designated themselves as Existing Holders or Potential
Holders in respect of customer Orders will be required to make appropriate pro
rata allocations among their respective customers.
Settlement of purchases and sales will be made on the next Business Day (also a
Dividend Payment Date) after the Auction Date through the Securities Depository.
Purchasers will make payment through their Agent Members in same-day funds to
the Securities Depository against delivery to their respective Agent Members.
The Securities Depository will make payment to the sellers' Agent Members in
accordance with the Securities Depository's normal procedures, which now provide
for payment against delivery by their Agent Members in same-day funds. The
settlement procedures to be used with respect to Auctions for shares of
Acquiring Fund MuniPreferred are set forth in the Acquiring Fund Statement
attached as Annex to the Statement of Additional Information.
The first Auction for shares of Acquiring Fund MuniPreferred, Series TH, will be
held on the Business Day first preceding the Dividend Payment Date for the
Initial Rate Period of such series. See "Description of MuniPreferred Issued by
the Acquiring Fund -- Dividends and Dividend Periods -- General." Thereafter,
Auctions for shares of such series will normally be held every Thursday and each
Subsequent Rate Period of shares of such series will normally begin on the
following Friday.
Whenever the Acquiring Fund intends to include any net capital gains or other
income taxable for Federal income tax purposes in any dividend on shares of
Acquiring Fund MuniPreferred, the Acquiring Fund shall, in the case of Minimum
Rate Periods or Special Rate Periods of 28 Rate Period Days or fewer, and may,
in the case of any other Special Rate Period, notify the Auction Agent of the
amount to be so included not later than the Dividend Payment Date next preceding
the Auction Date on which the Applicable Rate for such dividend is to be
established. Whenever the Auction Agent receives such notice from the Acquiring
Fund, it will be required in turn to notify each Broker-Dealer, who, on or prior
to such Auction Date, in accordance with its Broker-Dealer Agreement, will be
required to notify its customers who are Beneficial Owners and Potential
Beneficial Owners believed by it to be interested in submitting an Order in the
Auction to be held on such Auction Date.
SECONDARY MARKET TRADING AND TRANSFER OF ACQUIRING FUND MUNIPREFERRED
The Broker-Dealers maintain a secondary trading market in shares of Acquiring
Fund MuniPreferred outside of Auctions, but are not obligated to do so, and may
discontinue such activity at any time. There can be no assurance that such
secondary trading market in shares of Acquiring Fund MuniPreferred will provide
owners with liquidity of investment. The shares of Acquiring Fund MuniPreferred
are not registered on any stock exchange or on the National Association of
Securities Dealers Automated Quotations System. Investors who purchase shares in
an Auction for a Special Rate Period should note that
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<PAGE> 33
because the dividend rate on such shares will be fixed for the length of such
Rate Period, the value of the shares may fluctuate in response to changes in
interest rates, and may be more or less than their original cost if sold on the
open market in advance of the next Auction therefor, depending upon market
conditions.
Unless otherwise permitted by the Acquiring Fund, a Beneficial Owner or an
Existing Holder may sell, transfer or otherwise dispose of shares of a series of
Acquiring Fund MuniPreferred only in whole shares and only pursuant to a Bid or
Sell Order placed with the Auction Agent in accordance with the Auction
Procedures or to a Broker-Dealer; provided, however, that in the case of all
transfers other than pursuant to Auctions, (i) any such Beneficial Owner or any
such Existing Holder that is not a Broker-Dealer shall advise its Broker-Dealer
of such transfer, who in turn shall advise the Auction Agent of such transfer
and (ii) any such Existing Holder that is a Broker-Dealer shall advise the
Auction Agent of such transfer.
COMPARISON OF RIGHTS OF HOLDERS OF MUNIPREFERRED OF THE
ACQUIRING FUND AND THE ACQUIRED FUND
The terms of the shares of Acquiring Fund MuniPreferred, Series TH or Series
TH2, issued pursuant to the Reorganization will be substantially similar to the
outstanding shares of Acquired Fund MuniPreferred, Series TH.
COMPARISON OF THE INVESTMENT OBJECTIVES AND POLICIES OF
THE ACQUIRING FUND AND THE ACQUIRED FUND
GENERAL
Each Fund's primary investment objective is to provide, through investment in a
professionally managed portfolio of tax-exempt Municipal Obligations, current
income exempt from regular Federal income tax, consistent with the Fund's
investment policies. The secondary investment objective of the Acquiring Fund is
the enhancement of portfolio value relative to the municipal bond market through
investments in tax-exempt Municipal Obligations that, in the opinion of the
Adviser, are underrated or undervalued or that represent municipal market
sectors that are undervalued. The secondary investment objective of the Acquired
Fund is the enhancement of portfolio value relative to the Washington municipal
bond market through investments in tax-exempt Washington Municipal Obligations
that, in the opinion of the Adviser, are underrated or undervalued or that
represent municipal market sectors that are undervalued. See "Portfolio
Investments." Underrated Municipal Obligations are those whose ratings do not,
in the Adviser's opinion, reflect their true value. Municipal Obligations may be
underrated because of the time that has elapsed since their most recent rating,
or because of positive factors that may not have been fully taken into account
by rating agencies, or for other similar reasons. Municipal Obligations that are
undervalued or that represent undervalued municipal market sectors are Municipal
Obligations that, in the Adviser's opinion, are worth more than the value
assigned to them in the marketplace. Municipal Obligations of particular types
or purposes (e.g., hospital bonds, industrial revenue bonds or bonds issued by a
particular municipal issuer) may be undervalued because there is a temporary
excess of supply in that market sector, or because of a general decline in the
market price of Municipal Obligations of the market sector for reasons that do
not apply to the particular Municipal Obligations that are considered
undervalued. Each Fund's investment in underrated or undervalued Municipal
Obligations will be based on the Adviser's belief that the prices of such
Municipal Obligations should ultimately reflect their true value. Accordingly,
"enhancement of portfolio value relative to the municipal bond market" refers to
each 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. Thus, each Fund's secondary investment objective
is not intended to suggest that capital appreciation is itself an objective of
each Fund. Instead, each Fund will seek enhancement of portfolio value relative
to the municipal bond market by prudent selection of Municipal Obligations,
regardless of which direction the market may move. Any capital appreciation
realized by a Fund will generally result in the distribution of taxable capital
gains to Fund shareholders. Each Fund is currently required to allocate net
capital gains and other income taxable for Federal income tax purposes, if any,
proportionately between its common shares and shares of MuniPreferred. See "Tax
Matters Associated with Investment in the Funds" and "Proposal No. 1 -- The
Reorganization -- The Auction -- Auction Procedures."
PORTFOLIO INVESTMENTS
Except to the extent either Fund invests in temporary investments as described
below and more fully in the Statement of Additional Information, the Acquiring
Fund will, as a fundamental policy, invest substantially all (in excess of 80%)
of its assets in tax-exempt Municipal Obligations rated at the time of purchase
within the four highest grades (Baa or BBB or better) by Moody's or S&P or in
unrated Municipal Obligations which, in the opinion of the Adviser, have
characteristics equivalent to, and will be of comparable quality to, Municipal
Obligations rated within the four highest grades by Moody's or S&P, provided
that the Acquiring Fund may not invest more than 20% of its assets in such
unrated Municipal Obligations. The Acquired Fund, as a fundamental policy,
invests substantially all (in excess of 80%) of its assets in tax-exempt
Washington Municipal Obligations rated at the time of purchase within the four
highest grades by Moody's or S&P, or in unrated Washington Municipal Obligations
which, in the opinion of the Adviser, have credit characteristics equivalent to,
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<PAGE> 34
and will be of comparable quality to, Washington Municipal Obligations rated
within the four highest grades by Moody's or S&P, provided that the Acquired
Fund may not invest more than 20% of its assets in such unrated Washington
Municipal Obligations.
Each Fund will not invest in any rated Municipal Obligations that are rated
lower than Baa by Moody's or BBB by S&P at the time of purchase. Municipal
Obligations rated Baa or BBB are considered "investment grade" securities;
Municipal Obligations rated Baa are considered medium grade obligations which
lack outstanding investment characteristics and in fact have speculative
characteristics as well, while Municipal Obligations rated BBB are regarded as
having an adequate capacity to pay principal and interest. Municipal Obligations
rated AAA in which each Fund may invest may have been so rated on the basis of
the existence of insurance guaranteeing the timely payment, when due, of all
principal and interest. A general description of Moody's and S&P's ratings of
Municipal Obligations is set forth in Annex A.
The foregoing investment objectives and policies are fundamental policies of
each Fund and may not be changed without the approval of the holders of a
"majority of the outstanding" common shares and preferred shares of that Fund,
including shares of that Fund's MuniPreferred, voting together as a single
class, and of the holders of a "majority of the outstanding" preferred shares of
the Fund, including shares of that Fund's MuniPreferred, voting as a separate
class. For purposes of the foregoing, "Investment Restrictions" below, and the
first paragraph under "Proposal No. 1 -- The Reorganization -- Description of
MuniPreferred Issued by the Acquiring Fund -- Voting Rights" above, "majority of
the outstanding," when used with respect to particular shares of a Fund, means
(a) 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 (b) more than 50% of
the shares, whichever is less.
Both Funds emphasize investments in Municipal Obligations with long-term
maturities in order to maintain an average portfolio maturity of 20-30 years,
but the average maturity may be shortened from time to time depending on market
conditions. Moreover, during temporary defensive periods, and in order to keep
cash on hand fully invested, both Funds may invest any percentage of its assets
in temporary investments, the income on which may be either tax-exempt or
taxable. Both Funds intend to invest in taxable temporary investments only in
the event that suitable tax-exempt temporary investments are not available at
reasonable prices and yields. Both Funds will invest only in taxable temporary
investments which are U.S. Government securities or securities rated within the
highest grade by Moody's or S&P, and which mature within one year form the date
of purchase or carry a variable or floating rate of interest.
MUNICIPAL OBLIGATIONS
"Municipal Obligations" are debt obligations issued by states, cities and local
authorities, and certain possessions and territories of the United States, to
obtain funds for various public purposes, including the construction and
maintenance of such public facilities as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which Municipal Obligations may be issued include the
refinancing of outstanding obligations and the obtaining of funds for general
operating expenses and for loans to other public institutions and facilities. In
addition, certain industrial development, private activity and pollution control
bonds may be included within the term Municipal Obligations if the interest paid
thereon qualifies as exempt from regular Federal income tax. The two principal
classifications of Municipal Obligations are "general obligation" and "revenue"
bonds. General obligation bonds are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue bonds (e.g., industrial development bonds) are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other specific revenue source.
Also included within the general category of Municipal Obligations are
participations in lease obligations or installment purchase contract obligations
of municipal authorities or entities.
The yields on Municipal Obligations are dependent on a variety of factors,
including the condition of the general money market and the Municipal Obligation
market, the size of a particular offering, the maturity of the obligation and
the rating of the issue. The market value of Municipal Obligations will vary
with changes in prevailing interest rate levels and as a result of changing
evaluations of the ability of their issuers to meet interest and principal
payments.
Each Fund may purchase and sell Municipal Obligations on a when-issued or
delayed delivery basis. When-issued and delayed delivery transactions arise when
securities are purchased or sold with payment and delivery beyond the regular
settlement date. On such transactions the payment obligation is fixed at the
time the buyer enters into the commitment. This involves an element of risk to a
Fund when it is the buyer because at the time of delivery the market value of
the Municipal Obligations may be less than such Fund's payment obligation. Each
Fund is required under the rules of the Commission to maintain in a segregated
account liquid assets, consisting of cash, U.S. government securities or other
high grade debt obligations, equal in value to the purchase price due on the
settlement date. Income generated by assets in such a segregated account of a
Fund may be taxable to shareholders of that Fund.
24
<PAGE> 35
INVESTMENT RESTRICTIONS
Except as described below, neither Fund, as a fundamental policy, may, without
the approval of the holders of a "majority of the outstanding" common shares and
preferred shares of such Fund, including shares of its MuniPreferred, voting
together as a single class, and of the holders of a "majority of the
outstanding" preferred shares of such Fund, including shares of its
MuniPreferred, voting as a separate class:
(1) Issue senior securities, as defined in the 1940 Act, other than
Preferred Shares, 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 in the Statement
of Additional Information under Certain Trading Strategies of each
Fund -- Financial Futures and Options Transactions.
(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 that represent no more than 10% of such Fund's
total assets and are otherwise within the limits described in the
Statement of Additional Information under Certain Trading Strategies
of each Fund -- Financial Futures and Options Transactions.
(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 such Fund's total assets
including the amount borrowed; while any such borrowings exceed 5% of
such Fund's 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
be applicable to Municipal Obligations other than those Municipal
Obligations backed only by the assets and revenues of
non-governmental users, nor shall it apply to Municipal Obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities;
(6) Purchase or sell real estate, but this shall not prevent such Fund
form investing in Municipal Obligations secured by real estate or
interests therein or foreclosing upon and selling such security;
(7) Purchase or sell commodities or commodities contracts, except for
transactions involving futures contracts that represent no more than
10% of such Fund's total assets and are otherwise within the limits
described in the Statement of Additional Information under Certain
Trading Strategies of each Fund -- Financial Futures and Options
Transactions.
(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 objectives, policies
and limitations;
(9) Invest in securities other than Municipal Obligations and temporary
investments as described in "Additional Information about the
Funds -- Investment Objectives and Policies -- Portfolio
Investments," and purchase financial futures and options except for
futures and options that represent no more than 10% of a Fund's total
assets and are otherwise within the limits described in the Statement
of Additional Information Under Certain Trading Strategies of each
Fund -- Financial Futures and Options Transactions.
(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 such Fund's total assets;
(11) Pledge, mortgage or hypothecate its assets, except that, to secure
borrowing 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 such Fund's 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 the
securities of such Fund if, to such Fund's knowledge, those directors
or trustees of such Fund, or those officers and directors of the
Adviser, 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
25
<PAGE> 36
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, such a guarantee or letter of credit would be
considered a separate security and would be treated as an issue of such
government, other entity or bank. When a Municipal Obligation is insured by bond
insurance, it shall not be considered a security that is issued or guaranteed by
the insurer; instead, the issuer of such security will be determined in
accordance with the principles set forth above. The foregoing restrictions do
not limit the percentage of a Fund's assets that may be invested in Municipal
Obligations insured by any given insurer.
Notwithstanding the foregoing, certain restrictions imposed by Moody's or S&P,
or both, on borrowing money, engaging in short sales of securities, lending
securities, buying and selling futures contracts and writing put or call options
at any time a Fund's shares of MuniPreferred are outstanding, as described in
the Statement of Additional Information under Certain Trading Strategies of each
Fund -- Financial Futures and Options Transactions are not fundamental policies
and may be changed by a Fund from time to time without shareholder approval, but
only in the event such Fund receives written confirmation from Moody's or S&P,
as appropriate, that such change would not impair the ratings then assigned by
Moody's or S&P, or both, to shares of such Fund's MuniPreferred.
The foregoing restrictions and limitations 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.
CERTAIN PROVISIONS IN THE ACQUIRING FUND'S ARTICLES OF INCORPORATION
The Acquiring Fund's Articles include provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the
Acquiring Fund. Specifically, the Acquiring Fund's Articles require the
affirmative vote of the holders of at least 66 2/3% of the Acquiring Fund Common
Shares and Acquiring Fund Preferred Shares (including shares of Acquiring Fund
MuniPreferred) then entitled to be voted, voting together as a single class,
except as described below, to authorize any of the following transactions:
(a) conversion of the Acquiring Fund from a closed-end to an open-end
investment company,
(b) a merger or consolidation of the Acquiring Fund with another
corporation or a reorganization or recapitalization,
(c) a sale, lease or transfer of all or substantially all of the Acquiring
Fund's assets (other than in the regular course of the Acquiring
Fund's investment activities), or
(d) a liquidation or dissolution of the Acquiring Fund,
unless such transaction has been authorized by the affirmative vote of 66 2/3%
of the total number of directors fixed in accordance with the By-Laws, in which
case the affirmative vote of the holders of a majority of the Acquiring Fund
Common Shares and Acquiring Fund Preferred Shares (including shares of Acquiring
Fund MuniPreferred), voting together as a single class, is required. In the case
of the conversion of the Acquiring Fund to an open-end investment company, or in
the case of any of the foregoing transactions constituting a plan of
reorganization which adversely affects the holders of Acquiring Fund Preferred
Shares (including shares of Acquiring Fund MuniPreferred), the action in
question will also require the approval of the holders of 66 2/3% of the
Acquiring Fund Preferred Shares (including shares of Acquiring Fund
MuniPreferred) voting as a separate class; provided, however, that such separate
class vote shall be a majority vote if the transaction has been authorized by
the affirmative vote of 66 2/3% of the total number of directors fixed in
accordance with the By-Laws. The 66 2/3% vote required under certain
circumstances to approve the conversion of the Acquiring Fund from a closed-end
to an open-end investment company or to approve the other transactions described
above are higher than those required by the 1940 Act. The Acquiring Fund's Board
believes that the provisions of the Acquiring Fund's Articles relating to such
higher votes are in the best interest of the Acquiring Fund and its
shareholders.
Reference should be made to the Acquiring Fund's Articles on file with the
Commission for the full text of these provisions, which could have the effect of
depriving shareholders of the Acquiring Fund of an opportunity to sell their
shares at a premium over prevailing market prices by discouraging a third party
form seeking to obtain control of the Acquiring Fund.
SURRENDER AND EXCHANGE OF ACQUIRED FUND SHARE CERTIFICATES
After the Effective Time, each holder of an outstanding certificate or
certificates formerly representing common shares or shares of MuniPreferred of
the Acquired Fund ("Acquired Fund Shares") will be entitled to receive, upon
surrender of his or her certificates, a certificate or certificates representing
the number of Acquiring Fund Shares distributable with respect to such holder's
Acquired Fund Shares, together with cash in lieu of any fractional Acquiring
Fund common share. Promptly after the Effective Time, the Transfer Agent will
mail to each holder of certificates formerly representing Acquired Fund
26
<PAGE> 37
Shares a letter of transmittal for use in surrendering his or her certificates
for certificates representing Acquiring Fund Shares and cash in lieu of any
fractional Acquiring Fund common share.
PLEASE DO NOT SEND IN ANY SHARE CERTIFICATES AT THIS TIME. UPON CONSUMMATION OF
THE REORGANIZATION, HOLDERS OF ACQUIRED FUND SHARES WILL BE FURNISHED
INSTRUCTIONS FOR EXCHANGING THEIR ACQUIRED FUND SHARE CERTIFICATES FOR ACQUIRING
FUND SHARE CERTIFICATES AND, IF APPLICABLE, CASH IN LIEU OF FRACTIONAL ACQUIRING
FUND COMMON SHARES.
From and after the Effective Time, certificates formerly representing Acquired
Fund Shares will be deemed for all purposes to evidence ownership of the number
of full Acquiring Fund common shares or shares of Acquiring Fund MuniPreferred,
Series TH or Series TH2, as the case may be, distributable with respect to such
Acquired Fund Shares in the Reorganization, provided that until such Acquired
Fund Share certificates have been so surrendered, no dividends payable to the
holders of record of Acquiring Fund Shares as of any date subsequent to the
liquidation of the Acquired Fund are required to be paid to the holders of such
outstanding Acquired Fund Share certificates. Unpaid dividends on Acquiring Fund
Shares to holders of record as of any date after the liquidation of the Acquired
Fund and prior to the exchange of certificates by any Acquired Fund shareholder
will be paid to such shareholder, without interest, at the time such shareholder
surrenders his or her Acquired Fund Share certificates for exchange.
From and after the Effective Time, there will be no transfers on the record
transfer books of the Acquired Fund. If, after the Effective Time, certificates
representing Acquired Fund Shares are presented to the Acquired Fund, they will
be cancelled and exchanged for certificates representing the Acquiring Fund
Shares and, if applicable, the cash in lieu of fractional Acquiring Fund common
shares distributable with respect to such Acquired Fund Shares in the
Reorganization.
EXPENSES ASSOCIATED WITH THE REORGANIZATION
In evaluating the Reorganization, management of the Funds estimated the amount
of expenses the Funds would incur to be approximately $150,000, which includes
additional stock exchange listing fees, Commission registration fees, legal and
accounting fees and proxy and distribution costs. The aggregate amount of
expenses due to the Reorganization (estimated to be $149,950) are to be paid by
the Acquired Fund.
Reorganization expenses have been or will be expensed prior to the Effective
Time. [Management of the Acquired Fund expects that reduced operating expenses
resulting from the Reorganization should allow the recovery of the projected
costs of the Reorganization within approximately months after the Effective
Time.]
DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL
Under Minnesota law and the Articles of the Acquiring Fund, shareholders of the
Acquiring Fund do not have dissenters' rights of appraisal with respect to the
Reorganization. Under Massachusetts law and the Declaration of the Acquired
Fund, shareholders of the Acquired Fund do not have dissenters' rights of
appraisal with respect to the Reorganization.
TAX CONSEQUENCES OF THE REORGANIZATION
The Funds have received the opinion of Vedder, Price, Kaufman & Kammholz,
counsel to the Funds, to the effect that the Reorganization will qualify as a
tax-free reorganization under Section 368(a)(1) of the Code. Accordingly,
neither Fund will recognize gain or loss for Federal income tax purposes as a
result of the Reorganization. The following discussion summarizes the
anticipated Federal income tax treatment to shareholders of the Acquired Fund.
EXCHANGE OF ACQUIRED FUND SHARES SOLELY FOR ACQUIRING FUND SHARES
A common shareholder of the Acquired Fund who receives common shares of the
Acquiring Fund pursuant to the Reorganization will recognize no gain or loss for
Federal income tax purposes, except with respect to the cash received for a
fractional Acquiring Fund common share interest, if any. See "Fractional Common
Share Interests" below. Likewise, a holder of shares of Acquired Fund
MuniPreferred who receives shares of Acquiring Fund MuniPreferred pursuant to
the Reorganization will recognize no gain or loss for Federal income tax
purposes.
The aggregate basis of the Acquiring Fund Shares received by a shareholder of
the Acquired Fund (including any fractional Acquiring Fund common share interest
to which he or she may be entitled) will be the same as the shareholder's
aggregate basis in the Acquired Fund Shares surrendered in exchange therefor,
decreased by any cash received and increased by the amount of gain recognized on
the exchange.
The holding period of the Acquiring Fund Shares received by a shareholder of the
Acquired Fund (including any fractional Acquiring Fund common share interest to
which he or she may be entitled) will include the period during which the
shareholder's Acquired Fund Shares were held, provided such Acquired Fund Shares
were held as a capital asset at the Effective Time.
27
<PAGE> 38
For Federal income tax reasons, the Acquired Fund must declare a distribution to
its shareholders of all net tax-exempt income, net ordinary taxable income and
net capital gains, if any, prior to the end of its fiscal year, which
declaration will occur at or prior to the Effective Time.
FRACTIONAL COMMON SHARE INTERESTS
No fractional Acquiring Fund common shares will be issued pursuant to the
Reorganization. Cash payments received by an Acquired Fund shareholder in lieu
of a fractional Acquiring Fund common share will be treated as received by such
shareholder as a distribution in redemption by the Acquiring Fund of that
fractional common share interest and will be treated as a distribution in full
payment in exchange for the fractional Acquiring Fund common share interest,
resulting in a capital gain or loss for Federal income tax purposes (provided
the redemption is not substantially equivalent to a dividend), assuming the
Acquired Fund common shares exchanged for cash in lieu of the fractional
Acquiring Fund common share were held as a capital asset at the Effective Time.
THE FOREGOING IS INTENDED TO BE ONLY A SUMMARY OF THE PRINCIPAL FEDERAL INCOME
TAX CONSEQUENCES OF THE REORGANIZATION AND SHOULD NOT BE CONSIDERED TO BE TAX
ADVICE. THERE CAN BE NO ASSURANCE THAT THE INTERNAL REVENUE SERVICE WILL CONCUR
ON ALL OR ANY OF THE ISSUES DISCUSSED ABOVE. ACQUIRED FUND SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE FEDERAL, STATE AND LOCAL
TAX CONSEQUENCES WITH RESPECT TO THE FOREGOING MATTERS AND ANY OTHER
CONSIDERATIONS WHICH MAY BE APPLICABLE TO THEM.
THE ACQUIRING FUND AND ACQUIRED FUND'S BOARD UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE REORGANIZATION.
PROPOSAL NO. 2 -- AMENDMENT OF THE
ACQUIRING FUND STATEMENT (ACQUIRING
FUND SHAREHOLDERS ONLY)
The Board of Directors of the Acquiring Fund has proposed that the Acquiring
Fund Statement be amended so that 10,000 shares of each existing series of
Acquiring Fund MuniPreferred (the"Amendment") are authorized[, except for Series
W2 which was recently created and already has 10,000 shares authorized.]
The Amendment would give the Acquiring Fund the flexibility to issue additional
shares of MuniPreferred to adjust the Acquiring Fund's leverage structure in
response to market conditions. Additional shares could be issued without
amending the Acquired Fund's Statement. Therefore, the Acquiring Fund could
issue additional shares of MuniPreferred without the added cost of seeking
shareholder approval subject to the requirement of obtaining rating agency
approval prior to issuance. Additional leverage would increase the Acquiring
Fund's volatility and the risks of loss in a declining market. However, the
Acquiring Fund would still be required under rating agency guidelines to
maintain asset coverage of at least 200% and the asset coverage requirements of
the 1940 Act. See, "Rating Agency Guidelines." Currently, the Board of Directors
of the Acquiring Fund has no intention to issue additional shares of Acquiring
Fund MuniPreferred except for shares of Series TH or Series TH2 to be issued in
connection with the Reorganization.
The Acquiring Fund currently has authorized and outstanding shares of
MuniPreferred as follows: Series M-2,200; Series T-2,000; Series T2-1,328;
Series W-1,680; Series W2-760; Series TH-2,000; Series F-1,800; and Series
F2-1,328. Series W2 MuniPreferred currently has 760 shares outstanding and
10,000 shares authorized. Giving effect to the Amendment, the Acquiring Fund
will have authorized 10,000 shares of each Series of MuniPreferred but will have
the same number of shares of MuniPreferred of each Series outstanding, except if
the Reorganization and the Amendment are approved, the Acquiring Fund will issue
an additional 680 MuniPreferred, Series TH shares to Acquired Fund shareholders
and the outstanding shares of MuniPreferred, Series TH would be 2,680. If the
Amendment is not approved and the Reorganization is approved, the Acquired Fund
would have 10,000 shares of MuniPreferred, Series TH2 authorized and 680 shares
of MuniPreferred, Series TH2 outstanding.
THE ACQUIRING FUND'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE APPROVAL OF THE AMENDMENT.
VOTE REQUIRED
Approval of the proposed amendment requires (a) the affirmative vote of the
holders of Acquiring Fund common shares of the greater of (1) a majority of the
voting power of the shares present and entitled to vote on the proposal or (2) a
majority of the voting power of the minimum number of the shares entitled to
vote that would constitute a quorum for the transaction of business at the
meeting and (b) the affirmative vote of the holders of each series of Acquiring
Fund MuniPreferred, voting separately by series, of the greater of (1) a
majority of the voting power of the shares of such series present and entitled
to vote on the proposal or (2) a majority of the voting power of the minimum
number of the shares of such series entitled to vote that would constitute a
quorum for the transaction of business at the meeting.
28
<PAGE> 39
PROPOSAL NO. 3 -- ELECTION OF BOARD MEMBERS OF THE
ACQUIRING FUND (ACQUIRING FUND SHAREHOLDERS ONLY)
Shareholders of the Acquiring Fund are being asked to vote for the election of
seven (7) Board Members of the Fund to serve until the next Annual Meeting and
until their successors have been duly elected and qualified. Under the terms of
the Acquiring Fund's Articles, under normal circumstances holders of shares of
the Fund's MuniPreferred are entitled to elect two Fund Board Members, and the
remaining Board Members are to be elected by holders of the Fund's common shares
and shares of MuniPreferred, voting together as a single class.
It is the intention of the persons named in the enclosed proxy to vote the
shares represented thereby for the election of the nominees listed below unless
the proxy is marked otherwise. (See, however, "The Annual Meetings -- Voting;
Proxies" above.) Each of the nominees listed below has agreed to serve as a
Board Member of the Fund if elected; however, should any nominee become unable
or unwilling to accept nomination or election, the proxies for the Fund will be
voted for one or more substitute nominees designated by the Fund's present
Board.
Shareholders of the Fund will be entitled to one vote for each share held for
the election of Board Members. The affirmative vote of a majority of the shares
present and entitled to vote at the Annual Meeting of the Acquiring Fund will be
required to elect the Board Members for the Fund.
Tables I and II below show each nominee's age, principal occupations and other
business affiliations, the year in which each nominee was first elected or
appointed a Board Member of the Fund and the number of common shares of the Fund
and of all Nuveen funds (excluding money market funds) which each nominee
beneficially owned as of April 30, 1999. All of the nominees were last elected
to each Board at the 1998 annual meeting of shareholders. Currently there is a
vacancy on the Board. No candidate has been selected to fill this vacancy.
THE FUND'S BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION
OF THE NOMINEES NAMED BELOW.
TABLE I
NOMINEES FOR THE ACQUIRING FUND TO BE ELECTED BY ALL SHAREHOLDERS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
FULL COMMON SHARES
BENEFICIALLY OWNED
YEAR FIRST ELECTED OR -----------------------
APPOINTED A ACQUIRING ALL NUVEEN
NAME, AGE AND PRINCIPAL OCCUPATIONS OF NOMINEES AS OF APRIL 30, 1999(1) BOARD MEMBER FUND(2) FUNDS(3)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert P. Bremner, 58 1997
Board Member of the Funds, private
investor and management consultant
Lawrence H. Brown, 64 1993 -- --
Board Member of the Funds; retired in August 1989 as Senior Vice
President of The Northern Trust Company (banking and trust industry)
Anne E. Impellizzeri, 66 1994 -- --
Board Member of the Funds; Executive Director (since 1998) of Manitoga
(center for Russel Wright's design/home and landscape), formerly
President and Chief Executive Officer of Blanton-Peale Institute (a
training and counseling organization)
Peter R. Sawers, 66 1993 0 --
Board Member of the Funds; Adjunct Professor of Business and Economics,
University of Dubuque, Iowa; Adjunct Professor, Lake Forest Graduate
School of Management, Lake Forest, Illinois; Chartered Financial
Analyst; Certified Management Consultant
Judith M. Stockdale, 51 1997
Board Member of the Funds; Executive Director (since 1994) of the
Gaylord and Dorothy Donnelley Foundation a private family foundation;
prior thereto, Executive Director (from 1990 to 1994) of the Great
Lakes Protection Fund
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 40
TABLE II
NOMINEES FOR THE ACQUIRING FUND TO BE ELECTED BY HOLDERS OF MUNIPREFERRED
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
FULL COMMON SHARES
BENEFICIALLY OWNED
YEAR FIRST ELECTED OR -----------------------
APPOINTED A ACQUIRING ALL NUVEEN
NAME, AGE AND PRINCIPAL OCCUPATIONS OF NOMINEES AS OF (1) BOARD MEMBER FUND(2) FUNDS(3)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William J. Schneider, 54 1997
Senior partner and Chief Operating Officer,
Miller-Valentine Partners; Vice President,
Miller-Valentine Group (commercial real estate); Member
Community Advisory Board, National City Bank, Dayton, Ohio
*Timothy R. Schwertfeger, 50 1994 0 --
Chairman of the Board of the Funds (since July 1996);
Trustee and President of the Funds advised by Nuveen
Institutional Advisory Corp. (since July 1996); Chairman
(since July 1996), Director, previously Executive Vice
President, of The John Nuveen Company, John Nuveen & Co.
Incorporated, Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.; Director (since 1996) of
Institutional Capital Corporation; Chairman and Director
of Nuveen Asset Management, Inc.; Chairman and Director of
Rittenhouse Financial Services, Inc. (since 1999)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(*) "Interested person" as defined in the Investment Company Act of 1940, as
amended, by reason of being an officer or director of the Funds' investment
adviser, Nuveen Advisory Corp.
(1) The Board Members and nominees are board members of 37 Nuveen open-end funds
and 52 closed-end funds managed by Nuveen Advisory Corp. ("NAC funds"). In
addition, Mr. Schwertfeger is a board member nominee of six open-end and
five closed-end funds managed by Nuveen Institutional Advisory Corp. ("NIAC
Funds").
(2) No nominee beneficially owned any shares of MuniPreferred of the Funds.
(3) The number shown reflects the aggregate number of common shares beneficially
owned in all of the NAC and NIAC Funds referred to in note (1) above
(excluding money market funds). Includes equivalent units of shares of
certain Nuveen Funds in connection with the deferral of compensation by
Board Members pursuant to a Deferred Compensation Plan ("Deferred Units") as
fully described below. Also includes shares held by Mr. Schwertfeger in
Nuveen's 401(k)/profit sharing plan.
The Board Members affiliated with John Nuveen & Co. Incorporated ("Nuveen") or
Nuveen Advisory Corp. (the "Adviser") serve without any compensation from the
Funds. Board Members who are not affiliated with Nuveen or the Adviser receive a
$60,000 annual retainer for serving as a board member of all funds sponsored by
Nuveen and managed by the Adviser and a $1,000 fee per day plus expenses for
attendance at all meetings held on a day on which a regularly scheduled Board
meeting is held, a $1,000 fee per day plus expenses for attendance in person or
a $500 fee per day plus expenses for attendance by telephone at a meeting held
on a day on which no regular Board meeting is held, and a $250 fee per day plus
expenses for attendance in person or by telephone at a meeting of the executive
committee or the dividend committee. The annual retainer, fees and expenses are
allocated among the funds managed by the Adviser on the basis of relative net
asset sizes. Effective January 1, 1999, the Board of Directors/Trustees of
certain Nuveen Funds (the "Participating Funds") established a Deferred
Compensation Plan for Independent Directors and Trustees. Under the plan,
Independent Board Members of the Participating Funds may defer receipt of all,
or a portion, of the compensation they earn for their services to the
Participating Funds in lieu of receiving current payments of such compensation.
Any deferred amount is treated as though an equivalent dollar amount had been
invested in shares of one or more eligible Funds. The Acquiring Fund is a
Participating Fund. To defer compensation, a Board Member must execute a Notice
of Election to Defer Compensation no later than 10 business days prior to the
last business day of the calendar quarter preceding the quarter for which the
Deferred Election is made.
30
<PAGE> 41
The tables below show, for each Board Member who is not affiliated with Nuveen
or the Adviser, the aggregate compensation paid by the Fund for its fiscal year
ended October 31, 1998 and the total compensation that the Nuveen funds accrued
for each Board Member during the calendar year 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
AGGREGATE TOTAL
COMPENSATION COMPENSATION
FROM THE NUVEEN FUNDS
ACQUIRING ACCRUED FOR
NAME OF BOARD MEMBER FUND BOARD MEMBERS(1)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert P. Bremner $1,161 $71,500
Lawrence H. Brown $1,270 $79,000
Anne E. Impellizzeri $1,161 $71,500
Peter R. Sawers $1,161 $72,000
William J. Schneider $1,161 $71,500
Judith M. Stockdale $1,161 $72,000
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes compensation for service on the boards of the NAC Funds.
Peter R. Sawers and Timothy R. Schwertfeger currently serve as members of the
executive committee of the Acquiring Fund's Board. The executive committee,
which meets between regular meetings of the Board, is authorized to exercise all
of the powers of the Board; provided that the scope of the powers of the
executive committee, unless otherwise specifically authorized by the full Board,
are limited to: (i) emergency matters where assembly of the full Board is
impracticable (in which case management will take all reasonable steps to
quickly notify each individual Board Member of the actions taken by the
executive committee) or (ii) matters of an administrative or ministerial nature.
The executive committee of the Fund held meetings for the fiscal year
ended October 31, 1998.
Lawrence H. Brown and Timothy R. Schwertfeger are the current members of the
dividend committee for the Acquiring Fund. The dividend committee is authorized
to declare distributions on the Fund's shares including, but not limited to,
regular and special dividends, capital gains and ordinary income distributions.
The dividend committee of the Acquiring Fund held meetings during the
fiscal year ended October 31, 1998.
The Acquiring Fund's Board has an audit committee composed of Robert P. Bremner,
Lawrence H. Brown, Anne E. Impellizzeri, Peter R. Sawers, William J. Schneider
and Judith M. Stockdale, Board Members who are not "interested persons." The
audit committee reviews the work and any recommendations of each Fund's
independent public auditors. Based on such review, it is authorized to make
recommendations to the Board. The audit committee of the Fund held two meetings
for the fiscal year ended October 31, 1998.
Nomination of those Board Members who are not "interested persons" of the Fund
is committed to a nominating committee composed of the Board Members who are not
"interested persons" of the Fund. It identifies and recommends individuals to be
nominated for election as non-interested Board Members. The nominating committee
of the Fund held one meeting for the fiscal year ended October 31, 1998. No
policy or procedure has been established as to the recommendation of Board
Member nominees by shareholders.
The Board of the Fund held meetings for the fiscal year ended October
31, 1998. During the last fiscal year, each Board Member attended 75% or more of
each Fund's Board meetings and the committee meetings (if a member thereof),
[except ].
The following table sets forth information as of April 30, 1999 with respect to
each executive officer of the Fund, other than executive officers who are Board
Members and included in the table relating to nominees for the Board. Officers
of the Fund receive no compensation from the Fund. With respect to the Fund, the
term of office of all officers will expire in July 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH FUNDS BUSINESS EXPERIENCE AND PRINCIPAL OCCUPATION
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alan G. Berkshire 38 Vice President and Vice President and General Counsel (since September
Assistant Secretary 1997) and Secretary (since May 1998) of The John Nuveen
(since 1998) Company, John Nuveen & Co. Incorporated, Nuveen
Advisory Corp. and Nuveen Institutional Advisory Corp.;
prior thereto, partner in the law firm of Kirkland &
Ellis.
Peter H. D'Arrigo 31 Vice President and Vice President of John Nuveen & Co. Incorporated (since
Treasurer (since 1999) January 1999), prior thereto, Assistant Vice President
(from January 1997); formerly, Associate of John Nuveen
& Co. Incorporated; Chartered Financial Analyst.
Michael S. Davern 41 Vice President (since Vice President of Nuveen Advisory Corp. (since January
1997) 1997); prior thereto, Vice President and Portfolio
Manager of Flagship Financial Inc. (from September 1991
to January 1997).
</TABLE>
31
<PAGE> 42
<TABLE>
<CAPTION>
NAME AGE POSITION WITH FUNDS BUSINESS EXPERIENCE AND PRINCIPAL OCCUPATION
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lorna C. Ferguson 53 Vice President (since Vice President of John Nuveen & Co. Incorporated; Vice
1998) President of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp. (since January 1998).
William M. Fitzgerald 35 Vice President (since Vice President of Nuveen Advisory Corp. (since December
1996) 1995); prior thereto, Assistant Vice President of
Nuveen Advisory Corp. (from September 1992 to December
1995); Chartered Financial Analyst.
Stephen D. Foy 44 Vice President and Vice President of John Nuveen & Co. Incorporated and
Controller (since (since May 1998) The John Nuveen Company; Certified
1998) Public Accountant.
J. Thomas Futrell 43 Vice President (since Vice President of Nuveen Advisory Corp.; Chartered
1993) Financial Analyst.
Richard A. Huber 36 Vice President (since Vice President of Nuveen Institutional Advisory Corp.
1997) (since March 1998) and Nuveen Advisory Corp. (since
January 1997); prior thereto, Vice President and
Portfolio Manager of Flagship Financial Inc.
Steven J. Krupa 41 Vice President (since Vice President of Nuveen Advisory Corp.
1993)
Larry W. Martin 47 Vice President and Vice President, Assistant Secretary and Assistant
Assistant Secretary General Counsel of John Nuveen & Co. Incorporated; Vice
(since 1993) President and Assistant Secretary of Nuveen Advisory
Corp. and Nuveen Institutional Advisory Corp.;
Assistant Secretary of The John Nuveen Company and
(since January 1997) Nuveen Asset Management Inc.
Edward F. Neild, IV 33 Vice President (since Vice President of Nuveen Advisory Corp. and Nuveen
1996) Institutional 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.
Stephen S. Peterson 41 Vice President (since Vice President (since September 1997), Assistant Vice
1997) President (from September 1996 to September 1997) and
Portfolio Manager prior thereto, of Nuveen Advisory
Corp.; Chartered Financial Analyst.
Stuart W. Rogers 42 Vice President (since Vice President of John Nuveen & Co. Incorporated.
1997)
Thomas C. Spalding, Jr. 47 Vice President (since Vice President of Nuveen Advisory Corp. and Nuveen
1993) Institutional Advisory Corp.; Chartered Financial
Analyst.
William S. Swanson 33 Vice President (since Vice President of John Nuveen & Co. Incorporated (since
1998) October 1997); Assistant Vice President (from September
1996 to October 1997) and, formerly, Associate;
Chartered Financial Analyst.
Gifford R. Zimmerman 42 Vice President (since Vice President, Assistant Secretary and Associate
1993) and Secretary General Counsel, formerly Assistant General Counsel
(since 1998) (since September 1997) of 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;
Chartered Financial Analyst.
</TABLE>
On April 30, 1999, Board Members and executive officers of the Fund as a group
beneficially owned common shares of the Acquiring Fund and did not own
any shares of MuniPreferred. On April 30, 1999, Board Members, nominees and
executive officers of the Fund as a group beneficially owned common
shares of all funds managed by the Adviser (includes Deferred Units and shares
held by the executive officers in Nuveen's 401(k)/profit sharing plan, but
excludes shares of money market funds). As of , no shareholder owned
more than 5% of any class of shares of the Fund.
Section 30(h) of the 1940 Act and Section 16(a) of the Exchange Act require the
Fund's Board Members and officers, investment adviser, affiliated persons of the
investment adviser and persons who own more than ten percent of a registered
class of the Fund's equity securities to file forms reporting their affiliation
with the Fund and reports of ownership and changes in ownership of the Fund's
shares with the Commission and the NYSE. These persons and entities are required
by Commission regulation to furnish the Fund with copies of all Section 16(a)
forms they file. Based on a review of these forms furnished to the Fund, the
Fund believes that for the fiscal year ended October 31, 1998, all Section 16(a)
filing requirements applicable to the Acquiring Fund's Board Members and
officers, investment adviser and affiliated persons of the investment adviser
were complied with.
32
<PAGE> 43
PROPOSAL NO. 4 -- SELECTION OF INDEPENDENT
AUDITORS FOR THE ACQUIRING FUND
The members of the Acquiring Fund's Board who are not "interested persons" of
the Fund have unanimously selected Ernst & Young LLP, independent auditors, to
audit the books and records of the Fund for the fiscal year ending October 31,
1999. Ernst & Young LLP has served each Fund in this capacity since each Fund
was organized and has no direct or indirect financial interest in any Fund
except as independent auditors. The selection of Ernst & Young LLP as
independent auditors of the Fund is being submitted to the shareholders of the
Fund for ratification, which requires the affirmative vote of a majority of the
shares of the Fund present and entitled to vote on the matter. A representative
of Ernst & Young LLP is expected to be present at the Joint Meeting and will be
available to respond to any appropriate questions raised at the Joint Meeting
and to make a statement if he or she wishes.
THE FUND'S BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF THE INDEPENDENT AUDITORS.
MANAGEMENT OF THE FUNDS
BOARD MEMBERS AND OFFICERS
The same individuals constitute the Boards of both Funds, and the Funds have the
same officers. The management of each Fund, including general supervision of the
duties performed by the Adviser under the Investment Management Agreement for
each Fund, is the responsibility of its Board. There are currently seven (7)
Board Members of each Fund, one of whom is an "interested person" (as defined in
the 1940 Act) and six of whom are disinterested persons. The nominees of the
Acquiring Fund elected at the Acquiring Fund's Annual Meeting will serve as
Board Members of the Acquiring Fund whether or not the Reorganization is
approved.
INVESTMENT ADVISER
The Adviser, located at 333 West Wacker Drive, Chicago, Illinois, serves as
investment adviser and manager for each Fund. The Adviser is a wholly-owned
subsidiary of Nuveen, 333 West Wacker Drive, Chicago, Illinois 60606. Nuveen is
a subsidiary of The John Nuveen Company which in turn is approximately 78% owned
by The St. Paul Companies, Inc. ("St. Paul"). St. Paul is located at 385
Washington Street, St. Paul, Minnesota 55102, and is principally engaged in
providing property-liability insurance through subsidiaries.
PORTFOLIO MANAGEMENT
The Adviser places orders for the purchase and sale of portfolio securities for
the accounts of the Funds. Consistent with Rule 10f-3 under the 1940 Act,
portfolio securities may be purchased from Nuveen or its affiliates.
Edward Neild, Vice President of Nuveen Advisory Corp. since 1996, manages the
Acquiring Fund and 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.
Prior to being named Vice President, Mr. Neild was an Assistant Vice President
of Nuveen Advisory Corp. from 1993 to 1996.
The day to day management of the Acquired Fund is currently the responsibility
of Michael Davern, a Vice President and Portfolio Manager of Nuveen Advisory
since 1997. He currently manages eight Nuveen-sponsored open-end and nine
Nuveen-sponsored closed-end investment companies. Prior to joining Nuveen
Advisory Corp., Mr. Davern was a Vice President and Portfolio Manager of
Flagship Financial Inc.
33
<PAGE> 44
ADDITIONAL INFORMATION ABOUT THE FUNDS
FINANCIAL HIGHLIGHTS
Selected data for a Common share outstanding throughout each period is as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OPERATING PERFORMANCE
--------------------------
NET REALIZED DIVIDENDS FROM NET ORGANIZATION
AND INVESTMENT INCOME AND OFFERING NET
UNREALIZED ---------------------------- COSTS AND ASSET
NET ASSET VALUE NET GAIN (LOSS) TO TO PREFERRED SHARE VALUE
BEGINNING OF INVESTMENT FROM COMMON PREFERRED UNDERWRITING END OF
PERIOD INCOME INVESTMENTS++ SHAREHOLDERS SHAREHOLDERS+ DISCOUNTS PERIOD
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Acquiring Fund Year ended
10/31, 1998 14.64 1.07 .42 (.82) (.26) -- 15.05
1997 14.07 1.08 .58 (.82) (.27) -- 14.64
1996 13.87 1.10 .19 (.82) (.27) -- 14.07
Acquired Fund Year ended
5/31, 1998 14.07 1.02 .99 (.76) (.26) -- 15.06
1997 13.48 1.02 .58 (.75) (.26) -- 14.07
1996 13.71 1.02 (.23) (.74) (.28) -- 13.48
<CAPTION>
PER RATIOS/SUPPLEMENTAL DATE
COMMON ----------------------------------------------------
SHARE TOTAL TOTAL RATIO OF NET
MARKET INVESTMENT RETURN NET ASSETS RATIO OF INVESTMENT
VALUE RETURN ON ON NET END OF EXPENSES TO INCOME TO PORTFOLIO
END OF MARKET ASSET PERIOD (IN AVERAGE NET AVERAGE NET TURNOVER
PERIOD VALUE** VALUE** THOUSANDS) ASSETS +++ ASSETS +++ RATE
<S> <C> <C> <C> <C> <C> <C> <C>
Acquiring Fund Year ended
10/31, 1998 14.8125 14.54 8.58 923,004 .79 4.79 21
1997 13.6875 11.70 10.20 905,764 .79 4.98 26
1996 12.6880 11.57 7.53 882,563 .79 5.11 20
Acquired Fund Year ended
5/31, 1998 13.6250 15.26 12.64 51,948 .91 4.62 10
1997 12.5000 12.94 10.16 49,640 .94 4.83 11
1996 11.7500 7.44 3.75 48,266 .94 4.81 20
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
** Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and changes
in stock price per share. Total Return on Net Asset Value is the combination
of reinvested dividend income, reinvested capital gains distributions, if
any, and changes in net asset value per share.
+ The amounts shown are based on Common share equivalents.
++ Net of taxes, if applicable.
+++ Ratios do not reflect the effect of dividend payments to Preferred
shareholders.
34
<PAGE> 45
REPURCHASE OF COMMON SHARES; CONVERSION TO OPEN-END FUND
Each Fund is a closed-end investment company and as such holders of its common
shares will not have the right to cause such Fund to redeem their shares. Each
Fund's common shares trade in the open market at a price that is a function of
several factors, including net asset value and yield. The shares of each Fund
have traded at both premiums and discounts to net asset value. The Board of each
Fund has currently determined that, at least annually, it will consider actions
that might be taken to reduce or eliminate any material discount from net asset
value in respect of such Fund's common shares, which may include the repurchase
of such shares in the open market or in private transactions, the making of a
tender offer for such shares at net asset value or the conversion of such Fund
to an open-end investment company. There can be no assurance, however, that
either Fund's Board will decide to take any of these actions, or that share
repurchases or tender offers, if undertaken, will reduce market discount. In
addition, see "Proposal No. 1 -- The Reorganization -- Description of
MuniPreferred Issued by the Acquiring Fund -- Dividends" for a discussion of the
limitations on each Fund's ability to engage in certain transactions. The staff
of the Commission currently requires that any tender offer made by a closed-end
investment company for its shares must be at a price equal to the net asset
value of such shares on the close of business on the last day of the tender
offer. Any service fees incurred in connection with any tender offer made by a
Fund would be borne by that Fund and would not reduce the stated consideration
to be paid to tendering shareholders.
Subject to its investment limitations, either Fund may borrow to finance the
repurchase of its shares or to make a tender offer. Interest on any borrowings
to finance share repurchase transactions or the accumulation of cash by either
Fund in anticipation of share repurchases or tenders will reduce that Fund's net
income. Any share repurchase, tender offer or borrowing that might be approved
by a Fund's Board would have to comply with the Exchange Act and the 1940 Act
and the rules and regulations thereunder.
Although the decision to take action in response to a discount from net asset
value will be made by a Fund's Board at the time it considers such issue, it is
each Board's present policy, which may be changed by such Board, not to
authorize repurchases of such Fund's common shares or a tender offer for such
shares if (a) such transactions, if consummated, would (i) result in the
delisting of such shares from the NYSE or AMEX, or (ii) impair such Fund's
status as a regulated investment company under the Code (which would make such
Fund a taxable entity, causing its income to be taxed at the corporate level in
addition to the taxation of shareholders who receive dividends from such Fund)
or as a regulated closed-end investment company under the 1940 Act; (b) such
Fund would not be able to liquidate portfolio securities in an orderly manner
and consistent with its investment objectives and policies in order to
repurchase shares; or (c) there is, in such Board's judgment, any (i) material
legal action or proceeding instituted or threatened challenging such
transactions or otherwise materially adversely affecting such Fund, (ii) general
suspension of or limitation on prices for trading securities on the NYSE or
AMEX, (iii) declaration of a banking moratorium by Federal or state authorities
or any suspension of payment by United States or New York State banks in which
such Fund invests, (iv) material limitation affecting such Fund or the issuers
of its portfolio securities by Federal or State authorities on the extension of
credit by lending institutions or on the exchange of foreign currency, (v)
commencement of war, armed hostilities or other international or national
calamity directly or indirectly involving the United States, or (vi) other event
or condition which would have a materially adverse effect (including any adverse
tax effect) on such Fund or its shareholders if shares of such Fund were
repurchased. The Board of each Fund may in the future modify these conditions in
light of experience.
For each Fund, conversion to an open-end company would require the approval of
the holders of such Fund's outstanding common shares and shares of
MuniPreferred, voting together as a single class, and holders of such Fund's
shares of MuniPreferred voting as a separate class. See "Proposal No. 1 -- The
Reorganization -- Certain Provisions in the Acquiring Fund's Articles of
Incorporation" for a discussion of voting requirements applicable to conversion
of a Fund to an open-end company. If a Fund converted to an open-end investment
company, it would be required to redeem all shares of its MuniPreferred then
outstanding for cash at the redemption price specified under "Proposal No.
1 -- The Reorganization -- Description of MuniPreferred Issued by the Acquiring
Fund -- Redemption." In addition, such Fund would be required to liquidate
portfolio securities to meet required and requested redemptions, and its common
shares would no longer be listed on the NYSE or AMEX. Shareholders of an
open-end investment company may require the company to redeem their shares at
any time (except in certain circumstances as authorized by or under the 1940
Act) at their net asset value, less such redemption charge, if any, as might be
in effect at the time of redemption. In order to avoid maintaining large cash
positions or liquidating favorable investments to meet redemptions, open-end
companies typically engage in a continuous offering of their shares. Open-end
companies are thus subject to periodic asset in-flows and out-flows that can
complicate portfolio management. The Board of either Fund may at any time
propose conversion of such Fund to an open-end company depending upon its
judgment as to the advisability of such action in light of circumstances then
prevailing.
The repurchase by a Fund of its common shares at prices below net asset value
would result in an increase in the net asset value of those common shares that
remain outstanding. However, there can be no assurance that common share
repurchases or tenders at or below net asset value would result in a Fund's
common shares trading at a price equal to their net asset value. Nevertheless,
the fact that a Fund's common shares may be the subject of repurchase or tender
offers at net asset value from time to time, or that a Fund may be converted to
an open-end company, may reduce any spread between market price and net asset
value that might otherwise exist. Common shares that have been repurchased by a
Fund will be retired automatically and shall have the status of authorized but
unissued shares.
35
<PAGE> 46
In addition, a purchase by a Fund of its common shares will decrease that Fund's
total assets, which would likely have the effect of increasing such Fund's
expense ratio. Any purchase by a Fund of its common shares at a time when
MuniPreferred shares of such Fund are outstanding will increase the leverage
applicable to the outstanding common shares then remaining.
Before deciding whether to take any action in response to a discount from net
asset value, a Fund's Board would consider all relevant factors, including the
extent and duration of the discount, the liquidity of such Fund's portfolio, the
impact of any action that might be taken on such Fund or its shareholders and
market considerations. Based on these considerations, even if a Fund's common
shares should trade at a discount, such Fund's Board may determine that, in the
interest of such Fund and its shareholders, no action should be taken.
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REDEMPTION AGENT
The Custodian of the assets of each Fund and the transfer agent and dividend
disbursing agent with respect to each Fund's common shares is Chase, with its
principal place of business at 4 New York Plaza, New York, New York 10004 and
its corporate transfer office at P.O. Box 5186, Bowling Green Station, New York,
New York 10275. Bankers Trust Company, 4 Albany Street, New York, New York
10006, a banking corporation organized under the laws of New York, is the
Auction Agent with respect to shares of each Fund's MuniPreferred and acts as
transfer agent, registrar, dividend disbursing agent and redemption agent with
respect to such shares.
TAX MATTERS ASSOCIATED WITH INVESTMENT IN THE FUNDS
The following is based on the advice of Vedder, Price, Kaufman & Kammholz,
special counsel to the Funds.
The Federal income tax implications for Acquired Fund shareholders who will own
Acquiring Fund Shares as a result of the Reorganization will be substantially
the same as the Federal income tax implications currently applicable to such
shareholders with respect to their ownership of Acquired Fund Shares. Each Fund
qualifies under Subchapter M of the Code as a regulated investment company and
satisfies conditions which enable dividends on common shares or shares of
MuniPreferred which are attributable to interest on Municipal Obligations to be
exempt from Federal income tax in the hands of owners of such shares, subject to
the possible application of the alternative minimum tax. Each Fund, which
intends to distribute substantially all of its net income and gains to its
shareholders, is required to allocate net capital gains (i.e., the excess of net
long-term capital gain over net short-term capital loss) and other taxable
income, if any, proportionately between common shares and shares of
MuniPreferred in accordance with the current position of the Internal Revenue
Service.
The amount of taxable income allocable to shares of a Fund's MuniPreferred will
depend upon the amount of such income realized by the Fund, including any net
income received from taxable temporary investments, but is not generally
expected to be significant. Annually, each Fund will inform each owner of shares
of MuniPreferred of the amount and nature of the income and gains allocated to
the owner by the Fund. If a Fund allocates net capital gains or other taxable
income without first notifying owners of shares of MuniPreferred, in certain
circumstances payments will be made to such owners to offset the tax effect
thereof as described under "Proposal No. 1 -- The Reorganization -- Description
of MuniPreferred Issued by the Acquiring Fund -- Dividends and Dividend
Periods -- Gross-up Payments" above.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals based on certain items of tax preference. Interest
on certain Municipal Obligations is included as an item of tax preference in
determining the amount of a taxpayer's alternative minimum taxable income. To
the extent that a Fund receives income from Municipal Obligations treated as tax
preference items for purposes of the alternative minimum tax, a portion of the
dividends paid by it, although otherwise exempt from Federal income tax, will be
taxable to owners of shares to the extent that their tax liability is determined
under the alternative minimum tax. In addition, for certain corporations,
alternative minimum taxable income is increased by 75% of the difference between
an alternative measure of income ("adjusted current earnings") and the amount
otherwise determined to be the alternative minimum taxable income. Interest on
all Municipal Obligations, and therefore all exempt-interest dividends received
from each Fund, are included in calculating adjusted current earnings.
A more detailed summary of the provisions of the Code and regulations thereunder
presently in effect as they directly govern the taxation of each Fund and their
respective shareholders appears in the Statement of Additional Information.
These provisions and interpretations are subject to change by legislative or
administrative action, and any such change may be retroactive with respect to
Fund transactions. Shareholders are advised to consult with their own tax
advisers for more detailed information concerning Federal income tax matters.
LEGAL OPINIONS
Certain legal matters in connection with the common shares and shares of
MuniPreferred of the Acquiring Fund to be issued pursuant to the Reorganization
will be passed upon by Vedder, Price, Kaufman & Kammholz, Chicago, Illinois.
Vedder, Price,
36
<PAGE> 47
Kaufman & Kammholz will rely as to certain matters of Massachusetts law on the
opinion of Bingham Dana, LLP, Boston, Massachusetts and, as to certain matters
of Minnesota law, the opinion of Dorsey & Whitney LLP, Minneapolis, Minnesota.
EXPERTS
The financial highlights of the Funds as of October 31, 1998 appearing in this
Joint Proxy Statement -- Prospectus, and the financial statements of the Funds
as of October 31, 1998 appearing in the Statement of Additional Information,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere herein, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing. Ernst & Young LLP audits and reports on the Funds' annual
financial statements, reviews certain regulatory reports and the Funds' Federal
income tax returns, and performs other professional accounting, auditing, tax
and advisory services when engaged to do so by the Funds.
SHAREHOLDER PROPOSALS
To be considered for presentation at the Annual Meeting of Shareholders of the
Acquiring Fund to be held in 2000, a shareholder proposal submitted pursuant to
Rule 14a-8 of the Securities Exchange Act of 1934 (the "1934 Act") must be
received at the offices of the Acquiring Fund, 333 West Wacker Drive, Chicago,
Illinois 60605, not later than , 2000. A Shareholder wishing to
provide notice in the manner prescribed by Rule 14a-4(c)(1) to the Acquiring
Fund of a proposal submitted outside of the process of Rule 14a-8 must submit
such written notice to the Acquiring Fund not later than , 2000.
Timely submission of a proposal does not mean that such proposal will be
included.
If the Reorganization is approved and consummated, the Acquired Fund will cease
to exist and will not hold its 1999 Annual Meeting. If the Reorganization is not
approved or is not consummated, the Acquired Fund will hold its 1999 Annual
Meeting of Shareholders, expected to be held in November, 1999. Based upon last
years proxy statement for the Acquired Fund, a shareholder proposal submitted
pursuant to Rule 14a-8 of the 1934 Act must be received at the offices of the
Acquired Fund, 333 West Wacker Drive, Chicago, Illinois 60606, not later than
June 17, 1999. A shareholder wishing to provide notice in the manner prescribed
by Rule 14a-4(c)(1) to the Acquired Fund of a proposal submitted outside the
process of Rule 14a-8 must submit such written notice to the Fund not later than
August 31, 1999. Timely submission of a proposal does not necessarily mean that
such proposal will be included.
GENERAL
Management of the Funds does not intend to present and does not have reason to
believe that others will present any items of business at the Joint Meeting,
except as described in this Joint Proxy Statement -- Prospectus. However, if
other matters are properly presented at the meetings for a vote, the proxies
will be voted upon such matters in accordance with the judgment of the persons
acting under the proxies.
A list of shareholders of each Fund entitled to be present and to vote at the
Joint Meeting will be available at the offices of the Funds, 333 West Wacker
Drive, Chicago, Illinois, for inspection by any shareholder of the Funds during
regular business hours for ten days prior to the date of the Joint Meeting.
Failure of a quorum of either Fund to be present at the Joint Meeting will
necessitate adjournment and will subject such Fund to additional expense. The
persons named in the enclosed proxy may also move for an adjournment of the
meeting to permit further solicitation of proxies with respect to any of the
proposals if they determine that adjournment and further solicitation is
reasonable and in the best interests of the shareholders. Under each Fund's
By-Laws, an adjournment of a meeting requires the affirmative vote of a majority
of the shares present in person or represented by proxy at such meeting.
IF YOU CANNOT BE PRESENT IN PERSON, YOU ARE REQUESTED TO FILL IN, SIGN AND
RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
Gifford R. Zimmerman
Vice President and Secretary
37
<PAGE> 48
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION ("Agreement") is made as of
the 2nd day of February, 1999 by and between Nuveen Premium Income Municipal
Fund 4, Inc. (the "Acquiring Fund"), a Minnesota corporation, and Nuveen
Washington Premium Income Municipal Fund, a business trust formed under the laws
of the Commonwealth of Massachusetts (the "Acquired Fund" and, together with the
Acquiring Fund, the "Funds"). Each of the Funds maintains its principal place of
business at 333 West Wacker Drive, Chicago, Illinois 60606.
This Agreement is intended to be, and is adopted as, a plan of reorganization
(the "Reorganization") pursuant to Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"). The Reorganization will
consist of (a) the acquisition by the Acquiring Fund of substantially all of the
assets of the Acquired Fund in exchange solely for common shares, par value $.01
per share, of the Acquiring Fund ("Acquiring Fund Common Shares"), shares of
Municipal Auction Rate Cumulative Preferred Shares, par value $.01 per share
("Muni Preferred(R)"), of the Acquiring Fund ("Acquiring Fund MuniPreferred"
and, collectively with the Acquiring Fund Common Shares, "Acquiring Fund
Shares") and the assumption by the Acquiring Fund of substantially all of the
liabilities of the Acquired Fund, and (b) the pro rata distribution, after the
Closing Date hereinafter referred to, of such Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
In consideration of the premises and of the covenants and agreements set forth
herein, the parties covenant and agree as follows:
1 TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR SHARES OF THE
ACQUIRING FUND AND ASSUMPTION OF LIABILITIES, IF ANY; LIQUIDATION OF THE
ACQUIRED FUND.
1.1 Subject to the terms and conditions herein set forth and on the basis of
the representations and warranties contained herein, the Acquired Fund agrees to
sell, assign, transfer and deliver, as of the close of business on the Closing
Date (the "Effective Time"), substantially all of its assets as set forth in
paragraph 1.2 to the Acquiring Fund, free and clear of all liens and
encumbrances, except as otherwise provided herein, and in exchange therefor the
Acquiring Fund agrees (a) to assume substantially all of the liabilities, if
any, of the Acquired Fund, as set forth in paragraph 1.3 and (b) to issue and
deliver to the Acquired Fund, for distribution in accordance with paragraph 1.5
to the Acquired Fund's shareholders, (i) the number of Acquiring Fund Common
Shares having an aggregate net asset value equal to the value of the assets,
less the liabilities, of the Acquired Fund so transferred, assigned and
delivered, all determined in the manner and as of the date and time provided in
paragraph 2, and (ii) 680 shares of Acquiring Fund MuniPreferred, Series TH or
Series TH2. If shareholders of the Acquiring Fund approve an amendment to its
charter authorizing additional shares of its MuniPreferred, Series TH, the
Acquiring Fund will issue and deliver shares of its MuniPreferred, Series TH in
connection with the Reorganization. If such an amendment is not approved, the
Acquiring Fund will issue and deliver shares of MuniPreferred, Series TH2 in
connection with the Reorganization. The preferences, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the Acquiring Fund MuniPreferred, Series TH or
Series TH2, shall be identical in all material respects to those of the existing
series of Acquiring Fund MuniPreferred. Dividends on shares of Acquired Fund
MuniPreferred, Series TH, shall accumulate to and including the Closing Date and
then cease to accumulate, and dividends on shares of Acquiring Fund
MuniPreferred, Series TH or Series TH2, issued pursuant to the Reorganization
shall accumulate in respect of their "Initial Rate Period" from and including
the day after the Closing Date at the same rate borne on the Closing Date by the
shares of Acquiring Fund or Acquired Fund MuniPreferred, Series TH,
respectively. The "Subsequent Rate Periods," "Dividend Payment Dates" in respect
of such "Subsequent Rate Periods" and initial and subsequent "Auctions" for the
shares of Acquiring Fund MuniPreferred, Series TH or Series TH2, issued pursuant
to this paragraph 1.1 shall be fixed to be identical to the dividend and auction
provisions applicable to the outstanding shares of Acquiring Fund or Acquired
Fund MuniPreferred, Series TH, as of immediately prior to the Effective Time.
The "Initial Rate Period" and "Dividend Payment Rate" in respect of such Initial
Rate Period, for shares of Acquiring Fund MuniPreferred, Series TH or Series
TH2, issued pursuant to the Reorganization, shall be as set forth in the Joint
Proxy Statement-Prospectus, as hereinafter defined. Such transactions shall take
place at the closing provided for in paragraph 3.1 (the "Closing").
1.2 Except as otherwise provided herein, as of the Effective Time, the
Acquiring Fund shall acquire the assets of the Acquired Fund (consisting without
limitation of all cash, cash equivalents, municipal obligations and other
portfolio securities, receivables (including interest and dividends receivable)
and any deferred or prepaid expenses shown as assets) as set forth in the
respective Statement of Net Assets referred to in paragraph 7.3 as of the
Closing Date. Notwithstanding the foregoing, the assets to be acquired will not
include cash in the amount necessary to pay expenses of the Acquired Fund in
connection with the transactions contemplated by this Agreement, to pay the
dividends and/or other distributions contemplated by paragraph 1.4. The Acquired
Fund has no plan or intent to sell or otherwise dispose of any of its assets,
other than in the ordinary course of business.
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\1.3 Except as otherwise provided herein, as of the Effective Time, the
Acquiring Fund will assume from the Acquired Fund all debts, liabilities,
obligations and duties of the Acquired Fund of whatever kind or nature, whether
absolute, accrued, contingent or otherwise, arising in the ordinary course of
business, whether or not determinable as of the Effective Time and whether or
not specifically referred to in this Agreement. Notwithstanding the foregoing,
the Acquiring Fund will not assume the Acquired Fund's obligation to pay certain
expenses incurred by the Acquired Fund in connection with the transactions
contemplated by this Agreement or assume the Acquired Fund's obligation to pay
the dividends and/or other distributions contemplated by paragraph 1.4; and
further provided that the Acquired Fund agrees to utilize its best efforts to
discharge all of its known debts, liabilities, obligations and duties (other
than pursuant to paragraph 1.4) prior to the Effective Time.
1.4 At or prior to the Effective Time, the Acquired Fund (a) will declare all
accumulated but unpaid dividends on the shares of Acquired Fund MuniPreferred,
Series TH, up to and including the day on which the Effective Time occurs, such
dividends to be paid to the holders thereof on the Dividend Payment Date in
respect of the Initial Rate Period of shares of Acquiring Fund MuniPreferred,
Series TH or Series TH2, for which such 680 shares of Acquired Fund
MuniPreferred, Series TH, were exchanged, and (b) will declare a dividend and/or
other distribution to be paid within 30 days after the Closing Date to its
shareholders of record so that, upon such payment, it will have distributed all
of its investment company taxable income (computed without regard to any
deduction for dividends paid), net tax-exempt income and realized net capital
gains, if any, through and including the Closing Date.
1.5 On a date as soon after the Closing Date as is conveniently practicable
(the "Liquidation Date"), the Acquired Fund will liquidate and distribute (a)
pro rata to its common shareholders of record, determined as of the Effective
Time, the Acquiring Fund Common Shares received by the Acquired Fund pursuant to
paragraph 1.1 (together with any dividends declared with respect thereto to
holders of record as of a time after the Effective Time and prior to the
Liquidation Date ("Interim Dividends")), in exchange for common shares of the
Acquired Fund held by the common shareholders of such Fund and (b) to its
preferred shareholders of record, determined as of the Effective Time, one share
of Acquiring Fund MuniPreferred, Series TH or Series TH2 (together with any
Interim Dividends), in exchange for each share of Acquired Fund MuniPreferred,
Series TH, held by the preferred shareholders of the Acquired Fund. Such
liquidation and distribution will be accomplished by opening accounts on the
books of the Acquiring Fund in the names of the shareholders of the Acquired
Fund and transferring to each account (x) in the case of a common shareholder,
such shareholder's pro rata share of the Acquiring Fund Common Shares received
by the Acquired Fund (rounded down to the nearest whole Share) and (y) in the
case of a preferred shareholder, a number of the shares of Acquiring Fund
MuniPreferred, Series TH or Series TH2, received by the Acquired Fund equal to
the number of shares of Acquired Fund MuniPreferred, Series TH, held by such
shareholder, and by paying to the shareholders of the Acquired Fund any Interim
Dividends on such transferred shares.
1.6 After the Liquidation Date, each holder of an outstanding certificate or
certificates representing shares of the Acquired Fund will be entitled to
receive, upon surrender of his or her certificates, a certificate or
certificates representing the number of Acquiring Fund Common Shares and/or
shares of Acquiring Fund MuniPreferred, Series TH or Series TH2, and a check for
cash in lieu of any fractional Acquiring Fund Common Share as provided by
paragraph 1.7, distributable with respect to the shares of the Acquired Fund
that are surrendered. No dividends or other distributions payable to the holders
of record of the Acquiring Fund Shares as of a date on or after the Liquidation
Date are required to be paid to any shareholder holding certificates
representing shares of the Acquired Fund ("Acquired Fund Share Certificates") as
of the Closing Date until the Acquiring Fund is notified by the Acquired Fund's
transfer agent that such shareholder has surrendered his or her outstanding
Acquired Fund Share Certificates or, in the event of lost, stolen or destroyed
Acquired Fund Share Certificates, posted adequate bond or submitted an affidavit
of lost certificate, or both. The Acquired Fund will, at its expense, request
its shareholders to surrender their outstanding Acquired Fund Share
Certificates, post adequate bond and/or submit an affidavit of lost certificate,
as the case may be. Upon the surrender of Acquired Fund Share Certificates (or,
if applicable, after the posting of a bond and/or submission of an affidavit of
lost certificate), there shall be paid to the shareholder in whose name the
Acquiring Fund Shares shall be registered all dividends or other distributions
that shall have become payable with respect to such Acquiring Fund Shares
between the Liquidation Date and the time of such surrender. In no event shall
the shareholder entitled to receive such dividends and distributions be entitled
to receive interest thereon.
1.7 No certificates or scrip representing fractional Acquiring Fund Common
Shares shall be distributed upon the surrender for exchange of Acquired Fund
Share Certificates. In lieu of distributing any such fractional Acquiring Fund
Common Shares, the Acquired Fund's transfer agent shall, on behalf of all
holders of fractional Acquiring Fund Common Shares, on or before the tenth
business day following the Liquidation Date, aggregate all such fractional
Acquiring Fund Common Shares and sell the resulting whole Acquiring Fund Common
Shares on the New York Stock Exchange (the "NYSE") for the accounts of such
holders, and each such holder shall be entitled to receive his or her respective
pro rata share of the net proceeds of such sale upon surrender of his or her
Acquired Fund Share Certificates in accordance with paragraph 1.6.
1.8 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a name
other than the registered holder of the Acquired Fund shares surrendered in
exchange therefor on the books of the Acquired Fund as of that time shall be
paid by the person to whom such Acquiring Fund Shares are to be issued as a
condition to the registration of such transfer.
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1.9 Any reporting responsibility of the Acquired Fund with the Securities and
Exchange Commission (the "SEC"), the NYSE, or any state securities commission is
and shall remain the responsibility of the Acquired Fund up to and including the
Liquidation Date.
1.10 All books and records of the Acquired Fund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and the rules and regulations
thereunder, shall be available to the Acquiring Fund from and after the Closing
Date and shall be turned over to the Acquiring Fund on or prior to the
Liquidation Date.
1.11 The Acquired Fund will apply to terminate its registration under the
Investment Company Act promptly following the Liquidation Date and thereafter
shall be dissolved.
2 VALUATION
2.1 The value of the Acquired Fund's assets and liabilities to be acquired and
assumed, respectively, by the Acquiring Fund shall be computed as of the
Effective Time, using the valuation procedures set forth in the Funds' Joint
Proxy Statement -- Prospectus (the "Joint Proxy Statement -- Prospectus") to be
used in connection with the Reorganization. The value of the Acquired Fund's net
assets shall be calculated net of the liquidation preference (including
accumulated and unpaid dividends) of all outstanding shares of Acquired Fund
MuniPreferred.
2.2 The net asset value of an Acquiring Fund Common Share shall be computed as
of the Effective Time by dividing the value of the Acquiring Fund's total
assets, less liabilities and less the liquidation preference (including
accumulated and unpaid dividends) of all outstanding shares of Acquiring Fund
MuniPreferred, by the number of Acquiring Fund Common Shares outstanding
(excluding shares issuable pursuant to the Reorganization), using the valuation
procedures set forth in the Joint Proxy Statement -- Prospectus.
2.3 The number of Acquiring Fund Common Shares to be issued in exchange for the
Acquired Fund's net assets shall be calculated by dividing the net asset value
of the Acquired Fund (determined in accordance with paragraph 2.1) by the net
asset value of an Acquiring Fund Common Share (determined in accordance with
paragraph 2.2).
2.4 All computations of net asset value shall be made by or under the direction
of The Chase Manhattan Bank, N.A. ("Chase") in accordance with its regular
practice as custodian of the Funds.
3 CLOSING AND CLOSING DATE
3.1 The Closing Date shall be August 13, 1999 or such later date as the parties
may agree in writing, provided that the Closing Date shall be a date on which an
"Auction" would ordinarily occur with respect to shares of the Acquired Fund,
MuniPreferred Series TH if shares of MuniPreferred Series TH are issued in
connection with the Reorganization. If shares of MuniPreferred Series TH2 are
issued in connection with the Reorganization, the Closing Date shall be
, 1999 or such later date as the parties may agree in writing,
provided that the Closing Date shall not be a date on which an "Auction" would
ordinarily occur with respect to shares of Acquired Fund's MuniPreferred, Series
TH. All acts taking place at the Closing shall be deemed to take place
simultaneously as of the Effective Time unless otherwise provided. The Closing
shall be at the office of the Acquiring Fund or at such other place as the
parties may agree.
3.2 Chase as custodian for the Acquired Fund, shall deliver to the Acquiring
Fund at the Closing a certificate of an authorized officer stating that (a) the
Acquired Fund's portfolio securities, cash and any other assets have been
transferred in proper form to the Acquiring Fund on the Closing Date and (b) all
necessary taxes, if any, have been paid, or provision for payment has been made,
in conjunction with the delivery of portfolio securities.
3.3 In the event that on the proposed Closing Date (a) the NYSE or AMEX is
closed to trading or trading thereon is restricted or (b) trading or the
reporting of trading on the NYSE or AMEX or elsewhere is disrupted so that
accurate appraisal of the value of the net assets of the Acquired Fund or of the
net asset value per Acquiring Fund Common Share is impracticable, the Closing
Date shall be postponed until the first business day after the date when such
trading shall have been fully resumed and such reporting shall have been
restored, provided that if shares of Acquiring Fund MuniPreferred Series TH are
issued in connection with the Reorganization, that such day is a Thursday on
which an Auction would ordinarily occur with respect to shares of the Acquired
Fund MuniPreferred, Series TH and provided that if shares of Acquired Fund's
MuniPreferred, Series TH2 are issued in connection with the Reorganization such
day is not a day on which an Auction would ordinarily occur with respect to
shares of the Acquired Fund's MuniPreferred, Series TH.
3.4 The Acquired Fund shall deliver to the Acquiring Fund on or prior to the
Liquidation Date a list of the names and addresses of its shareholders and the
number of outstanding shares of the Acquired Fund owned by each such shareholder
(the "Shareholder Lists"), all as of the Effective Time, certified by the
Secretary or Assistant Secretary of the Acquired Fund. The Acquiring Fund shall
issue and deliver to the Acquired Fund at the Closing a confirmation or other
evidence satisfactory to the Acquired Fund that Acquiring Fund Shares have been
or will be credited to the Acquired Fund's account on the books of the Acquiring
Fund. At the Closing each party shall deliver to the other such bills of sale,
checks, assignments, stock
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certificates, receipts and other documents as such other party or its counsel
may reasonably request to effect the transactions contemplated by this
Agreement.
4 REPRESENTATIONS AND WARRANTIES
4.1 The Acquired Fund represents and warrants as follows:
4.1.1 The Acquired Fund is duly organized and existing under the laws of
the Commonwealth of Massachusetts as a voluntary association with
transferable shares commonly referred to as a "Massachusetts business trust"
and has the power to own all of its properties and assets and, subject to
approval of the shareholders of the Acquired Fund, to carry out the
Agreement.
4.1.2 The Acquired Fund is a closed-end diversified management investment
company duly registered under the Investment Company Act, and such
registration is in full force and effect.
4.1.3 The Acquired Fund is not, and the execution, delivery and performance
of this Agreement will not result, in violation of any provision of the
Declaration of Trust or By-Laws of the Acquired Fund or of any material
agreement, indenture, instrument, contract, lease or other undertaking to
which the Acquired Fund is a party or by which the Acquired Fund is bound.
4.1.4 The Acquired Fund has no material contracts or other commitments
(except this Agreement and the obligations to pay the dividends and/or
distributions contemplated by paragraph 1.4) that will not be terminated on
or prior to the Closing Date without any liability or penalty to the
Acquired Fund or the Acquiring Fund.
4.1.5 No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or, to the
knowledge of the Acquired Fund, threatened against the Acquired Fund or any
of its properties or assets. The Acquired Fund knows of no facts that might
form the basis for the institution of such proceedings, and the Acquired
Fund is not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body that materially and adversely
affects its business or its ability to consummate the transactions herein
contemplated.
4.1.6 The audited Annual and unaudited Semiannual Statement of Net Assets,
Statement of Operations, Statement of Changes in Net Assets, Financial
Highlights and Portfolio of Investments of the Acquired Fund dated October
31, 1998 and April 30, 1999, respectively and for the period then ended
(copies of which have been furnished to the Acquiring Fund) have been
prepared in accordance with generally accepted accounting principles
consistently applied and present fairly, in all material respects, the
financial condition of the Acquired Fund as of such date, and there are no
known material liabilities of the Acquired Fund (contingent or otherwise)
not disclosed therein.
4.1.7 Since April 30, 1999, there has not been any materially adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business, other than changes occurring in the ordinary course of business,
or any incurrence by the Acquired Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Acquiring Fund. For the purposes of this
paragraph 4.1.7, a decline in net asset value or net asset value per common
share of the Acquired Fund as a result of changes in the value of
investments held by the Acquired Fund or a distribution or payment of
dividends shall not constitute a materially adverse change.
4.1.8 All federal, state and other tax returns and reports of the Acquired
Fund required by law to have been filed or furnished by the date hereof have
been filed or furnished, and all federal, state and other taxes, interest
and penalties shown as due on said returns and reports have been paid
insofar as due, or provision has been made for the payment thereof, and, to
the best of the Acquired Fund's knowledge, no such return is currently under
audit and no assessment has been asserted with respect to such returns or
reports.
4.1.9 Since it commenced operations, the Acquired Fund has met the
requirements of Subchapter M of the Internal Revenue Code for qualification
and treatment as a regulated investment company and intends to meet those
requirements for the current taxable year.
4.1.10 The authorized capital of the Acquired Fund consists of
common shares and preferred shares, par value $.01 per share. All
issued and outstanding shares of the Acquired Fund are duly and validly
issued and outstanding, fully paid and non-assessable, except that
shareholders of the Acquired Fund may under certain circumstances be held
personally liable for its obligations. All issued and outstanding shares of
the Acquired Fund will, at the time of the Closing, be held by the persons
and in the amounts set forth in the applicable Shareholder List submitted to
the Acquiring Fund in accordance with the provisions of paragraph 3.4. The
Acquired Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any shares of the Acquired Fund, nor is
there outstanding any security convertible into shares of the Acquired Fund.
4.1.11 At the Closing Date, the Acquired Fund will have good and marketable
title to the assets to be transferred to the Acquiring Fund pursuant to
paragraph 1.1 and full right, power and authority to sell, assign, transfer
and deliver
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such assets hereunder free of any liens or other encumbrances, and, upon
delivery and payment for such assets, the Acquiring Fund will acquire good
and marketable title thereto.
4.1.12 The execution, delivery and performance of this Agreement has been
duly authorized by the Board of Trustees of the Acquired Fund (including the
determinations required by Rule 17a-8(a) under the Investment Company Act)
and by all necessary action, other than shareholder approval, on the part of
the Acquired Fund, and, subject to shareholder approval, this Agreement
constitutes a valid and binding obligation of the Acquired Fund.
4.1.13 The information furnished and to be furnished by the Acquired Fund
for use in applications for orders, registration statements, proxy materials
and other documents which may be necessary in connection with the
transactions contemplated hereby is, and shall be, accurate and complete in
all material respects and is in compliance, and shall comply, in all
material respects with applicable federal securities and other laws and
regulations.
4.1.14 On the effective date of the Registration Statement referred to in
paragraph 5.5, at the time of the Annual Meeting of the Acquired Fund's
shareholders and on the Closing Date, the Joint Proxy
Statement -- Prospectus (a) will comply in all material respects with the
provisions and regulations of the Securities Act of 1933, as amended (the
"1933 Act"), the Securities Exchange Act of 1934, as amended (the "1934
Act"), and the Investment Company Act and the rules and regulations
thereunder and (b) will not contain any 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; provided, however, that the representations
and warranties in this paragraph 4.1.14 shall not apply to statements in or
omissions from the Joint Proxy Statement -- Prospectus made in reliance upon
and in conformity with information furnished by the Acquiring Fund for use
therein.
4.1.15 No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquired Fund
of the transactions contemplated by this Agreement, except such as have been
obtained under the 1933 Act, the 1934 Act and the Investment Company Act,
and such as may be required under state securities laws.
4.1.16 There are no brokers or finder's fees payable on behalf of the
Acquired Fund in connection with the transactions provided for herein.
4.2 The Acquiring Fund represents and warrants as follows:
4.2.1 The Acquiring Fund is a State of Minnesota duly organized, validly
existing and in good standing under the laws of the State of Minnesota and
has the power to own all of its properties and assets and, subject to
approval of the shareholders of the Acquiring Fund, to carry out the
Agreement.
4.2.2 The Acquiring Fund is a closed-end diversified management investment
company duly registered under the Investment Company Act, and such
registration is in full force and effect.
4.2.3 The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any provision
of the Articles of Incorporation or By-Laws of the Acquiring Fund or of any
material agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Fund is a party or by which the Acquiring
Fund is bound.
4.2.4 No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or, to the
knowledge of the Acquiring Fund, threatened against the Acquiring Fund or
any of its properties or assets. The Acquiring Fund knows of no facts that
might form the basis for the institution of such proceedings, and the
Acquiring Fund is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
4.2.5 The audited Annual and unaudited Semiannual Statement of Net Assets,
Statement of Operations, Statement of Changes in Net Assets, Financial
Highlights and Portfolio of Investments of the Acquiring Fund dated October
31, 1998 and April 30, 1999, respectively and for the period then ended
(copies of which have been furnished to the Acquired Fund) have been
prepared in accordance with generally accepted accounting principles and
present fairly, in all material respects, the financial condition of the
Acquiring Fund as of such date, and there are no known material liabilities
of the Acquiring Fund (contingent or otherwise) not disclosed therein.
4.2.6 Since April 30, 1999 there has not been any materially adverse change
in the Acquiring Fund's financial condition, assets, liabilities or
business, other than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Acquired Fund. For the purposes of this
paragraph 4.2.6, a decline in net asset value or net asset value per
Acquiring Fund Common Share as a result of changes in the value of
investments held by the Acquiring Fund or a distribution or payment of
dividends shall not constitute a materially adverse change.
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4.2.7 All federal, state and other tax returns and reports of the Acquiring
Fund required by law to have been filed or furnished by the date hereof have
been filed or furnished, and all federal, state and other taxes, interest
and penalties shown as due on said returns and reports have been paid
insofar as due, or provision has been made for the payment thereof, and, to
the best of the Acquiring Fund's knowledge, no such return is currently
under audit and no assessment has been asserted with respect to such returns
or reports.
4.2.8 Since it commenced operations, the Acquiring Fund has met the
requirements of Subchapter M of the Internal Revenue Code for qualification
and treatment as a regulated investment company and intends to meet those
requirements for the current taxable year.
4.2.9 The authorized capital of the Acquiring Fund consists of 201,000,000
shares consisting of 1,000,000 preferred shares and 200,000,000 common
shares. All issued and outstanding Acquiring Fund Common Shares and shares
of Acquiring Fund MuniPreferred are, and all Acquiring Fund Common Shares
and shares of Acquiring Fund MuniPreferred to be issued in exchange for the
net assets of the Acquired Funds pursuant to this Agreement will be when so
issued, duly and validly issued and outstanding, fully paid and
non-assessable. Except as contemplated by this Agreement, the Acquiring Fund
does not have outstanding any options, warrants or other rights to subscribe
for or purchase any Acquiring Fund Shares, nor is there outstanding any
security convertible into any Acquiring Fund Shares.
4.2.10 The execution, delivery and performance of this Agreement has been
duly authorized by the Board of Directors of the Acquiring Fund (including
the determinations required by Rule 17a-8(a) under the Investment Company
Act) and by all necessary action, other than shareholder approval, on the
part of the Acquiring Fund, and, subject to approval of preferred
shareholders, this Agreement constitutes a valid and binding obligation of
the Acquiring Fund.
4.2.11 The information furnished and to be furnished by the Acquiring Fund
for use in applications for orders, registration statements, proxy materials
and other documents which may be necessary in connection with the
transactions contemplated hereby is, and shall be, accurate and complete in
all material respects and is in compliance, and shall comply, in all
material respects with applicable federal securities and other laws and
regulations.
4.2.12 On the effective date of the Registration Statement, at the time of
the Annual Meeting of the Acquiring Fund shareholders and on the Closing
Date, the Registration Statement and the Joint Proxy Statement -- Prospectus
(a) will comply in all material respects with the provisions of the 1933
Act, the 1934 Act and the Investment Company Act and the rules and
regulations thereunder and (b) will not contain any 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; provided, however, that the
representations and warranties in this paragraph 4.2.12 shall not apply to
statements in or omissions from the Joint Proxy Statement -- Prospectus and
the Registration Statement made in reliance upon and in conformity with
information furnished by the Acquired Fund for use therein.
4.2.13 No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated by this Agreement, except such as have
been obtained under the 1933 Act, the 1934 Act and the Investment Company
Act, and such as may be required under state securities laws.
4.2.14 There are no brokers' or finders' fees payable on behalf of the
Acquiring Fund in connection with the transactions provided for herein.
5 COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as may otherwise be required by paragraph 1.4, each Fund will
operate its respective business in the ordinary course between the date hereof
and the Closing Date, it being understood that the ordinary course of business
will include declaring and paying customary dividends and other distributions.
5.2 Each Fund will call a shareholders' meeting to consider and act upon this
Agreement and the transactions contemplated herein and to take all other action
necessary to obtain approval of the transactions contemplated hereby.
5.3 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund's shares.
5.4 Subject to the provisions of this Agreement, each Fund will take or cause
to be taken all action, and will do or cause to be done all things, reasonably
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
5.5 Each Fund will prepare and file with the SEC the Joint Proxy
Statement -- Prospectus, and the Acquiring Fund will prepare and file with the
SEC a registration statement on Form N-14 relating to the Acquiring Fund Shares
to be issued hereunder (together with any amendments thereof and supplements
thereto, the "Registration Statement"), in compliance with the 1933 Act, the
1934 Act and the Investment Company Act and the rules and regulations
thereunder.
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5.6 Each Fund will, from time to time, as and when requested by the other Fund,
execute and deliver or cause to be executed and delivered all such assignments
and other instruments, and will take or cause to be taken such further action,
as the other Fund may deem necessary or desirable in order to (a) vest in and
confirm to the Acquiring Fund title to and possession of all the assets of the
Acquired Fund to be sold, assigned, transferred and delivered to the Acquiring
Fund pursuant to this Agreement, (b) vest in and confirm to the Acquired Fund
title to and possession of all the Acquiring Fund Shares to be transferred to
the Acquired Fund pursuant to this Agreement, (c) assume all of the Acquired
Fund's liabilities in accordance with this Agreement, and (d) otherwise to carry
out the intent and purpose of this Agreement.
5.7 The Acquiring Fund will use all reasonable efforts to obtain the approvals
and authorizations required by the 1933 Act, the Investment Company Act and such
of the state Blue Sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
5.8 The expenses incurred by the Funds in connection with this Agreement and
the transactions contemplated hereby shall be paid by the Acquired Fund, whether
or not the transactions contemplated hereby are consummated.
6 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions provided for
herein shall, at its election, be subject to the performance by the Acquiring
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and the following further conditions.
6.1 All representations and warranties of the Acquiring Fund contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2 The Acquiring Fund shall have delivered to the Acquired Fund a certificate
executed in its name by the President or a Vice President of the Acquiring Fund,
in form and substance satisfactory to the Acquired Fund and dated as of the
Closing Date, to the effect that the representations and warranties of the
Acquiring Fund in this Agreement are true and correct at and as of the Closing
Date except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Acquired Fund shall reasonably
request.
6.3 The Acquired Fund shall have received the opinion of Vedder, Price, Kaufman
& Kammholz, counsel for the Acquiring Fund, dated as of the closing Date,
addressed to the Acquired Fund substantially in the form and to the effect that:
6.3.1 The Acquiring Fund is duly organized and existing under the laws of
the State of Minnesota as a corporation;
6.3.2 The Acquiring Fund is registered as an closed-end management company
under the 1940 Act;
6.3.3 This Agreement and the reorganization provided for herein and the
execution of this Agreement have been duly authorized and approved by all
requisite action of the Acquiring Fund and this Agreement has been duly
executed and delivered by the Acquiring Fund and (assuming the Agreement is
a valid and binding obligation of the other parties thereto) is a valid and
binding obligation of the Acquiring Fund, except as such enforceability may
be limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or similar law affecting creditors' rights generally, or by
general principals of equity (regardless of whether enforcement is sought in
a proceeding at equity at law);
6.3.4 Neither the execution or delivery by the Acquiring Fund of this
Agreement nor the consummation by the Acquiring Fund of the transactions
contemplated thereby contravene the Acquiring Fund's Articles of
Incorporation, or, to the best of their knowledge, violate any provision of
any statute or any published regulation or any judgment or order disclosed
to it by the Acquiring Fund as being applicable to the Acquiring Fund;
6.3.5 To the best of their knowledge based solely on the certificate of an
appropriate officer of the Acquiring Fund, there is no pending or threatened
litigation which would have the effect of prohibiting any material business
practice or the acquisition of any material property or the conduct of any
material business of the Acquiring Fund or might have a material adverse
effect on the value of any assets of the Acquiring Fund;
6.3.6 The Acquiring Fund's Shares have been duly authorized and upon
issuance thereof in accordance with this Agreement will, be validly issued,
fully paid and nonassessable;
6.3.7 Except as to financial statements and schedules and other financial
and statistical data included or, incorporated by reference therein and
subject to usual and customary qualifications with respect to Rule 10b-5
type opinions, as of the effective date of the Registration Statement filed
pursuant to the Agreement, the portions thereof pertaining to the Acquiring
Fund comply as to form in all material respects with the requirements of the
Securities Act, the Securities Exchange Act and the 1940 Act and the rules
and regulations of the SEC thereunder and no facts have come to counsel's
attention which would cause them to believe that as of the effectiveness of
the portions of the Registration Statement applicable to the Acquiring Fund,
the Registration Statement contained any untrue statement of
A-7
<PAGE> 55
a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and
6.3.8 To the best of their knowledge and information and subject to the
qualifications set forth below, the execution and delivery by the Acquiring
Fund of the Agreement and the consummation of the transactions therein
contemplated do not require, under the laws of the States of Minnesota and
Illinois or the federal laws of the United States, the consent, approval,
authorization, registration, qualification or order of, or filing with, any
court or governmental agency or body (except such as have been obtained).
Counsel need express no opinion, however, as to any such consent, approval,
authorization, registration, qualification, order or filing (a) which may be
required as a result of the involvement of other parties to the Agreement in
the transactions contemplated by the Agreement because of their legal or
regulatory status or because of any other facts specifically pertaining to
them; (b) the absence of which does not deprive the Acquired Fund of any
material benefit under the Agreement; or (c) which can be readily obtained
without significant delay or expense to the Acquired Fund, without loss to
the Acquired Fund of any material benefit under the Agreement and without
any material adverse effect on the Acquired Fund during the period such
consent, approval, authorization, registration, qualification or order was
obtained. The foregoing opinion relates only to consents, approvals,
authorizations, registrations, qualifications, orders or filings under (a)
laws which are specifically referred to in this opinion, (b) laws of the
States of Minnesota and Illinois and the federal laws of the United States
which, in counsel's experience, are normally applicable to transactions of
the type provided for in the Agreement and (c) court orders and judgments
disclosed to counsel by the Acquiring Fund in connection with the opinion.
In addition, although counsel need not specifically have considered the
possible applicability to the Acquiring Fund of any other laws, orders, or
judgments, nothing has come to their attention in connection with their
representation of the Acquiring Fund in this transaction that has caused
them to conclude that any other consent, approval, authorization,
registration, qualification, order or filing is required.
6.3.9 In giving the opinions set forth above, counsel may state that it is
relying on certificates of officers of the Acquiring Fund with regard to
matters of fact and certain certificates and written statements of
government officers with respect to the good standing of the Acquiring Fund
and on the opinion of Dorsey & Whitney as to matters of Minnesota law.
7 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions provided
for herein with respect to the Acquired Fund shall, at its election, be subject
to the performance by the Acquired Fund of all the obligations to be performed
by it hereunder on or before the Closing Date and the following further
conditions:
7.1 All representations and warranties of the Acquired Fund contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
7.2 The Acquired Fund shall have delivered to the Acquiring Fund a certificate
executed in its name by the President or Vice President of the Acquired Fund, in
form and substance satisfactory to the Acquiring Fund and dated as of the
Closing Date, to the effect that the representations and warranties of the
Acquired Fund in this Agreement are true and correct at and as of the Closing
Date except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Acquiring Fund shall reasonably
request.
7.3 The Acquired Fund shall have delivered to the Acquiring Fund on the Closing
Date a Statement of Net Assets, which Statement shall be prepared in accordance
with generally accepted accounting principles consistently applied, together
with a list of its portfolio securities showing the adjusted tax bases and
holding periods of such securities as of the Closing Date, certified by the
Treasurer of the Acquired Fund.
7.4 On or immediately prior to the Closing Date, the Acquired Fund shall have
declared the dividends and/or distributions contemplated by paragraph 1.4.
7.5 The Acquiring Fund shall have received the opinion of Vedder, Price,
Kaufman & Kammholz, counsel for the Acquired Fund, dated as of the closing
Date, addressed to the Acquiring Fund substantially in the form and to the
effect that:
7.5.1 The Acquired Fund is duly organized and existing under the laws of
the Commonwealth of Massachusetts as a voluntary association with
transferable shares of beneficial interest commonly referred to as a
"Massachusetts business trust;"
7.5.2 The Acquired Fund is registered as an closed-end management company
under the 1940 Act;
7.5.3 This Agreement and the reorganization provided for herein and the
execution of this Agreement have been duly authorized and approved by all
requisite action of the Acquired Fund and this Agreement has been duly
executed and delivered by the Acquired Fund and (assuming the Agreement is a
valid and binding obligation of the other parties thereto) is a valid and
binding obligation of the Acquired Fund, except as such enforceability may
be limited by
A-8
<PAGE> 56
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or
similar law affecting creditors' rights generally, or by general principals
of equity (regardless of whether enforcement is sought in a proceeding at
equity at law);
7.5.4 Neither the execution or delivery by the Acquired Fund of this
Agreement nor the consummation by the Acquired Fund of the transactions
contemplated thereby contravene the Acquired Fund's Declaration of Trust,
or, to their knowledge, violate any provision of any statute or any
published regulation or any judgment or order disclosed to it by the
Acquired Fund as being applicable to the Acquired Fund;
7.5.5 To their knowledge based solely on the certificate of an appropriate
officer of the Acquired Fund, there is no pending or threatened litigation
involving the Acquired Fund except as disclosed therein;
7.5.6 Except as to financial statements and schedules and other financial
and statistical data included or, incorporated by reference therein and
subject to usual and customary qualifications with respect to Rule 10b-5
type opinions, as of the effective date of the Registration Statement filed
pursuant to the Agreement, the portions thereof pertaining to the Acquired
Fund comply as to form in all material respects with the requirements of the
Securities Act, the Securities Exchange Act and the 1940 Act and the rules
and regulations of the SEC thereunder and no facts have come to counsel's
attention which would cause them to believe that as of the effectiveness of
the portions of the Registration Statement applicable to the Acquired Fund,
the Registration Statement contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; and
7.5.7 To their knowledge and subject to the qualifications set forth below,
the execution and delivery by the Acquired Fund of the Agreement and the
consummation of the transactions therein contemplated do not require, under
the laws of the States of Massachusetts and Illinois or the federal laws of
the United States, the consent, approval, authorization, registration,
qualification or order of, or filing with, any court or governmental agency
or body (except such as have been obtained under the Securities Act, the
1940 Act or the rules and regulations thereunder and any filing in
connection with the termination of the Acquired Fund). Counsel need express
no opinion, however, as to any such consent, approval, authorization,
registration, qualification, order or filing (a) which may be required as a
result of the involvement of other parties to the Agreement in the
transactions contemplated by the Agreement because of their legal or
regulatory status or because of any other facts specifically pertaining to
them; (b) the absence of which does not deprive the Acquiring Fund of any
material benefit under the Agreement; or (c) which can be readily obtained
without significant delay or expense to the Acquiring Fund, without loss to
the Acquiring Fund of any material benefit under the Agreement and without
any material adverse effect on the Acquiring Fund during the period such
consent, approval, authorization, registration, qualification or order was
obtained. The foregoing opinion relates only to consents, approvals,
authorizations, registrations, qualifications, orders or filings under (a)
laws which are specifically referred to in this opinion, (b) laws of the
States of Massachusetts and Illinois and the federal laws of the United
States which, in counsel's experience, are normally applicable to
transactions of the type provided for in the Agreement and (c) court orders
and judgments disclosed to counsel by the Acquired Fund in connection with
the opinion. In addition, although counsel need not specifically have
considered the possible applicability to the Acquired Fund of any other
laws, orders, or judgments, nothing has come to their attention in
connection with their representation of the Acquired Fund in this
transaction that has caused them to conclude that any other consent,
approval, authorization, registration, qualification, order or filing is
required.
7.5.8 In giving the opinions set forth above, counsel may state that it is
relying on certificates of officers of the Acquired Fund with regard to
matters of fact and certain certificates and written statements of
government officers with respect to the legal existence of the Acquired Fund
and on the opinion of Bingham Dana LLP as to matters of Massachusetts law.
8 FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
The obligations of each Fund hereunder are subject to the further conditions
that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite votes of (a) the Board of Directors of the Acquiring
Fund and the Board of Trustees of the Acquired Fund, including as to the
determinations required by Rule 17a-8(a) under the Investment Company Act and
(b) the holders of the outstanding shares of the Acquiring Fund and the Acquired
Fund in accordance with the provisions of the Acquiring Fund's Articles of
Incorporation and By-Laws and the Acquired Fund's Declaration of Trust and
By-Laws and the requirements of the NYSE and AMEX; each Fund shall have
delivered certified copies of the resolutions evidencing such approvals to the
other Fund; and the Acquiring Fund shall have given Bankers Trust Company or its
successor, and the Depository Trust Company or its successor, at least five
business days notice of such approval.
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or the transactions contemplated herein.
A-9
<PAGE> 57
8.3 All consents of other parties and all consents, orders and permits of
federal, state and local regulatory authorities (including those of the SEC and
of state Blue Sky or securities authorities, including "no-action" positions of
such federal or state authorities) deemed necessary by the Acquiring Fund or the
Acquired Fund to permit consummation, in all material respects, of the
transactions contemplated hereby shall have been obtained, except where failure
to obtain any such consent, order or permit would not involve a risk of a
materially adverse effect on the assets or properties of the Acquiring Fund or
the Acquired Fund, provided that either party hereto may waive any part of this
condition as to itself.
8.4 The Registration Statement shall have become effective under the 1933 Act,
and no stop order suspending the effectiveness thereof shall have been issued,
and, to the best knowledge of the Funds no investigation or proceeding under the
1933 Act for that purpose shall have been instituted or be pending, threatened
or contemplated.
8.5 The Funds shall have received an opinion of Vedder, Price, Kaufman &
Kammholz satisfactory to the Funds and based upon such reasonably requested
representations and warranties as requested by counsel, substantially to the
effect that, for federal income tax purposes:
8.5.1 The acquisition by the Acquiring Fund of substantially all the assets
of the Acquired Fund in exchange solely for Acquiring Fund Shares and the
assumption by the Acquiring Fund of the Acquired Fund's liabilities, if any,
followed by the distribution by the Acquired Fund of the Acquiring Fund
Shares to the shareholders of the Acquired Fund in exchange for their
Acquired Fund shares in complete liquidation of the Acquired Fund, will
constitute a "reorganization" within the meaning of Section 368(a)(1) of the
Internal Revenue Code, and the Acquiring Fund and the Acquired Fund each
will be "a party to a reorganization" within the meaning of Section 368(b)
of the Internal Revenue Code;
8.5.2 The Acquired Fund's shareholders will recognize no gain or loss upon
the exchange of all of their Acquired Fund shares for Acquiring Fund Shares
in complete liquidation of the Acquired Fund, except with respect to cash
received for a fractional Acquiring Fund Common Share, if any;
8.5.3 No gain or loss will be recognized by the Acquired Fund upon the
transfer of substantially all its assets to the Acquiring Fund in exchange
solely for Acquiring Fund Shares and the assumption by the Acquiring Fund of
the Acquired Fund's liabilities, if any, and with respect to the subsequent
distribution of those Acquiring Fund Shares to the Acquired Fund
shareholders in complete liquidation of the Acquired Fund;
8.5.4 No gain or loss will be recognized by the Acquiring Fund upon the
acquisition of substantially all the Acquired Fund's assets in exchange
solely for Acquiring Fund Shares and the assumption of the Acquired Fund's
liabilities, if any;
8.5.5 The basis of the assets acquired by the Acquiring Fund will be, in
each instance, the same as the basis of those assets when held by the
Acquired Fund immediately before the transfer, and the holding period of
such assets acquired by the Acquiring Fund will include the holding period
thereof when held by the Acquired Fund;
8.5.6 The basis of the Acquiring Fund Shares to be received by the Acquired
Fund's shareholders upon liquidation of the Acquired Fund will be, in each
instance, the same as the basis of the Acquired Fund shares surrendered in
exchange therefor, decreased by any cash received and increased by the
amount of gain recognized on the exchange; and
8.5.7 The holding period of the Acquiring Fund Shares to be received by the
Acquired Fund's shareholders will include the period during which the
Acquired Fund shares to be surrendered in exchange therefor were held,
provided such Acquired Fund shares were held as capital assets by those
shareholders on the date of the exchange.
8.6 The Acquiring Fund shall have obtained written confirmation from both
Moody's Investors Service, Inc. and Standard & Poor's Corporation that (a)
consummation of the transactions contemplated by this Agreement will not
impair the "aaa" and AAA ratings, respectively, assigned by such rating
agencies to the existing shares of Acquiring Fund MuniPreferred, Series M,
Series T, Series T2, Series W, Series TH, Series F and Series F2, and (b) if
Acquiring Fund shareholders do not approve an amendment to the Acquiring
Fund's Articles of Incorporation to authorize additional shares of Acquiring
Fund MuniPreferred, Series TH, the shares of Acquiring Fund MuniPreferred,
Series TH2, to be issued pursuant to paragraph 1.1 will be rated "aaa" or
AAA, respectively, by such rating agencies.
9 ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
9.1 This Agreement constitutes the entire agreement between the Funds.
9.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall
survive the consummation of the transactions contemplated hereby.
A-10
<PAGE> 58
10 TERMINATION
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval of the shareholders of the Funds:
10.1 By mutual agreement of the Funds;
10.2 By either Fund, if a condition to the obligations of such Fund shall not
have been met and it reasonably appears that it will not or cannot be met; or
10.3 By either Fund, if the Closing shall not have occurred on or before
, 1999;
In the event of any such termination, there shall be no liability for damages on
the part of either Fund (other than the liability of the Funds to pay expenses
pursuant to paragraph 5.8) or any Director, Trustee or officer of any Fund.
11 AMENDMENT
This Agreement may be amended, modified or supplemented only in writing by the
parties; provided, however, that following the shareholders' meetings called by
the Funds pursuant to paragraph 5.2, no such amendment may have the effect of
changing the provisions for determining the number of Acquiring Fund Common
Shares or shares of Acquiring Fund MuniPreferred to be distributed to the
Acquired Fund's shareholders under this Agreement without their further approval
and the further approval of the Funds' Boards of Directors or Trustees
(including the determination required by Rule 17a-8(a) under the Investment
Company Act), and provided further that nothing contained in this paragraph 11
shall be construed as requiring additional approval to amend this Agreement to
change the Closing Date or the Effective Time.
12 NOTICES
Any notice, report, demand or other communication required or permitted by any
provision of this Agreement shall be in writing and shall be given by hand
delivery, prepaid certified mail or overnight delivery service addressed to John
Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago, Illinois 60606,
Attention: Gifford R. Zimmerman.
13 HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
13.1 The paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which will be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with the
laws of the State of Illinois, except for paragraph 13.6 which shall be governed
by and construed in accordance with the laws of the Commonwealth of
Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties and
their respective successors and assigns, and no assignment or transfer hereof or
of any rights or obligations hereunder shall be made by either party without the
written consent of the other party. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give any person, firm or
corporation other than the parties and their respective successors and assigns
any rights or remedies under or by reason of this Agreement.
13.5 All persons dealing with the Acquiring Fund must look solely to the
property of the Acquiring Fund for the enforcement of any claims against the
Acquiring Fund as neither the Directors, officers, agents or shareholders of the
Acquiring Fund assume any personal liability for obligations entered into on
behalf of the Acquiring Fund.
13.6 Consistent with the Acquired Fund's Declaration of Trust, notice is hereby
given and the parties hereto acknowledge and agree that this instrument is
executed on behalf of the Trustees of the Acquired Fund as Trustees and not
individually and that the obligations of this instrument are not binding upon
any of the Trustees or shareholders of the Acquired Fund individually but
binding only upon the assets and property of the Acquired Fund.
A-11
<PAGE> 59
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
by the President or Vice President of each Fund.
<TABLE>
<S> <C>
NUVEEN PREMIUM INCOME NUVEEN WASHINGTON PREMIUM
MUNICIPAL FUND 4, INC INCOME MUNICIPAL FUND
By: By:
--------------------------------------------------- ---------------------------------------------------
Gifford R. Zimmerman Gifford R. Zimmerman
Vice President Vice President
</TABLE>
A-12
<PAGE> 60
NPT599
<PAGE> 61
NUVEEN PREMIUM
INCOME MUNICIPAL FUND 4, INC.
STATEMENT OF ADDITIONAL INFORMATION
JUNE __, 1999
<PAGE> 62
NUVEEN PREMIUM INCOME
MUNICIPAL FUND 4, INC.
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the common shares
and shares of MuniPreferred(R) (collectively, the "Acquiring Fund Shares") to be
issued by Nuveen Premium Income Municipal Fund 4, Inc. (the "Acquiring Fund")
pursuant to an Agreement and Plan of Reorganization and Liquidation dated as of
February 2, 1999 (the "Agreement") by and between the Acquiring Fund and Nuveen
Washington Premium Income Municipal Fund (the "Acquired Fund" and, together with
the Acquiring Fund, the "Funds"), providing for a reorganization (the
"Reorganization") in which, among other things, the Acquiring Fund would (a)
acquire substantially all of the assets of the Acquired Fund in exchange for
newly issued Acquiring Fund Shares and (b) assume substantially all of the
liabilities of the Acquired Fund. This Statement of Additional Information does
not constitute a prospectus, but should be read in conjunction with the Joint
Proxy Statement--Prospectus relating to the Acquiring Fund Shares dated June __,
1999. This Statement of Additional Information does not include all information
that a shareholder should consider before voting on the proposals contained in
the Joint Proxy Statement--Prospectus, and shareholders should obtain and read
the Joint Proxy Statement--Prospectus prior to voting. A copy of the Joint Proxy
Statement--Prospectus may be obtained without charge by mailing a written
request to either of the Funds, Attention: Administration, 333 West Wacker
Drive, Chicago, Illinois 60606 or by calling (800) 257-8787. Capitalized terms
used but not defined in the text of this Statement of Additional Information
have the meanings given them in Annex B hereto.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS................................................................ S-2
MANAGEMENT OF THE FUNDS........................................................................................ S-8
PORTFOLIO TRANSACTIONS OF THE FUNDS............................................................................S-10
DESCRIPTION OF MUNIPREFERRED ISSUED
BY THE ACQUIRING FUND.................................................................................S-11
DESCRIPTION OF THE AUCTIONS FOR
MUNIPREFERRED ISSUED BY THE ACQUIRING FUND............................................................S-29
TAX MATTERS ASSOCIATED WITH
INVESTMENT IN THE FUNDS...............................................................................S-41
PART I ......................................................................................................B-12
Part II ......................................................................................................B-29
Appendix A..................................................................................................... A-1
Investment Objectives and Policies of the Funds................................................................ S-2
Certain Trading Strategies of the Funds........................................................................ S-6
Management of the Funds........................................................................................ S-8
Portfolio Transactions of the Funds............................................................................S-10
Description of MuniPreferred Issued by the Acquiring Fund......................................................S-11
Description of the Auctions For MuniPreferred Issued by the Acquiring Fund.....................................S-29
Tax Matters Associated with Investment in the Funds............................................................S-41
Financial Statements........................................................................................... F-1
Ratings of Investments (ANNEX A)............................................................................... A-1
Statement Fixing and Establishing the Rights and Preferences of Municipal Auction Rate
Cumulative Preferred Stock (ANNEX B)......................................................................... B-1
</TABLE>
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS ____________.
<PAGE> 63
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
GENERAL
Each Fund's primary investment objective is to provide, through
investment in a professionally managed portfolio of tax-exempt Municipal
Obligations, current income exempt from regular Federal income tax, consistent
with the Fund's investment policies. The secondary investment objective of the
Acquiring Fund is the enhancement of portfolio value relative to the municipal
bond market through investments in tax-exempt Municipal Obligations that, in the
opinion of the Adviser, are underrated or undervalued or that represent
municipal market sectors that are undervalued. The secondary investment
objective of the Acquired Fund is the enhancement of portfolio value relative to
the Washington municipal bond market through investments in tax-exempt
Washington Municipal Obligations that, in the opinion of the Adviser, are
underrated or undervalued or that represent municipal market sectors that are
undervalued. See "Portfolio Investments." Underrated Municipal Obligations are
those whose ratings do not, in the Adviser's opinion, reflect their true value.
Municipal Obligations may be underrated because of the time that has elapsed
since their most recent rating, or because of positive factors that may not have
been fully taken into account by rating agencies, or for other similar reasons.
Municipal Obligations that are undervalued or that represent undervalued
municipal market sectors are Municipal Obligations that, in the Adviser's
opinion, are worth more than the value assigned to them in the marketplace.
Municipal Obligations of particular types or purposes (e.g., hospital bonds,
industrial revenue bonds or bonds issued by a particular municipal issuer) may
be undervalued because there is a temporary excess of supply in that market
sector, or because of a general decline in the market price of Municipal
Obligations of the market sector for reasons that do not apply to the particular
Municipal Obligations that are considered undervalued. Each Fund's investment in
underrated or undervalued Municipal Obligations will be based on the Adviser's
belief that the prices of such Municipal Obligations should ultimately reflect
their true value. Accordingly, "enhancement of portfolio value relative to the
municipal bond market" refers to each 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. Thus, each Fund's secondary
investment objective is not intended to suggest that capital appreciation is
itself an objective of each Fund. Instead, each Fund will seek enhancement of
portfolio value relative to the municipal bond market by prudent selection of
Municipal Obligations, regardless of which direction the market may move. Each
Fund's policy of investing in insured Municipal Obligations may limit the extent
to which it will be able to achieve its secondary investment objective. Any
capital appreciation realized by a Fund will generally result in the
distribution of taxable capital gains to Fund shareholders. Each Fund is
currently required to allocate net capital gains and other income taxable for
Federal income tax purposes, if any, proportionately between its common shares
and shares of MuniPreferred. See "Tax Matters Associated with Investment in the
Funds" and "Proposal No. 1--The Reorganization--The Auction--Auction
Procedures."
PORTFOLIO INVESTMENTS
Except to the extent either Fund invests in temporary investments as
described below and more fully in the Statement of Additional Information, the
Acquiring Fund, as a fundamental policy, invests substantially all (in excess of
80%) of its assets in tax-exempt Municipal Obligations rated at the time of
purchase within the four highest grades (Baa or BBB or better) by Moody's or S&P
or in unrated Municipal Obligations which, in the opinion of the Adviser, have
characteristics equivalent to, and will be of comparable quality to, Municipal
Obligations rated within the four highest grades by Moody's or S&P, provided
that the Acquiring Fund may not invest more than 20% of its assets in such
unrated Municipal Obligations. The Acquired Fund, as a fundamental policy,
invests substantially all (in excess of 80%) of its assets in tax-exempt
Washington Municipal Obligations rated at the time of purchase within the four
highest grades by Moody's or S&P, or in unrated Washington Municipal Obligations
which, in the opinion of the Adviser, have credit characteristics equivalent to,
and will be of comparable quality to, Washington Municipal Obligations rated
within the four highest grades by Moody's or S&P, provided that the Acquired
Fund may not invest more than 20% of its assets in such unrated Washington
Municipal Obligations.
Each Fund will not invest in any rated Municipal Obligations that are
rated lower than Baa by Moody's or BBB by S&P at the time of purchase. Municipal
Obligations rated Baa or BBB are considered "investment grade" securities;
Municipal Obligations rated Baa are considered medium grade obligations which
lack outstanding investment characteristics and in fact have speculative
characteristics as well, while Municipal Obligations rated BBB are regarded
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as having an adequate capacity to pay principal and interest. Municipal
Obligations rated AAA in which each Fund may invest may have been so rated on
the Basis of the existence of insurance guaranteeing the timely payment, when
due, of all principal and interest. A general description of Moody's and S&P's
ratings of Municipal Obligations is set forth in Annex A.
The foregoing investment objectives and policies are fundamental
policies of each Fund and may not be changed without the approval of the holders
of a "majority of the outstanding" common shares and preferred shares of that
Fund, including shares of that Fund's MuniPreferred, voting together as a single
class, and of the holders of a "majority of the outstanding" preferred shares of
the Fund, including shares of that Fund's MuniPreferred, voting as a separate
class. For purposes of the foregoing, "Investment Restrictions" below, and the
first paragraph under "Proposal No. 1--The Reorganization--Description of
MuniPreferred Issued by the Acquiring Fund--Voting Rights" above, "majority of
the outstanding," when used with respect to particular shares of a Fund, means
(a) 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 (b) more than 50% of
the shares, whichever is less.
Both Funds emphasize investments in Municipal Obligations with
long-term maturities in order to maintain an average portfolio maturity of 20-30
years, but the average maturity may be shortened from time to time depending on
market conditions. Moreover, during temporary defensive periods, and in order to
keep cash on hand fully invested, both Funds may invest any percentage of its
assets in temporary investments, the income on which may be either tax-exempt or
taxable. Both Funds intend to invest in taxable temporary investments only in
the event that suitable tax-exempt temporary investments are not available at
reasonable prices and yields. Both Funds will invest only in taxable temporary
investments which are U.S. Government securities or securities rated within the
highest grade by Moody's or S&P, and which mature within one year form the date
of purchase or carry a variable or floating rate of interest.
MUNICIPAL OBLIGATIONS
"Municipal Obligations" are debt obligations issued by states, cities
and local authorities, and certain possessions and territories of the United
States, to obtain funds for various public purposes, including the construction
and maintenance of such public facilities as airports, bridges, highways,
housing, hospitals, mass transportation, schools, streets and water and sewer
works. Other public purposes for which Municipal Obligations may be issued
include the refinancing of outstanding obligations and the obtaining of funds
for general operating expenses and for loans to other public institutions and
facilities. In addition, certain industrial development, private activity and
pollution control bonds may be included within the term Municipal Obligations if
the interest paid thereon qualifies as exempt from regular Federal income tax.
The two principal classifications of Municipal Obligations are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds (e.g., industrial development bonds) are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Also included within the general category of Municipal
Obligations are participations in lease obligations or installment purchase
contract obligations of municipal authorities or entities.
The yields on Municipal Obligations are dependent on a variety of
factors, including the condition of the general money market and the Municipal
Obligation market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The market value of Municipal
Obligations will vary with changes in prevailing interest rate levels and as a
result of changing evaluations of the ability of their issuers to meet interest
and principal payments.
Each Fund may purchase and sell Municipal Obligations on a when-issued
or delayed delivery basis. When-issued and delayed delivery transactions arise
when securities are purchased or sold with payment and delivery beyond the
regular settlement date. On such transactions the payment obligation is fixed at
the time the buyer enters into the commitment. This involves an element of risk
to a Fund when it is the buyer because at the time of delivery the market value
of the Municipal Obligations may be less than such Fund's payment obligation.
Each Fund is required under the rules of the Commission to maintain in a
segregated account liquid assets, consisting of cash, U.S. government
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<PAGE> 65
securities or other high grade debt obligations, equal in value to the purchase
price due on the settlement date. Income generated by assets in such a
segregated account of a Fund may be taxable to shareholders of that Fund.
INVESTMENT RESTRICTIONS
Except as described below, neither Fund, as a fundamental policy, may,
without the approval of the holders of a "majority of the outstanding" common
shares and preferred shares of such Fund, including shares of its MuniPreferred,
voting together as a single class, and of the holders of a "majority of the
outstanding" preferred shares of such Fund, including shares of its
MuniPreferred, voting as a separate class:
(1) Issue senior securities, as defined in the 1940 Act, other
than Preferred Shares, 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 in the Statement of Additional
Information under Certain Trading Strategies of each
Fund--Financial Futures and Options Transactions.
(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 that represent
no more than 10% of such Fund's total assets and are otherwise
within the limits described in the Statement of Additional
Information under Certain Trading Strategies of each
Fund--Financial Futures and Options Transactions.
(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 such Fund's
total assets including the amount borrowed; while any such
borrowings exceed 5% of such Fund's 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 be applicable to Municipal Obligations
other than those Municipal Obligations backed only by the
assets and revenues of non-governmental users, nor shall it
apply to Municipal Obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities;
(6) Purchase or sell real estate, but this shall not prevent such
Fund form investing in Municipal Obligations secured by real
estate or interests therein or foreclosing upon and selling
such security;
(7) Purchase or sell commodities or commodities contracts, except
for transactions involving futures contracts that represent no
more than 10% of such Fund's total assets and are otherwise
within the limits described in the Statement of Additional
Information under Certain Trading Strategies of each
Fund--Financial Futures and Options Transactions.
(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 objectives,
policies and limitations;
(9) Invest in securities other than Municipal Obligations and
temporary investments as described in "Additional Information
about the Funds--Investment Objectives and Policies--Portfolio
Investments," and purchase financial futures and options
except for futures and options that represent no more than 10%
of a Fund's total assets and are otherwise within the limits
described in the
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<PAGE> 66
Statement of Additional Information Under Certain Trading
Strategies of each Fund--Financial Futures and Options
Transactions.
(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 such Fund's
total assets;
(11) Pledge, mortgage or hypothecate its assets, except that, to
secure borrowing 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 such Fund's 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 the
securities of such Fund if, to such Fund's knowledge, those
directors or trustees of such Fund, or those officers and
directors of the Adviser, 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, such a guarantee or letter of credit would be
considered a separate security and would be treated as an issue of such
government, other entity or bank. When a Municipal Obligation is insured by bond
insurance, it shall not be considered a security that is issued or guaranteed by
the insurer; instead, the issuer of such security will be determined in
accordance with the principles set forth above. The foregoing restrictions do
not limit the percentage of a Fund's assets that may be invested in Municipal
Obligations insured by any given insurer.
Notwithstanding the foregoing, certain restrictions imposed by Moody's
or S&P, or both, on borrowing money, engaging in short sales of securities,
lending securities, buying and selling futures contracts and writing put or call
options at any time a Fund's shares of MuniPreferred are outstanding, as
described in the Statement of Additional Information under Certain Trading
Strategies of each Fund--Financial Futures and Options Transactions are not
fundamental policies and may be changed by a Fund from time to time without
shareholder approval, but only in the event such Fund receives written
confirmation from Moody's or S&P, as appropriate, that such change would not
impair the ratings then assigned by Moody's or S&P, or both, to shares of such
Fund's MuniPreferred.
The foregoing restrictions and limitations 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.
No Fund has any intention to file a voluntary application for relief
under Federal bankruptcy law or any similar application under state law for so
long as such Fund is solvent and does not foresee becoming insolvent.
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<PAGE> 67
CERTAIN TRADING STRATEGIES OF THE FUNDS
PORTFOLIO TRADING AND TURNOVER RATE
Portfolio trading may be undertaken to accomplish the investment
objectives of each Fund in relation to actual and anticipated movements in
interest rates. In addition, a security may be sold and another of comparable
quality purchased at approximately the same time to take advantage of what the
Adviser believes to be a temporary price disparity between the two securities.
Temporary price disparities between two comparable securities may result from
supply and demand imbalances where, for example, a temporary oversupply of
certain bonds may cause a temporarily low price for such bonds, as compared with
other bonds of like quality and characteristics. A Fund may also engage to a
limited extent in short-term trading consistent with its investment objectives.
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 a Fund will not engage in trading solely to recognize
a gain.
Subject to the foregoing, each Fund will attempt to achieve its
investment objectives by prudent selection of Municipal Obligations with a view
to holding them for investment. While there can be no assurance thereof, each
Fund anticipates that its annual portfolio turnover rate generally will not
exceed 100%. However, the rate of turnover will not be a limiting factor when a
Fund deems it desirable to sell or purchase securities. Therefore, depending
upon market conditions, a Fund's annual portfolio turnover rate may exceed 100%
in particular years.
WHEN-ISSUED AND DELAYED DELIVERY
Each 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 a
Fund enters into a commitment to purchase securities on a when-issued or delayed
delivery basis, it is required under the rules of the Securities and Exchange
Commission (the "Commission") to maintain in a segregated account liquid assets,
consisting of cash, U.S. government securities or other high grade debt
obligations, equal in value to the purchase price due on the settlement date.
Income generated by assets in such a segregated account of a Fund may be taxable
to shareholders of that Fund. Each Fund currently is required to allocate net
capital gains and other income taxable for Federal income tax purposes, if any,
proportionately between its common shares and shares of its MuniPreferred, and
dividends paid on shares of its MuniPreferred during specified periods will
include an allocated portion of any such net capital gains and other taxable
income. See "Tax Matters Associated with Investment in the Funds" and
"Description of the Auctions for MuniPreferred Issued by the Acquiring
Fund--Auction Dates; Advance Notice of Allocation of Taxable Income" below. 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
Each Fund may attempt to hedge its investment portfolio against market
risk by engaging in transactions in financial futures contracts, options on
financial futures or options that either are based on an index of long-term
Municipal Obligations (i.e., those with remaining maturities averaging 20-30
years) or relate to debt securities whose prices are anticipated by the Adviser
to correlate with the prices of the Municipal Obligations owned by such Fund.
Neither Fund has any 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, a Fund may take an investment position
in a futures contract or in an option which is expected to move in the opposite
direction from the position being hedged. Hedging may be utilized to reduce the
risk that the value of securities owned by a Fund may decline on account of an
increase in interest rates and to hedge against increases in the cost of the
securities such Fund intends to purchase as a result of a decline in interest
rates. A Fund's use of futures and options for hedging purposes can be expected
to result in taxable income or gain to its shareholders. Each Fund is currently
required to allocate any taxable income or gain proportionately between its
common shares and shares of its MuniPreferred. See "Tax Matters Associated with
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Investment in the Funds" and "Description of Auctions for MuniPreferred Issued
by the Acquiring Fund--Auction Dates; Advance Notice of Allocation of Taxable
Income" below.
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 a 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 a 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 a Fund
intends to acquire. The writing of such options provides a hedge to the extent
of the premium received in the writing transaction.
Although certain risks are involved in futures and options transactions
(as discussed under "Risks of Futures and Options Transactions" below), because
these transactions will be engaged in by a Fund only for hedging purposes, these
futures and options portfolio strategies should not subject such Fund to those
risks frequently associated with speculation in futures or options transactions.
Regulations of the Commodity Futures Trading Commission (the "CFTC") applicable
to each Fund require that transactions in futures and options on futures be
engaged in only for bonafide hedging purposes or if the aggregate initial margin
deposits and premiums paid by such Fund do not exceed 5% of the market value of
its assets. Neither Fund will purchase futures unless it has segregated cash,
government securities or high grade liquid debt equal to the contract price of
the futures less any margin on deposit, or unless the long futures position is
covered by the purchase of a put option. Neither Fund will sell futures unless
such Fund owns the instruments underlying the futures or owns options on such
instruments or owns a portfolio whose market price may be expected to move in
tandem with the market price of the instruments or index underlying the futures.
In addition, each Fund is subject to the Federal income tax requirement that it
derive less than 30% of its gross income from the gain on the sale or other
disposition of securities held for less than three months. With respect to its
engaging in transactions involving the purchase or writing of put and call
options on debt securities or indexes, neither Fund will purchase such options
if more than 5% of its assets would be invested in the premiums for such
options, and it will only write "covered" or "secured" options, wherein the
securities or cash required to be delivered upon exercise are held by such Fund,
with such cash being maintained in a segregated account. These requirements and
limitations may limit a Fund's ability to engage in hedging transactions. So
long as Moody's or S&P, or both, are rating a Fund's shares of MuniPreferred,
that Fund will only engage in futures or options transactions in accordance with
the then-current guidelines of such rating agencies, and only after it has
received written confirmation from Moody's and S&P, as appropriate, that such
transactions would not impair the ratings then assigned by Moody's and S&P to
such shares.
DESCRIPTION OF FINANCIAL FUTURES AND OPTIONS. A futures contract is a
contract between a seller and a buyer for the sale and purchase of specified
property at a specified future date for a specified price. An option is a
contract that gives the holder of the option the right, but not the obligation,
to buy (in the case of a call option) specified property from, or to sell (in
the case of a put option) specified property to, the writer of the option for a
specified price during a specified period prior to the option's expiration.
Financial futures contracts and options cover specified debt securities (such as
U.S. Treasury securities) or indexes designed to correlate with price movements
in certain categories of debt securities. At least one exchange trades futures
contracts on an index designed to correlate with the long-term municipal bond
market. Financial futures contracts and options on financial futures contracts
are traded on exchanges regulated by the CFTC. Options on certain financial
instruments and financial indexes are traded on securities markets regulated by
the Commission. Although futures contracts and options on specified financial
instruments call for settlement by delivery of the financial instruments covered
by the contracts, in most cases positions in these contracts are closed out in
cash by entering into offsetting liquidating or closing transactions. Index
futures and options are designed for cash settlement only.
RISKS OF FUTURES AND OPTIONS TRANSACTIONS. There are certain risks
associated with the use of financial futures and options to hedge investment
portfolios. There may be an imperfect correlation between price movements of the
futures and options and price movements of the portfolio securities being
hedged. Losses may be incurred in hedging transactions, which could reduce the
portfolio gains that might have been realized if the hedging transactions had
not been entered into. The ability to close out positions in futures and options
depends upon the existence of a liquid secondary market, which may not exist for
all futures and options at all times. If a Fund engages in futures transactions
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<PAGE> 69
or in the writing of options on futures, it will be required to maintain initial
margin and maintenance margin and may be required to make daily variation margin
payments in accordance with applicable rules of the exchanges and the CFTC. If a
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 such Fund fails to complete the anticipated purchase transaction, such Fund
may experience a loss or a gain on the futures or options transaction that will
not be offset by price movements in the Municipal Obligations that were the
subject of the anticipatory hedge. The cost of put options on debt securities or
indexes effectively increases the cost of the securities subject to them,
thereby reducing the yield otherwise available from such securities. If a Fund
decides to use futures contracts or options on futures contracts for hedging
purposes, such 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 a Fund that are greater than those which would otherwise be applicable to
such Fund under applicable rules of the exchanges and the CFTC.
REPURCHASE AGREEMENTS
As temporary investments, a Fund may invest in repurchase agreements. A
repurchase agreement is a contractual agreement whereby the seller of securities
(U.S. government securities or Municipal Obligations) agrees to repurchase the
same security at a specified price on a future date agreed upon by the parties.
The agreed-upon repurchase price determines the yield during such Fund's holding
period. Repurchase agreements are considered to be loans collateralized by the
underlying security that is the subject of the repurchase contract. Income
generated from transactions in repurchase agreements by a Fund is taxable to
shareholders of that Fund and, therefore, is required to be allocated
proportionately by that Fund between its common shares and shares of its
MuniPreferred. See "Tax Matters Associated with Investment in the Funds" and
"Description of the Auctions for MuniPreferred Issued by the Acquiring
Fund--Auction Dates; Advance Notice of Allocation of Taxable Income" below. A
Fund will enter into repurchase agreements only with registered securities
dealers or domestic banks that, in the opinion of the Adviser, present minimal
credit risk. The risk to a Fund is limited to the ability of the issuer to pay
the agreed-upon repurchase price on the delivery date; however, although the
value of the underlying collateral at the time the transaction is entered into
always equals or exceeds the agreed-upon repurchase price, if the value of the
collateral declines, there is a risk of loss of both principal and interest. In
the event of default, the collateral may be sold but a Fund might incur a loss
if the value of the collateral declines, and might incur disposition costs or
experience delays in connection with liquidating the collateral. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. The Adviser
will monitor the value of the collateral at the time the transaction is entered
into and at all times subsequent during the term of the repurchase agreement in
an effort to determine that such value always equals or exceeds the agreed-upon
repurchase price. In the event the value of the collateral declines below the
repurchase price, the Adviser will demand additional collateral from the issuer
to increase the value of the collateral to at least that of the repurchase
price, including interest.
MANAGEMENT OF THE FUNDS
The Management Agreements provide that the Adviser shall act as
investment adviser for each Fund, manage the Funds' respective investments,
administer their business affairs, provide office facilities and equipment and
certain clerical, bookkeeping and administrative services, and permit any of its
officers and employees to serve without compensation as directors or trustees
and officers of the Funds if elected to such positions. Under its respective
Management Agreement, each Fund has agreed to pay all other costs and expenses
of its operations, including the compensation of its directors or trustees
(other than those affiliated with the investment adviser), custodian, transfer,
dividend disbursing and service agent expenses, legal fees, expenses of
independent auditors, costs of acquiring and disposing of portfolio securities,
expenses of preparing, printing and distributing reports to shareholders and
governmental agencies, and taxes, if any.
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<PAGE> 70
Nuveen Advisory is a wholly-owned subsidiary of John Nuveen & Co.
Incorporated ("Nuveen"). Nuveen is the sponsor of the Nuveen Defined Portfolios,
registered unit investment trusts, is the principal underwriter for the Nuveen
Mutual Funds, and has served as co-managing underwriter for the shares of the
Nuveen Exchange-Traded Funds. Over 1,300,000 individuals have invested to date
in Nuveen's funds and trusts. Founded in 1898, Nuveen brings over a century of
expertise to the municipal bond market. According to Strategic Insight, Nuveen
is the leading sponsor of exchange-traded municipal bond funds as measured by
number of funds (57) and fund assets under management ($26 billion). Overall,
Nuveen and its affiliates manage more than $55 billion in assets in a variety of
products. Nuveen is a subsidiary of The John Nuveen Company which, in turn, is
approximately 78% owned by The St. Paul Companies, Inc. ("St. Paul"). St. Paul
is located in St. Paul Minnesota, and is principally engaged in providing
property-liability insurance through subsidiaries.
Under the Management Agreements each Fund has agreed to pay an annual
management fee as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEE SCHEDULE
- ----------------------------------------------------------------
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 Acquiring Fund paid aggregate management fees of $______, $______
and $______ for the fiscal year ended October 31, 1998, October 31, 1997 and
October 31, 1996 for an effective management fee rate of _____%, _____% and
______%, respectively. The Acquired Fund paid aggregate management fees of
$______, $______ and $______, respectively for the fiscal year ended May 31,
1998, May 31, 1997, and May 31, 1996 for an effective management fee rate of
_____%, ______% and ______%, respectively.
The names, addresses and principal occupations of the principal
executive officers and the directors of the Adviser are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATIONS
- -------------------- ------------------------
<S> <C>
Timothy R. Schwertfeger Chairman and Director of
333 W. Wacker Drive The John Nuveen Company,
Chicago, IL 60606 John Nuveen & Co. Incorporated,
Nuveen Advisory Corp. and
Institutional Advisory Corp.
John P. Amboian President of The John Nuveen Company,
333 W. Wacker Drive John Nuveen & Co. Incorporated,
Chicago, IL 60606 Nuveen Advisory Corp. and
Institutional Advisory Corp.
</TABLE>
Timothy R. Schwertfeger, a current Board Member and nominee of the
Acquiring Fund, is an "interested person" of the Adviser. The remaining Board
Members and nominees to the Board of the Acquiring Fund are not "interested
persons" of the Adviser. The other officers of the Fund are officers or
employees of the Adviser. See also "Proposal No. 3 -- Election of Board Members
of the Acquiring Fund" in the Joint Proxy Statement--Prospectus.
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PORTFOLIO TRANSACTIONS OF THE FUNDS
The Adviser, in effecting purchases and sales of portfolio securities
for the account of each Fund, places orders in such manner as, in the opinion of
the Adviser's management, offers the best price and market for the execution of
each transaction. Portfolio securities are normally purchased directly from an
underwriter or in the over-the-counter market from the principal dealers in such
securities, unless it appears that a better price or execution may be obtained
elsewhere. Portfolio securities are not purchased from Nuveen or its affiliates
except in compliance with the 1940 Act.
Generally, all portfolio transactions are effected on a principal (as
opposed to an agency) basis and, accordingly, the Funds have not paid and do not
expect to pay any brokerage commissions. Purchases from underwriters include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers include the spread between the bid and asked price. Given the best
price and execution obtainable, it is the practice of each Fund to select
dealers which, in addition, furnish research information (primarily credit
analyses of issuers) and statistical and other services to the Adviser. It is
not possible to place a dollar value on information, statistical and other
services received from dealers. Since it is only supplementary to the Adviser's
own research efforts, the receipt of research information is not believed to
reduce significantly the Adviser's expenses. Any research benefits obtained are
available to all of the Adviser's other clients. While the Adviser is primarily
responsible for the placement of the business of each Fund, the policies and
practices of the Adviser in this regard must be consistent with the foregoing
and are at all times subject to review by the Board of each Fund.
The Adviser reserves the right to, and does, manage other investment
accounts and investment companies for other clients which may have investment
objectives similar or identical to those of the Funds. Subject to applicable
laws and regulations, the Adviser will attempt to allocate equitably portfolio
transactions among each Fund and the portfolios of its other clients purchasing
or selling securities whenever decisions are made to purchase or sell securities
by a Fund or Funds and one or more of such other clients simultaneously. In
making such allocations, the main factors to be considered will be the
respective investment objectives of the Funds and such other clients, the
relative size of the portfolio holdings of the same or comparable securities,
the availability of cash for investment by a Fund and such other clients, the
size of investment commitments generally held by such Fund and such other
clients and opinions of the persons responsible for recommending investments to
such Fund and such other clients. While this procedure could have a detrimental
effect on the price or amount of the securities available to a Fund from time to
time, it is the opinion of the Board of each Fund that the benefits available
from the Adviser's organization will outweigh any disadvantage that may arise
from exposure to simultaneous transactions. Notwithstanding the similarity of
the investment objectives of the Funds with those of other funds managed by the
Adviser, each of these funds will be separately managed and the composition of
their investment portfolios will differ. Accordingly, the investment performance
of each of these funds will likely not be the same.
Under the 1940 Act, a Fund may not purchase portfolio securities from
any underwriting syndicate of which Nuveen is a member except under certain
limited conditions set forth in Rule 10f-3. The Rule sets forth requirements
relating to, among other things, the terms of an issue of Municipal Obligations
purchased by a Fund, the amount of Municipal Obligations which may be purchased
in any one issue and the assets of such Fund which may be invested in a
particular issue. In addition, purchases of securities made pursuant to the
terms of the Rule must be approved at least quarterly by the Board of a Fund,
including a majority of the members thereof who are not interested persons of
such Fund.
For the fiscal years ended October 31, 1998, October 31, 1997 and
October 31, 1996, in the case of the Acquiring Fund, and May 31, 1998, May 31,
1997 and May 31, 1996, in the case of the Acquired Fund, neither Fund paid any
brokerage commissions.
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DESCRIPTION OF MUNIPREFERRED ISSUED
BY THE ACQUIRING FUND
This description of the shares of Acquiring Fund MuniPreferred,
including Acquiring Fund MuniPreferred, Series TH or Series TH2, issued pursuant
to the Reorganization, does not purport to be complete and is subject to and
qualified in its entirety by reference to the Articles of Incorporation of the
Acquiring Fund (the "Articles") and the Acquiring Fund's Statement Establishing
and Fixing the Rights and Preferences of Municipal Auction Rate Cumulative
Preferred Shares (the "Acquiring Fund Statement"). Copies of the Articles and
the Acquiring Fund Statement are filed as exhibits to the Registration Statement
of which this Statement of Additional Information is a part and may be
inspected, and copies thereof may be obtained, as described under "Available
Information" in the Joint Proxy Statement--Prospectus.
GENERAL
The shares of Acquiring Fund MuniPreferred, Series TH or Series TH2,
issued pursuant to the Reorganization will rank on a parity with each other,
with outstanding shares of Acquiring Fund MuniPreferred, Series M, Series T,
Series T2, Series W, Series W2, Series TH, Series F and Series F2, and with
shares of any other series of preferred shares of the Acquiring Fund as to the
payment of dividends and the distribution of assets upon liquidation.
DIVIDENDS
GENERAL. The holders of shares of each series of Acquiring Fund
MuniPreferred, including Acquiring Fund MuniPreferred, Series TH or Series TH2,
issued pursuant to the Reorganization, will be entitled to receive, when, as and
if declared by the Board of the Acquiring Fund, out of funds legally available
therefor in accordance with the Articles, including, the Acquiring Fund
Statement and applicable law, cumulative cash dividends at the Applicable Rate
for shares of such series, determined as set forth under "Determination of
Dividend Rate" below, and no more (except as otherwise provided below under
"Gross-up Payments"), payable on the respective dates determined as set forth
below. No interest, or sum of money in lieu of interest, will be payable in
respect of any dividend payment or payments on shares of Acquiring Fund
MuniPreferred which may be in arrears, and, except as otherwise provided herein,
no additional sum of money will be payable in respect of any such arrearage.
Dividends on shares of each series of Acquiring Fund MuniPreferred
shall accumulate at the Applicable Rate for shares of such series from the day
following the day on which the Effective Time occurs (in the case of Acquiring
Fund MuniPreferred, Series TH or Series TH2) or from the day on which the
Acquiring Fund issued such shares (in the case of Acquiring Fund MuniPreferred,
Series M, Series T, Series T2, Series W, Series W2, Series F and Series F2).
Dividends on shares of each series of Acquiring Fund MuniPreferred shall be
payable, when, as and if declared by the Acquiring Fund's Board out of funds
legally available therefor in accordance with the Acquiring Fund's Articles,
including the Acquiring Fund's Statement and applicable law, on shares of (a)
Acquiring Fund MuniPreferred, Series M, on each Tuesday; (b) Acquiring Fund
MuniPreferred Series T and Series W and Series T2, on the first Wednesday
following the end of the Initial Rate Period thereof, and thereafter on each
Wednesday; (c) Acquiring Fund MuniPreferred, Series W and Series W2, on each
Thursday; (d) Acquiring Fund MuniPreferred, Series TH, on the first Friday
following the end of the Initial Rate Period thereof, and thereafter on each
Friday; and (e) Acquiring Fund MuniPreferred, Series F and Series F2, on each
Monday; provided, however, that (i) if the Monday or the Tuesday on which
dividends would otherwise be payable as set forth above is not a Business Day,
then such Dividends shall be payable on such shares on the first Business Day
that falls after such Monday or Tuesday, as the case may be; (ii) if the
Wednesday, Thursday or Friday on which dividends would otherwise be payable as
set forth above is not a Business Day, then such dividends shall be payable on
such shares on the first Business Day that falls prior to such Wednesday,
Thursday or Friday, as the case may be; and (iii) the Acquiring Fund in its
discretion may establish Dividend Payment Dates in respect of any Special Rate
Period of shares of either series of Acquiring Fund MuniPreferred consisting of
more than 28 Rate Period Days that differ from those set forth above; 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 and
filed with the Secretary of the Acquiring Fund; and further provided that (i)
any such Dividend Payment Date shall be a Business Day and (ii) 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 as set forth below under "Designation of Special Rate Periods" below.
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The amount of dividends per share payable on shares of a series of
Acquiring Fund 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. Any dividend payment made on
shares of Acquiring Fund MuniPreferred shall first be credited against the
earliest accumulated but unpaid dividends due with respect to such shares.
Each dividend on shares of Acquiring Fund MuniPreferred will be paid on
the Dividend Payment Date therefor to the holders of record as their names
appear on the record books of the Acquiring Fund on the Business Day next
preceding such Dividend Payment Date. Dividends in arrears for any past Dividend
Period may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to the holders of record as their names appear on the
record books of the Acquiring Fund on such date, not exceeding 15 days preceding
the payment date thereof, as may be fixed by the Board of the Acquiring Fund.
The Securities Depository, in accordance with its current procedures,
is expected to credit on each Dividend Payment Date dividends received from the
Acquiring Fund to the accounts of the respective Agent Members in next-day
funds. Each of the current Broker-Dealers, however, has represented to the
Acquiring Fund that such Broker-Dealer (or if such Broker-Dealer does not act as
Agent Member, the Agent Member designated by such Broker-Dealer) will make such
dividend payments available in same-day funds on each Dividend Payment Date to
Beneficial Owners that use such Broker-Dealer or its designee as Agent Member. A
Beneficial Owner of shares of Acquiring Fund MuniPreferred that does not use one
of the current Broker-Dealers or a designee thereof as its Agent Member should
contact the Agent Member used by such Beneficial Owner to determine whether such
Agent Member will make dividend payments available to such Beneficial Owner in
next-day or same-day funds. If any Agent Member does not make such dividends
available in same-day funds to a Beneficial Owner, such Beneficial Owner who
uses such Agent Member would not have same-day funds available to it until the
next Business Day, which in the case of a Dividend Payment Date that is a
Monday, Tuesday, Wednesday, Thursday or Friday, would be the following Tuesday,
Wednesday, Thursday, Friday or Monday, respectively, if it is a Business Day.
DETERMINATION OF DIVIDEND RATE. The dividend rate on shares of
Acquiring Fund MuniPreferred, Series TH or Series TH2, during the period from
and after the day following the date on which the Effective Time occurs to and
including the last day of the Initial Rate Period of shares of such series will
be the dividend rate in effect immediately prior to the Effective Time for the
shares of Acquiring Fund or Acquired Fund MuniPreferred, Series TH,
respectively. For each Subsequent Rate Period of shares of such series
thereafter, and for each Subsequent Rate Period of shares of outstanding
Acquiring Fund MuniPreferred, Series M, Series T, Series T2, Series W, Series
W2, Series F and Series F2, the dividend rate on shares of such series will 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, 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 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 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 the next succeeding paragraph and the Acquiring 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 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 the next succeeding paragraph (including the day such Failure
to Deposit occurs
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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 Acquiring Fund, 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 the next succeeding paragraph (including the day
such Failure to Deposit occurs and excluding the day such Failure to Deposit is
cured) and the denominator of which shall be 360, and applying the rate obtained
against the aggregate Liquidation Preference of the outstanding shares of such
series to be redeemed, no Auction will be held in respect of shares of such
series for the Subsequent Rate Period thereof and the dividend rate for shares
of such series for such Subsequent Rate Period will be the Maximum Rate for
shares of such series on the Auction Date for such Subsequent Rate Period;
(c) any Failure to Deposit shall have occurred with respect to shares
of such series during any Rate Period thereof (other than any Special Rate
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 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 the next succeeding paragraph or the Acquiring 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 the next succeeding paragraph and (2) the Acquiring Fund pays the
applicable Late Charge to the Auction Agent, 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 will 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 of more than 364 Rate Period
Days, or during any Rate Period thereof succeeding any Special Rate Period of
more than 364 Rate Period Days during which 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 the next succeeding paragraph or the Acquiring 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 the
next succeeding paragraph and (2) the Acquiring Fund pays the applicable Late
Charge to the Auction Agent, 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 Acquiring Fund MuniPreferred for any Rate
Period thereof being herein referred to as the "Applicable Rate" for shares of
such series).
A Failure to Deposit with respect to shares of a series of Acquiring
Fund MuniPreferred shall have been cured (if such Failure to Deposit is not
solely due to the willful failure of the Acquiring 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 immediately above, the
Acquiring Fund shall have paid to the Auction Agent (a) all accumulated and
unpaid dividends on the shares of such series and (b) without duplication, the
Redemption Price for the shares, if any, of such series for which Notice of
Redemption has been mailed; provided, however, that the foregoing clause (b)
shall not apply to the Acquiring Fund's failure to pay the Redemption Price in
respect of shares of Acquiring Fund MuniPreferred when
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the related Notice of Redemption provides that redemption of such shares is
subject to one or more conditions precedent and any such condition precedent
shall not have been satisfied at the time or times and in the manner specified
in such Notice of Redemption.
GROSS-UP PAYMENTS. Holders of shares of Acquiring Fund MuniPreferred
shall be entitled to receive, when, as and if declared by the Board of the
Acquiring Fund, out of funds legally available therefor in accordance with the
Articles, the Acquiring Fund Statement and applicable law, dividends in an
amount equal to the aggregate Gross-up Payment in accordance with the following:
If, in the case of any Minimum Rate Period or any Special Rate Period
of 28 Rate Period Days or fewer, the Acquiring Fund allocates any net capital
gains or other income taxable for Federal income tax purposes to a dividend paid
on Acquiring Fund MuniPreferred without having given advance notice thereof to
the Auction Agent as described under "Description of the Auctions for
MuniPreferred Issued by the Acquiring Fund--Auction Dates; Advance Notice of
Allocation of Taxable Income" below (such allocation is 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 Acquiring Fund MuniPreferred or the liquidation of the
Acquiring Fund, the Acquiring Fund will, prior to the end of the calendar year
in which such dividend was paid, provide notice thereof to the Auction Agent and
direct the Acquiring Fund's dividend disbursing agent to send such notice with a
Gross-up Payment to each holder of shares (initially Cede, as nominee of the
Securities Depository) that was entitled to such dividend payment during such
calendar year at such holder's address as the same appears or last appeared on
the stock books of the Acquiring Fund.
If, in the case of any Special Rate Period of more than 28 Rate Period
Days, the Acquiring Fund makes a Taxable Allocation to a dividend paid on shares
of Acquiring Fund MuniPreferred, the Acquiring 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 Acquiring 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 Acquiring Fund.
The Acquiring Fund shall not be required to make Gross-up Payments with
respect to any net capital gains or other taxable income determined by the IRS
to be allocable in a manner different from that allocated by the Acquiring Fund.
A "Gross-up Payment" means payment to a holder of shares of Acquiring
Fund MuniPreferred of an amount which, when taken together with the aggregate
amount of Taxable Allocations made to such holder to which such Gross-up Payment
relates, would cause such holder's dividends in dollars (after Federal income
tax consequences) from the aggregate of such Taxable Allocations and the related
Gross-up Payment to be equal to the dollar amount of the dividends which would
have been received by such holder if the amount of the aggregate Taxable
Allocations would have been excludable from the gross income of such holder. A
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 Acquiring
Fund MuniPreferred is subject to the Federal alternative minimum tax with
respect to dividends received from the Acquiring 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 Acquiring Fund MuniPreferred at the maximum marginal
regular Federal income tax rate, if any, 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 during the calendar year in
question.
RESTRICTIONS ON DIVIDENDS AND OTHER PAYMENTS. Under the 1940 Act, the
Board of the Acquiring Fund may not declare any dividend (except a dividend
payable in Acquiring Fund common shares), or declare any other distribution,
upon Acquiring Fund common shares, or purchase Acquiring Fund common shares,
unless in every such case the Acquiring Fund preferred shares, including
Acquiring Fund MuniPreferred, Series TH or Series TH2, have, at the time of any
such declaration or purchase (and after giving effect thereto), an asset
coverage (as defined in and determined pursuant to the 1940 Act) of at least
200% (or such other percentage as may in the future be required by law).
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<PAGE> 76
In addition, for so long as any shares of Acquiring Fund MuniPreferred,
including Acquiring Fund MuniPreferred, Series TH or Series TH2, are
outstanding, except as set forth in the following paragraph or otherwise
described herein, (a) the Acquiring Fund may not declare, pay or set apart for
payment any dividend or other distribution (other than a dividend or
distribution paid in, or in options, warrants or rights to subscribe for or
purchase, Acquiring Fund common shares or other shares, if any, ranking junior
to the shares of Acquiring Fund MuniPreferred as to the payment of dividends and
the distribution of assets upon liquidation) in respect of Acquiring Fund common
shares or any other shares of the Acquiring Fund ranking junior to or on a
parity with shares of Acquiring Fund MuniPreferred as to the payment of
dividends or the distribution of assets upon liquidation, or call for
redemption, redeem, purchase or otherwise acquire for consideration any
Acquiring Fund common shares or any other such junior shares (except by
conversion into or exchange for shares of the Acquiring Fund ranking junior to
the shares of Acquiring Fund MuniPreferred as to the payment of dividends and
the distribution of assets upon liquidation), or any such parity shares (except
by conversion into or exchange for shares of the Acquiring Fund ranking junior
to or on a parity with shares of Acquiring Fund MuniPreferred as to payment of
dividends and the distribution of assets upon liquidation), unless (i) full
cumulative dividends on shares of each series of Acquiring Fund 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 Acquiring Fund has redeemed the full number of
shares of Acquiring Fund MuniPreferred required to be redeemed by any provision
for mandatory redemption pertaining thereto, and (b) if either Moody's or S&P is
rating the shares of Acquiring Fund MuniPreferred, the Acquiring Fund may not
declare, pay or set apart for payment any dividend or other distribution (other
than a dividend or distribution paid in, or in options, warrants or rights to
subscribe for or purchase, Acquiring Fund common shares or other shares, if any,
ranking junior to shares of Acquiring Fund MuniPreferred as to the payment of
dividends and the distribution of assets upon liquidation) in respect of
Acquiring Fund common shares or any other shares of the Acquiring Fund ranking
junior to shares of Acquiring Fund MuniPreferred as to the payment of dividends
or the distribution of assets upon liquidation, or call for redemption, redeem,
purchase or otherwise acquire for consideration any Acquiring Fund common shares
or any other such junior shares (except by conversion into or exchange for
shares of the Acquiring Fund ranking junior to shares of Acquiring Fund
MuniPreferred as to the payment of dividends or the distribution of assets upon
liquidation), unless immediately after such transaction the Discounted Value of
Moody's Eligible Assets or S&P Eligible Assets, or both, as the case may be,
would at least equal the MuniPreferred Basic Maintenance Amount (see "Rating
Agency Guidelines" and "Redemption" below).
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 shares ranking, as to the payment of dividends, on a parity with shares of
Acquiring Fund MuniPreferred for any period unless full cumulative dividends
have been or contemporaneously are declared and paid on the shares of each
series of Acquiring Fund MuniPreferred through its most recent Dividend Payment
Date. When dividends are not paid in full upon the shares of each series of
Acquiring Fund MuniPreferred through its most recent Dividend Payment Date or
upon the shares of any other class or series of shares ranking on a parity as to
the payment of dividends with shares of Acquiring Fund MuniPreferred through
their most recent respective dividend payment dates, all dividends declared upon
shares of Acquiring Fund MuniPreferred and any other such class or series of
shares ranking on a parity as to the payment of dividends with shares of
Acquiring Fund MuniPreferred shall be declared pro rata so that the amount of
dividends declared per share on shares of Acquiring Fund MuniPreferred and such
other class or series of shares shall in all cases bear to each other the same
ratio that accumulated dividends per share on the shares of Acquiring Fund
MuniPreferred and such other class or series of shares bear to each other (for
purposes of this sentence, the amount of dividends declared per share of
Acquiring Fund MuniPreferred shall be based on the Applicable Rate for such
share for the Dividend Periods during which dividends were not paid in full).
Under the Code, the Acquiring Fund must, among other things, distribute
at least 90% of its investment company taxable income and 90% of its net
tax-exempt income each year in order to maintain its qualification for tax
treatment as a regulated investment company. The foregoing limitations on
dividends, distributions and purchases may under certain circumstances impair
the Acquiring Fund's ability to maintain such qualification. See "Tax Matters
Associated with Investment in the Funds" below.
DESIGNATION OF SPECIAL RATE PERIODS. The Acquiring Fund, at its option,
may designate any succeeding Subsequent Rate Period of shares of a series of
Acquiring Fund MuniPreferred as a Special Rate Period consisting of a specified
number of Rate Period Days evenly divisible by seven and not more than 1,820
(approximately 5 years),
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subject to adjustment as described below. A designation of a Special Rate Period
shall be effective only if (i) notice thereof shall have been given as provided
herein, (ii) 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 (iii) if the Acquiring Fund shall have mailed a Notice of
Redemption with respect to any shares of such series, as described under
"Redemption--Notice of Redemption" below, the Redemption Price with respect to
such shares shall have been deposited with the Auction Agent. In the event the
Acquiring Fund wishes to designate any succeeding Subsequent Rate Period of
shares of a series of Acquiring Fund MuniPreferred as a Special Rate Period
consisting of more than 28 Rate Period Days, the Acquiring 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
Acquiring 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.
In the event the Acquiring Fund wishes to designate a Subsequent Rate
Period of shares of a series of Acquiring Fund MuniPreferred as a Special Rate
Period, but the day following what would otherwise be the last day of such
Special Rate Period is not (a) a Tuesday that is a Business Day in the case of
Acquiring Fund MuniPreferred, Series M, (b) a Wednesday that is a Business Day
in the case of Acquiring Fund MuniPreferred, Series T, (c) a Thursday that is a
Business Day in the case of Acquiring Fund MuniPreferred, Series W, and Series
W2 (d) a Friday that is a Business Day in the cases of Acquiring Fund
MuniPreferred, Series TH or (e) a Monday that is a Business Day in the case of
Acquiring Fund MuniPreferred Series F and Series F2, then the Acquiring 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 Acquiring Fund MuniPreferred, Series M, (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 Acquiring Fund MuniPreferred, Series
T, (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 Acquiring
Fund MuniPreferred, Series W, (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 Acquiring Fund MuniPreferred, Series TH, 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 Acquiring Fund MuniPreferred, Series
F.
If the Acquiring Fund proposes to designate any succeeding Subsequent
Rate Period of shares of a series of Acquiring Fund MuniPreferred as a Special
Rate Period, not less than 20 nor more than 30 days prior to the date the
Acquiring 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 of shares of such series), notice shall be (a) published or
caused to be published by the Acquiring Fund in a newspaper of general
circulation to the financial community in The City of New York, New York, which
carries financial news, and (b) mailed by the Acquiring Fund by first-class
mail, postage prepaid, to the holders of shares of such series. Each such notice
shall state (i) that the Acquiring 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 (ii) that the Acquiring 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 (A) its determination,
subject to certain conditions, to exercise such option, in which case the
Acquiring Fund shall specify the Special Rate Period designated, or (B) its
determination not to exercise such option.
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 Acquiring Fund MuniPreferred as to which notice has been given as
set forth in the preceding paragraph (or such later time or date, or both, as
may be agreed to by the Auction Agent), the Acquiring Fund shall deliver to the
Auction Agent either:
(a) a notice ("Notice of Special Rate Period") stating (i) that the
Acquiring 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, (ii) the Auction Date immediately prior to the first day of
such Special Rate Period, (iii) that such Special Rate Period shall not commence
if (A) an Auction for shares of such series shall not be held on such Auction
Date for any reason or (B) 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, (iv) the scheduled Dividend Payment Dates for
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shares of such series during such Special Rate Period and (v) the Special
Redemption Provisions, if any, applicable to shares of such series in respect of
such Special Rate Period; such notice to be accompanied by a MuniPreferred Basic
Maintenance Report showing that, as of the third Business Day next preceding
such proposed Special Rate Period, Moody's Eligible Assets (if Moody's is then
rating such series) and S&P Eligible Assets (if S&P is then rating such series)
each have an aggregate Discounted Value at least equal to the MuniPreferred
Basic Maintenance Amount as of such Business Day (assuming for purposes of the
foregoing calculation that (1) 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 (2) the Moody's Discount Factors applicable to Moody's
Eligible Assets will be determined by reference to the first Moody's Exposure
Period longer than the Moody's Exposure Period then applicable to the Acquiring
Fund); or
(b) a notice stating that the Acquiring 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.
If the Acquiring Fund fails to deliver either such notice (and, in the
case of the notice described in clause (a) above, a MuniPreferred Basic
Maintenance Report to the effect set forth in clause (a) 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 Acquiring 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 clause (b) above.
VOTING RIGHTS
Holders of shares of Acquiring Fund MuniPreferred, including Acquiring
Fund MuniPreferred, Series TH or Series TH2, are entitled to vote on certain
matters as described under "Investment Objectives and Policies--Investment
Restrictions" above and in the Joint Proxy Statement--Prospectus under "Proposal
No. 1--The Reorganization--Description of MuniPreferred Issued by the Acquiring
Fund--Voting Rights" and "--Certain Provisions in the Acquiring Fund's Articles
of Incorporation" and "Proposal No. 1--The Reorganization--Comparison of
the--Investment Objectives and Policies of the Acquiring Fund and the Acquired
Fund--General."
In connection with the election of the Acquiring Fund's directors,
holders of outstanding Acquiring Fund preferred shares, including Acquiring Fund
MuniPreferred, voting as a separate class, shall be entitled to elect two of the
Acquiring Fund's trustees, and the remaining trustees will be elected by holders
of Acquiring Fund common shares and Acquiring Fund preferred shares, including
Acquiring Fund MuniPreferred, voting together as a single class. In addition, if
at any time dividends (whether or not earned or declared) on outstanding
Acquiring Fund preferred shares, including Acquiring Fund MuniPreferred, shall
be due and unpaid in an amount equal to two full years' dividends thereon, and
sufficient cash or specified securities shall not have been deposited with the
Auction Agent for the payment of such dividends, then, as the sole remedy of
holders of outstanding Acquiring Fund preferred shares, including Acquiring Fund
MuniPreferred, the number of trustees constituting the Acquiring Fund's Board
shall be automatically increased by the smallest number that, when added to the
two trustees elected exclusively by the holders of Acquiring Fund preferred
shares, including Acquiring Fund MuniPreferred, as described above, would
constitute a majority of the Acquiring Fund's Board as so increased by such
smallest number; and at a special meeting of shareholders which will be called
and held as soon as practicable, and at all subsequent meetings at which
trustees are to be elected, the holders of Acquiring Fund preferred shares,
including Acquiring Fund MuniPreferred, voting as a separate class, will be
entitled to elect the smallest number of additional trustees that, together with
the two trustees which such holders will be in any event entitled to elect,
constitutes a majority of the total number of trustees of the Acquiring Fund as
so increased. The terms of office of the persons who are trustees at the time of
that election will continue. If the Acquiring Fund thereafter shall pay, or
declare and set apart for payment, in full all dividends payable on all
outstanding Acquiring Fund preferred shares, including Acquiring Fund
MuniPreferred, the voting rights stated in the preceding sentence shall cease,
and the terms of office of all of the additional trustees elected by the holders
of Acquiring Fund preferred shares, including Acquiring Fund MuniPreferred (but
not of the trustees with respect to whose election the holders of Acquiring Fund
common shares were entitled to vote or the two trustees the holders of Acquiring
Fund preferred shares have the right to elect in any event), will terminate
automatically.
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The Acquiring Fund may not, without the affirmative vote of the holders
of at least a majority of the shares of Acquiring Fund MuniPreferred outstanding
at the time (voting separately as one class):
(a) authorize, create or issue any class or series of shares ranking
prior to or on a parity with the shares of Acquiring Fund MuniPreferred with
respect to the payment of dividends or the distribution of assets upon
liquidation or authorize, create or issue additional shares of any series of
Acquiring Fund MuniPreferred (except that the Acquiring Fund may, without the
vote of the holders of Acquiring Fund MuniPreferred, authorize, create or issue
additional shares of any series of preferred shares ranking on a parity with
shares of Acquiring Fund MuniPreferred with respect to the payment of dividends
and the distribution of assets upon liquidation if, after giving effect thereto,
the aggregate liquidation preference of all Acquiring Fund preferred shares then
outstanding, exclusive of accumulated and unpaid dividends, would not exceed
$308,400,000 (after giving effect to the Reorganization); provided, however, if
the Acquiring Fund obtains written confirmation from Moody's (if Moody's is then
rating the shares of Acquiring Fund MuniPreferred) and S&P (if S&P is then
rating the shares of Acquiring Fund MuniPreferred) that the issuance of any such
additional class or series would not impair the rating then assigned by such
rating agency to the Acquiring Fund MuniPreferred, the Acquiring Fund may,
without the vote of the holders of Acquiring Fund MuniPreferred, authorize,
create or issue classes or series of Acquiring Fund preferred shares ranking on
a parity with shares of Acquiring Fund MuniPreferred with respect to the payment
of dividends and the distribution of assets upon liquidation notwithstanding
that, after giving effect thereto, the aggregate liquidation preference of all
Acquiring Fund preferred shares then outstanding would exceed $268,900,000
(after giving effect to the Reorganization); or
(b) amend, alter or repeal the provisions of the Declaration or the
Acquiring Fund Statement, whether by merger, consolidation or otherwise, so as
to affect any preference, right or power of such shares of Acquiring Fund
MuniPreferred or the holders thereof; provided, however, that (i) none of the
actions permitted by the exception to (a) above will be deemed to affect such
preferences, rights or powers and (ii) the authorization, creation and issuance
of classes or series of shares ranking junior to shares of Acquiring Fund
MuniPreferred with respect to the payment of dividends and the distribution of
assets upon liquidation will be deemed to affect such preferences, rights or
powers only if Moody's or S&P is then rating the Acquiring Fund MuniPreferred
and such issuance would, at the time thereof, cause the Acquiring Fund not to
satisfy the 1940 Act MuniPreferred Asset Coverage or the MuniPreferred Basic
Maintenance Amount.
So long as any shares of Acquiring Fund MuniPreferred are outstanding,
the Acquiring Fund shall not, without the affirmative vote of the holders of at
least 66 2/3% of the shares of Acquiring Fund MuniPreferred outstanding at the
time (voting separately as one class), file a voluntary application for relief
under Federal bankruptcy law or any similar application under state law for so
long as the Acquiring Fund is solvent and does not foresee becoming insolvent.
If any action set forth above would adversely affect the rights of one or more
series of Acquiring fund MuniPreferred in a manner different from any other
series of Acquiring Fund MuniPreferred, the Acquiring Fund will not approve any
such action without the affirmative vote of the holders of at least a majority
of the shares of each such series of Acquiring Fund MuniPreferred (voting
separately as a class).
Voting provisions will not apply with respect to shares of Acquiring
Fund MuniPreferred if, at or prior to the time when a vote is required, such
shares shall have been (a) redeemed or (b) called for redemption and sufficient
funds shall have been deposited in trust to effect such redemption.
RATING AGENCY GUIDELINES
The Acquiring Fund intends that, so long as shares of Acquiring Fund
MuniPreferred are outstanding, the composition of its portfolio will reflect
guidelines established by at least one of Moody's or S&P in connection with the
Acquiring Fund's receipt at the Effective Time of ratings of "aaa" from Moody's
or AAA from S&P in respect of shares of Acquiring Fund MuniPreferred, Series T
and Series TH. Moody's and S&P, nationally recognized independent rating
agencies, issue ratings for various securities reflecting their perceived
creditworthiness of such securities. The Acquiring Fund pays certain fees to
Moody's or S&P, or both, for rating shares of Acquiring Fund MuniPreferred. The
guidelines described below have been developed by Moody's and S&P in connection
with other issuances of asset-backed and similar securities, including debt
obligations and adjustable rate preferred shares, generally on a case-by-case
basis through discussions with the issuers of those securities. The guidelines
are designed
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to ensure that assets underlying outstanding debt or preferred shares will be
sufficiently varied and will be of sufficient quality and amount to justify
investment grade ratings. The guidelines do not have the force of law, but have
been adopted by the Acquiring Fund in order to satisfy current requirements
necessary for Moody's or S&P, or both, to issue the above-described ratings for
shares of Acquiring Fund MuniPreferred, Series T and Series TH, which ratings
are generally relied upon by institutional investors in purchasing such
securities. In the context of a closed-end investment company such as the
Acquiring Fund, therefore, the guidelines provide a set of tests for portfolio
composition and asset coverage that supplement (and in some cases are more
restrictive than) the applicable requirements under the 1940 Act. A rating
agency's guidelines will apply to shares of Acquiring Fund MuniPreferred only so
long as such rating agency is rating such shares. The Acquiring Fund's Board
may, without shareholder approval, amend, alter or repeal any or all of the
definitions and related provisions which have been adopted by the Acquiring Fund
pursuant to the rating agency guidelines in the event the Acquiring Fund
receives written confirmation from Moody's or S&P, or both, as appropriate, that
any such change would not impair the ratings then assigned by Moody's and S&P to
shares of Acquiring Fund MuniPreferred.
So long as either Moody's or S&P, or both, are rating the Acquiring
Fund MuniPreferred, the Acquiring Fund may not, among other things, (a) engage
in futures or options transactions, except in accordance with the then current
guidelines of such rating agencies, (b) borrow money, except that the Acquiring
Fund may, without obtaining the written confirmation described below, borrow
money for the purpose of clearing securities transactions if the MuniPreferred
Basic Maintenance Amount would continue to be satisfied after giving effect to
such borrowing and certain other conditions are met, (c) issue any class or
series of shares ranking on a parity with shares of Acquiring Fund MuniPreferred
with respect to the payment of dividends or the distribution of assets upon
liquidation of the Acquiring Fund, (d) engage in any short sales of securities,
(e) lend any securities, (f) merge or consolidate into or with any corporation,
(g) change the pricing service utilized in determining the market value of any
asset of the Acquiring Fund, or (h) enter into reverse repurchase agreements,
unless in each case (except as described above) it has received written
confirmation from S&P or Moody's, or both, as appropriate, that any such action
would not impair the rating then assigned by such rating agency to shares of
Acquiring Fund MuniPreferred. While the Acquiring Fund does not intend to
borrow, and while the Acquiring Fund is restricted as a matter of operating
policy from borrowing in excess of 5% of its total assets so long as the shares
of Acquiring Fund MuniPreferred are outstanding and is otherwise restricted from
borrowing pursuant to rating agency guidelines, under certain circumstances and
notwithstanding adverse interest rate or market conditions, the Acquiring Fund
is permitted to borrow under its investment restrictions for temporary or
emergency purposes (e.g., to make required distributions or pay dividends) or to
repurchase shares when such borrowing is deemed to be in the best interest of
its common shareholders. See "Additional Information About the Funds--Repurchase
of Common Shares; Conversion to Open-End Fund" in the Joint Proxy
Statement--Prospectus for the circumstances under which the Acquiring Fund may
purchase its common shares and incur indebtedness in connection therewith.
Should the Acquiring Fund borrow, the Acquiring Fund would be required to pay
when due the interest obligation on any debt incurred by the Acquiring Fund
before it would be able to pay dividends on shares of Acquiring Fund
MuniPreferred, and it is likely that the Acquiring Fund would be required to pay
the principal amount of any such debt prior to meeting the liquidation
preference of the shares of Acquiring Fund MuniPreferred. Because the interest
expense on borrowings by the Acquiring Fund will reduce the Acquiring Fund's net
investment earnings available to pay dividends on shares of Acquiring Fund
MuniPreferred, borrowing may impair the Acquiring Fund's ability to pay such
dividends on shares of Acquiring Fund MuniPreferred. The risk is heightened in
the event the Acquiring Fund incurs variable rate debt, the interest rate on
which may increase with increases in prevailing market rates.
ASSET MAINTENANCE
1940 Act MuniPreferred Asset Coverage. The Acquiring Fund is required
under rating agency guidelines to maintain, as of the last Business Day of each
month in which any shares of Acquiring Fund MuniPreferred are outstanding, asset
coverage of at least 200% with respect to such shares (or such other asset
coverage as may in the future be specified in or under the 1940 Act as the
minimum asset coverage for senior securities which are shares of a closed-end
investment company as a condition of declaring dividends on its common shares).
If the Acquiring Fund fails to maintain such asset coverage in accordance with
the requirements of the rating agency or agencies then rating the shares of
Acquiring Fund MuniPreferred ("1940 Act MuniPreferred Asset Coverage") and such
failure is not cured as of the last Business Day of the following month (the
"1940 Act Cure Date"), the Acquiring Fund will be required
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under certain circumstances to redeem certain of the shares of Acquiring Fund
MuniPreferred. See "Redemption" below.
MUNIPREFERRED BASIC MAINTENANCE AMOUNT. The Acquiring Fund is required
under rating agency guidelines to maintain, as of each Business Day ( a
"Valuation Date") on which shares of Acquiring Fund MuniPreferred are
outstanding, assets having in the aggregate a Discounted Value at least equal to
the MuniPreferred Basic Maintenance Amount established by the rating agency or
agencies then rating the shares of Acquiring Fund MuniPreferred. If the
Acquiring Fund fails to meet such requirement on any Valuation Date and such
failure is not cured on or before the seventh Business Day after such Valuation
Date (the "MuniPreferred Basic Maintenance Cure Date"), the Acquiring Fund will
be required under certain circumstances to redeem certain of the shares of
Acquiring Fund MuniPreferred.
See "Redemption" below.
The "MuniPreferred Basic Maintenance Amount" as of any Valuation Date
is defined as the dollar amount equal to the sum of:
(a) (i) the product of the number of shares of Acquiring Fund
MuniPreferred outstanding on such date multiplied by $25,000, plus any
redemption premium applicable to shares of Acquiring Fund MuniPreferred then
subject to redemption;
(ii) 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 Acquiring Fund MuniPreferred outstanding
that follow such Valuation Date;
(iii) subject to certain exceptions, the aggregate amount of
dividends that would accumulate on shares of each series of Acquiring
Fund 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 Acquiring Fund shall have
delivered a Notice of Special Rate Period to the Auction Agent 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 Acquiring
Fund shall have delivered a Notice of Special Rate Period to the
Auction Agent 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;
(iv) the amount of anticipated Acquiring Fund expenses for the
90 days subsequent to such Valuation Date;
(v) the amount of the Acquiring Fund's Maximum Potential
Gross-up Payment Liability as of such Valuation Date; and
(vi) any current liabilities as of such Valuation Date to the
extent not reflected in any of (a)(i) through (a)(v) (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
(b) the value of any Acquiring Fund assets irrevocably deposited by the
Acquiring Fund for the payment of any of (a)(i) through (a)(vi), all as
calculated in accordance with the requirements of the rating agency or agencies
then rating the shares of Acquiring Fund MuniPreferred.
For purposes of the foregoing, "Maximum Potential Gross-up Payment
Liability," as of any Valuation Date, means the aggregate amount of Gross-up
Payments that would be due if the Acquiring Fund were to make Taxable
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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 Acquiring Fund, as of the end of the calendar month
immediately preceding such Valuation Date, and assuming such Gross-up Payments
are fully taxable.
In managing the Acquiring Fund's portfolio, the Adviser will not alter
the composition of the Acquiring Fund's portfolio if, in the reasonable belief
of the Adviser, the effect of such alteration would be to cause the Acquiring
Fund to have Moody's Eligible Assets or S&P Eligible Assets with an aggregate
Discounted Value, as of the immediately preceding Valuation Date, less than the
MuniPreferred Basic Maintenance Amount as of such Valuation Date; provided,
however, that in the event that, as of the immediately preceding Valuation Date,
the aggregate Discounted Value of each of Moody's Eligible Assets and S&P
Eligible Assets exceeded the MuniPreferred Basic Maintenance Amount by 5% or
less, the Adviser will not alter the composition of the Acquiring Fund's
portfolio in a manner reasonably expected to reduce the aggregate Discounted
Value of such assets unless the Acquiring Fund shall have confirmed that, after
giving effect to such alteration, the aggregate Discounted Value of such assets
would exceed the MuniPreferred Basic Maintenance Amount.
Upon any failure to maintain the required Discounted Value, the
Acquiring Fund will seek to alter the composition of its portfolio to reattain
the MuniPreferred Basic Maintenance Amount on or prior to the MuniPreferred
Basic Maintenance Cure Date, thereby incurring additional transaction costs and
possible losses and/or gains on dispositions of portfolio securities.
On or before the third Business Day after a Valuation Date on which the
Acquiring Fund fails to meet 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 Acquiring Fund is required to deliver to the
Auction Agent (so long as either Moody's or S&P is rating the shares of
Acquiring Fund MuniPreferred) a report with respect to the calculation of the
MuniPreferred Basic Maintenance Amount and the value of its portfolio holdings
as of the date of such failure or such cure date, as the case may be (a
"MuniPreferred Basic Maintenance Report"). The Acquiring Fund will also deliver,
as required, a MuniPreferred Basic Maintenance Report 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, in each case on or
before the third Business Day after such day. Within ten Business Days after
delivery of such report relating to the last Business Day of each of February,
May, August and November of each year, the Acquiring Fund will deliver a letter
prepared by its independent accountants regarding the accuracy of the
calculations made by the Acquiring Fund in its most recent MuniPreferred Basic
Maintenance Report. If any such letter prepared by the Acquiring Fund's
independent auditors shows that an error was made in the most recent
MuniPreferred Basic Maintenance Report, the calculation or determination made by
the Acquiring Fund's independent accountants will be conclusive and binding on
such Fund.
The Discount Factors and guidelines for determining the market value of
the Acquiring Fund's portfolio holdings, described below, have been based by the
rating agencies on criteria such as the sensitivity of the market value of the
relevant asset to changes in interest rates, the liquidity and depth of the
market for the relevant asset, the credit quality of the relevant asset (for
example, the lower the rating of a debt obligation, the higher the related
discount factor) and the frequency with which the relevant asset is marked to
market.
S&P AAA RATING GUIDELINES. For purposes of calculating the Discounted
Value of the Acquiring Fund's portfolio under current S&P guidelines, the fair
market value of Municipal Obligations eligible for consideration under such
guidelines ("S&P Eligible Assets") must be discounted by certain discount
factors set forth in the table below ("S&P Discount Factors"). The Discounted
Value of a Municipal Obligation under S&P guidelines is the fair market value
thereof divided by the S&P Discount Factor. The S&P Discount Factor used to
discount a particular Municipal Obligation will be determined by reference to
(i)(A) in the event such Municipal Obligation is covered by an Original Issuance
Insurance policy or a Portfolio Insurance policy which does not provide the
Acquiring Fund with the option to obtain Permanent Insurance with respect to
such 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 Acquiring Fund with the option to obtain Permanent Insurance with
respect to such Municipal Obligation, at the Acquiring Fund's option, the S&P or
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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
"S&P Exposure Period" (currently, seven Business Days) and the S&P rating on
such Municipal Obligation. S&P Discount Factors for a range of exposure periods
are set forth below:
<TABLE>
<CAPTION>
S&P DISCOUNT FACTORS
RATING CATEGORY
-----------------------------------------------
EXPOSURE PERIOD AAA AA A BBB
- --------------- ------ ---- -- -----
<S> <C> <C> <C> <C>
40 Business Days........................... 190% 195% 210% 250%
22 Business Days........................... 170 175 190 230
10 Business Days........................... 155 160 175 215
7 Business Days............................ 150 155 170 210
3 Business Days............................ 130 135 150 190
</TABLE>
Since the S&P Exposure Period currently applicable to the Acquiring
Fund is seven Business Days, the S&P Discount Factors currently applicable to
S&P Eligible Assets will be determined by reference to the factors set forth
opposite the line entitled "7 Business Days." Notwithstanding the foregoing, (a)
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, (b) no S&P Discount Factor will be applied to cash or to
Receivables for Municipal Obligations Sold; and (c) except as set forth in
clause (a) above, in the case of any Municipal Obligation that is not rated by
S&P but qualifies as an S&P Eligible Asset pursuant to clause (a)(iii) of the
following paragraph, such Municipal Obligation will be deemed to have an S&P
rating one full rating category lower than the S&P rating category that is the
equivalent of the rating category in which such Municipal Obligation is placed
by Moody's. For purposes of the foregoing, Anticipation Notes rated SP-1+ or, if
not rated by S&P, rated MIG-1 or VMIG-1 by Moody's, which do not mature or have
a demand feature at par exercisable in 30 days and which do not have a long-term
rating, will be considered to be short-term Municipal Obligations. "Receivables
for Municipal Obligations Sold," for purposes of calculating S&P Eligible Assets
as of any Valuation Date, means the book value of receivables for Municipal
Obligations sold as of or prior to such Valuation Date if such receivables are
due within five business days of such Valuation Date.
The S&P guidelines impose certain minimum issue size, issuer,
geographical diversification and other requirements for purposes of determining
S&P Eligible Assets:
(a) In order to be considered S&P Eligible Assets, Municipal
Obligations owned by the Acquiring Fund must:
(i) Be interest bearing and pay interest at least
semi-annually;
(ii) Be payable in U.S. dollars;
(iii) Be publicly rated BBB or higher by S&P or, if not rated
by S&P but rated by Moody's, be rated at least A by Moody's;
(iv) Not be private placements; and
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(v) Be part of an issue with an original issue size of at
least $20 million or, if of an issue with an original issue size below
$20 million (but in no event lower than $10 million), be issued by an
issuer with a total of at least $50 million of securities outstanding.
(b) Municipal Obligations of any one issuer or guarantor (excluding
bond insurers) shall be considered S&P Eligible Assets only to the extent the
fair market value of such Municipal Obligations does not exceed 10% of the
aggregate fair 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 fair market value
of such Municipal Obligations exceeds 5% of the aggregate fair market value of
S&P Eligible Assets.
(c) Long-term Municipal Obligations issued by issuers in any one state
or territory will be considered S&P Eligible Assets only to the extent the fair
market value of such Municipal Obligations does not exceed 20% of the aggregate
fair market value of S&P Eligible Assets.
(d) Municipal Obligations rated by Moody's but not rated by S&P shall
be considered S&P Eligible Assets only to the extent the fair market value of
such Municipal Obligations does not exceed 50% of the aggregate fair market
value of S&P Eligible Assets.
For purposes of determining as of any Valuation Date whether the
Acquiring Fund has S&P Eligible Assets with an aggregate Discounted Value at
least equal to the MuniPreferred Basic Maintenance Amount, the Acquiring Fund
will 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 (i) are covered by Portfolio Insurance policies which provide the
Acquiring Fund with the option to obtain such Permanent Insurance and (ii) are
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.
MOODY'S "AAA" RATING GUIDELINES. For purposes of calculating the
Discounted Value of the Acquiring Fund's portfolio under current Moody's
guidelines, Municipal Obligations eligible for consideration under such
guidelines ("Moody's Eligible Assets") must be discounted by certain discount
factors set forth in the table below ("Moody's Discount Factors"). The
Discounted Value of a Municipal Obligation under Moody's guidelines is, as of
any Valuation Date, (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 (i) the lesser of the market value or call price
thereof, including any call premium, divided by (ii) the applicable Moody's
Discount Factor. The Moody's Discount Factor used to discount a particular
Municipal Obligation will be determined by reference to the "Moody's Exposure
Period" (currently, the period commencing on a given Valuation Date and ending
56 days thereafter) and the Moody's rating on such Municipal Obligation. Moody's
Discount Factors for a range of exposure periods are set forth below:
<TABLE>
<CAPTION>
MOODY'S DISCOUNT FACTORS
RATING CATEGORY
-----------------------------------------------------------------
EXPOSURE PERIOD AAA AA A BBB OTHER* (V)MIG-1** SP-1+**
- ---------------- --- --- --- --- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks.................................... 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but greater than 7 weeks... 154 164 173 205 235 137 149
9 weeks or less but greater than 8 weeks... 158 169 179 209 242 138 150
</TABLE>
- ------------------
* Municipal Obligations not rated by Moody's but rated BBB or 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.
Since the Moody's Exposure Period currently applicable to the Acquiring
Fund is 56 days, the Moody's Discount Factors currently applicable to Moody's
Eligible Assets will be determined by reference to the factors set forth
opposite the line entitled "8 weeks or less but greater than 7 weeks." However,
if the Moody's Discount Factor used to discount a particular Municipal
Obligation is determined by reference to the insurance claims-paying ability of
the
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<PAGE> 85
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, (a) 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% so 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 (b) no Moody's Discount Factor will be
applied to cash or to Receivables for Municipal Obligations Sold. "Receivables
for Municipal Obligations Sold," for purposes of calculating Moody's Eligible
Assets as of any Valuation Date, means 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 (A) settled through clearing house firms with respect to which
the Acquiring Fund has received prior written authorization from Moody's or (B)
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 conditions (A) or (B).
The Moody's guidelines impose certain minimum issue size, issuer, issue
type concentration, county concentration and other requirements for purposes of
determining Moody's Eligible Assets, as set forth in the table below:
<TABLE>
<CAPTION>
MINIMUM MAXIMUM MAXIMUM
ISSUE SIZE UNDERLYING STATE OR TERRITORY
RATING ($ MILLIONS) OBLIGOR (%) CONCENTRATION (%)
- ------- ----------- ------------ ------------------
<S> <C> <C> <C>
Aaa............................................................. 10 100 100
Aa.............................................................. 10 20 60
A............................................................... 10 10 40
Baa............................................................. 10 6 20
Other*.......................................................... 10 4 12
</TABLE>
- ------------------
* Municipal Obligations not rated by Moody's but rated BBB or BBB+ by S&P.
The percentages set forth in the preceding table are based upon Moody's
Eligible Assets calculated excluding cash. For purposes of the maximum
underlying obligor requirement described above, which requirement will apply
except with respect to general obligation Municipal Obligations, any Municipal
Obligation backed by the guaranty, letter of credit or insurance issued by a
third party will 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. For purposes of the issue type concentration requirement described
above, Municipal Obligations will be classified within one of the following
categories: health care issues, housing issues, educational facilities issues,
student loan issues, resource recovery issues, transportation issues, industrial
development bond issues, utility issues, general obligation issues, lease
obligations, escrowed bonds and other issues ("Other Issues") not falling within
one of the aforementioned categories. In no event shall (a) more than 10% of
Moody's Eligible Assets consist of student loan issues, (b) more than 10% of
Moody's Eligible Assets consist of resource recovery issues or (c) more than 10%
of Moody's Eligible Assets consist of Other Issues. For purposes of applying the
foregoing requirements, Municipal Obligations rated MIG-1 or VMIG-1 or, if not
rated by Moody's, rated SP-1 + by S&P, which either do not mature or have a
demand feature at par exercisable in 30 days and which do not have a long-term
rating, will be considered to have a long-term rating of A.
Current Moody's guidelines also require that Municipal Obligations
constituting Moody's Eligible Assets pay interest in cash, be publicly rated Baa
or higher by Moody's or, if not rated by Moody's but rated by S&P, that they be
rated at least BBB by S&P, and that they not have suspended ratings. For
purposes of determining the Moody's Discount Factors applicable to such
S&P-rated Municipal Obligations, any such Municipal Obligation (excluding
short-term Municipal Obligations) will be deemed to have a Moody's rating which
is one full rating category lower than its S&P rating. For purposes of applying
the foregoing requirements, Municipal Obligations rated MIG-1, VMIG-1 or
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<PAGE> 86
P-1, or, if not rated by Moody's, rated A-1+/AA or SP-1+/AA by S&P, will be
considered to have a long-term rating of A.
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 (i) are covered
by Portfolio Insurance policies which provide the Fund with the option to obtain
such Permanent Insurance and (ii) are discounted by a Moody's Discount Factor
determined by reference to the insurance claims-paying ability of the issuers of
such Portfolio Insurance policy.
The Acquiring Fund may enter into futures and options transactions only
for bona fide hedging purposes and not for leveraging or speculative purposes.
So long as either S&P or Moody's is rating the Acquiring Fund MuniPreferred, the
Acquiring Fund will only engage in futures or options transactions in accordance
with the then current guidelines of such ratings agencies, and only after it has
received written confirmation from S&P or Moody's, as appropriate, that such
transactions would not impair the ratings then assigned by such rating agency to
shares of Acquiring Fund MuniPreferred.
REDEMPTION
OPTIONAL REDEMPTION. Except as described below,
(a) shares of Acquiring Fund MuniPreferred of each series are
redeemable, at the option of the Acquiring 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 in accordance
with the Declaration, including the Acquiring Fund Statement and applicable law,
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
(i) shares of a series of Acquiring Fund MuniPreferred may not be redeemed in
part if after such partial redemption fewer than 500 shares of such series
remain outstanding and (ii) subject to the next succeeding sentence, the Notice
of Special Rate Period relating to a Special Rate Period of shares of a series
of Acquiring Fund MuniPreferred, as delivered to the Auction Agent and filed
with the Secretary of the Acquiring Fund, may provide that shares of such series
shall not be redeemable during the whole or any part of such Special Rate Period
(except as provided in clause (b) below) or shall be redeemable during the whole
or any part of such Special Rate Period only upon payment of such redemption
premium or premiums as shall be specified therein ("Special Redemption
Provisions"); and
(b) shares of each series of Acquiring Fund MuniPreferred are
redeemable, at the option of the Acquiring Fund, as a whole but not in part, out
of funds legally available therefor in accordance with the Declaration,
including the Acquiring Fund Statement and applicable law, on the first day
following any Dividend Period thereof included in a Rate Period of more than 364
Rate Period Days if, on the date of determination of the Applicable Rate for
shares of such series for such Rate Period, such Applicable Rate equaled or
exceeded on such date of determination the Treasury Note Rate for such Rate
Period, at a redemption price of $25,000 per share plus an amount equal to
accumulated but unpaid dividends thereon (whether or not earned or declared) to
(but not including) the date fixed for redemption.
A Notice of Special Rate Period relating to shares of a series of
Acquiring Fund MuniPreferred for a Special Rate Period may contain Special
Redemption Provisions only if the Acquiring Fund's Board, 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 Acquiring Fund.
If fewer than all of the outstanding shares of a series of Acquiring
Fund MuniPreferred are to be redeemed as set forth above, the number of shares
of such series to be redeemed shall be determined by the Acquiring Fund's Board,
and such shares shall be redeemed pro rata from the holders of record of shares
of such series (initially Cede, as nominee of the Securities Depository) in
proportion to the number of shares of such series held by such holders. Since
the nominee of the Securities Depository is the only record holder of each
series of Acquiring Fund MuniPreferred, it
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<PAGE> 87
will determine the number of shares to be redeemed from the accounts of the
Agent Members. The Agent Members, in turn, may determine to redeem shares from
some persons listed on their records as beneficial owners (which may include an
Agent Member holding shares for its own account) without redeeming shares from
the accounts of other persons listed on their records as beneficial owners.
The Acquiring Fund may not mail a Notice of Redemption relating to an
optional redemption as described above on any date unless on such date (a) the
Acquiring Fund has available Deposit Securities (i.e., cash and Municipal
Obligations rated at least A-1+ or SP-1+ by S&P and P-1, MIG-1 or VMIG-1 by
Moody's) 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 Acquiring Fund
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 Acquiring Fund MuniPreferred) and the Discounted Value of
S&P Eligible Assets (if S&P is then rating the shares of Acquiring Fund
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 will be determined by reference to the first Moody's Exposure
Period longer than the Moody's Exposure Period then applicable to the Acquiring
Fund.
MANDATORY REDEMPTION. The Acquiring Fund will be required to 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 Acquiring Fund's Board for redemption (such amount, together
with the redemption prices described under "Optional Redemption" above, being
herein referred to as the "Redemption Price"), certain of the shares of
Acquiring Fund MuniPreferred to the extent permitted under the 1940 Act, the
Declaration, the Acquiring Fund Statement and any applicable law, if the
Acquiring Fund fails to maintain the MuniPreferred Basic Maintenance Amount or
the 1940 Act MuniPreferred Asset Coverage in accordance with the requirements of
the rating agency or rating agencies then rating the shares of Acquiring Fund
MuniPreferred and such failure is not cured on or before the MuniPreferred Basic
Maintenance Cure Date or the 1940 Act Cure Date (herein respectively referred to
as a "Cure Date"), as the case may be. The number of shares of Acquiring Fund
MuniPreferred to be redeemed will be equal to the lesser of (a) the minimum
number of shares of Acquiring Fund MuniPreferred, together with all other
Acquiring Fund preferred shares 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 satisfaction of the
MuniPreferred Basic Maintenance Amount or 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 Acquiring Fund MuniPreferred and
other Acquiring Fund preferred shares the redemption or retirement of which
would have had such result, all shares of Acquiring Fund MuniPreferred and
Acquiring Fund preferred shares then outstanding will be redeemed), and (b) the
maximum number of shares of Acquiring Fund MuniPreferred, together with all
other Acquiring Fund preferred shares subject to redemption or retirement, that
can be redeemed out of funds expected to be legally available therefor. In
determining the shares of Acquiring Fund MuniPreferred required to be redeemed
in accordance with the foregoing, the Acquiring Fund will 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 Acquiring Fund MuniPreferred and other Acquiring Fund preferred shares
(and, then, pro rata among each series of Acquired Fund MuniPreferred) subject
to redemption.
The Acquiring Fund is required to effect such a mandatory redemption
not earlier than 20 days and not later than 40 days after such Cure Date, except
that if the Acquiring Fund does not have funds legally available for the
redemption of all of the required number of shares of Acquiring Fund
MuniPreferred and other Acquiring Fund preferred shares which are subject to
redemption or retirement or the Acquiring Fund otherwise is unable to effect
such redemption on or prior to 40 days after such Cure Date, the Acquiring Fund
will redeem those shares of Acquiring Fund MuniPreferred or other Acquiring Fund
preferred shares 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 Acquiring Fund MuniPreferred are to be
redeemed pursuant to a mandatory redemption, 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
S-26
<PAGE> 88
of such series held by such holders, in the same manner as described above in
respect of optional redemptions of fewer than all outstanding shares of a series
of Acquiring Fund MuniPreferred.
NOTICE OF REDEMPTION. Notice of redemption shall be given by mailing
the same to each holder of the shares to be redeemed (initially Cede, as nominee
of the Securities Depository), not less than 20 nor more than 45 days prior to
the date fixed for redemption thereof, to the respective addresses of such
holders as the same shall appear on the record books of the Acquiring Fund
("Notice of Redemption"). Each such notice shall state (a) the redemption date;
(b) the number of shares of Acquiring Fund MuniPreferred to be redeemed and the
series thereof; (c) the CUSIP number for shares of such series; (d) the
Redemption Price; (e) the place or places where certificate(s) for such shares
(properly endorsed or assigned for transfer, if the Acquiring Fund's Board shall
so require and the notice shall so state) are to be surrendered for payment of
the Redemption Price; (f) that dividends on the shares to be redeemed will cease
to accumulate on such redemption date; and (g) the provisions of the Acquiring
Fund Statement under which such redemption is made. If fewer than all shares of
a series of Acquiring Fund MuniPreferred held by any holder are to be redeemed,
the notice mailed to such holder shall also specify the number of shares of such
series to be redeemed from such holder. The Acquiring Fund may provide in any
Notice of Redemption relating to an optional redemption that such redemption is
subject to one or more conditions precedent and that the Acquiring 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.
OTHER REDEMPTION PROCEDURES. 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 will be made as soon as
practicable to the extent such funds become available. Failure to redeem shares
of Acquiring Fund MuniPreferred will be deemed to exist at any time after the
date specified for redemption in a Notice of Redemption when the Acquiring Fund
shall have failed, for any reason whatsoever, to deposit with the Auction Agent
the Redemption Price with respect to any shares for which such Notice of
Redemption has been mailed. Notwithstanding the fact that the Acquiring Fund may
not have redeemed shares of Acquiring Fund MuniPreferred for which a Notice of
Redemption has been mailed, dividends may be declared and paid on shares of
Acquiring Fund MuniPreferred and will include those shares of Acquiring Fund
MuniPreferred for which Notice of Redemption has been mailed. The first two
sentences of this paragraph shall not apply in the event the Acquiring Fund
provides in any Notice of Redemption relating to an optional redemption that
such redemption 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.
Provided a Notice of Redemption has been mailed as described above,
upon the deposit with the Auction Agent (on the next Business Day 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
Acquiring Fund MuniPreferred that are the subject of such notice, dividends on
such shares will cease to accumulate and such shares will no longer be deemed
outstanding for any purpose, and all rights of the holders of the shares so
called for redemption will cease and terminate, except the right of the holders
thereof to receive the Redemption Price, but without any interest or other
additional amount, except as otherwise provided under "Dividends--Determination
of Dividend Rate" and "Gross-up Payments" above. 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 Acquiring Fund's Board shall
so require and the notice shall so state), the Redemption Price shall be paid by
the Auction Agent to the holders of shares of Acquiring Fund 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
Acquiring Fund will 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 (a) the aggregate Redemption Price of the shares of Acquiring Fund
MuniPreferred called for redemption on such date and (b) all other amounts to
which holders of shares of Acquiring Fund MuniPreferred called for redemption
may be entitled. Any funds so deposited that are unclaimed at the end of 90 days
from such redemption date will, to the extent permitted by law, be repaid to the
Acquiring Fund, after which time the holders of shares of Acquiring Fund
MuniPreferred so called for redemption may look only to the Acquiring Fund for
payment of the Redemption Price and all other amounts to which they may be
entitled. The Acquiring Fund will be entitled to receive, from time to time
after the date fixed for redemption, any interest on the funds so deposited.
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<PAGE> 89
Notwithstanding the foregoing, if any dividends on shares of a series
of Acquiring Fund 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 Acquiring 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.
Except as described above with respect to redemptions and under
"Description of the Auctions for MuniPreferred Issued by the Acquiring
Fund--Orders by Existing Holders and Potential Holders," the Declaration
including the Acquiring Fund Statement do not prohibit the Acquiring Fund or any
affiliate of the Acquiring Fund from purchasing or otherwise acquiring any
shares of Acquiring Fund MuniPreferred.
The Acquiring Fund has the right to arrange for third parties to
purchase from the holders thereof shares of Acquiring Fund MuniPreferred which
are to be redeemed as described above.
LIQUIDATION
Upon a liquidation of the Acquiring Fund, whether voluntary or
involuntary, the holders of shares of Acquiring Fund MuniPreferred then
outstanding will be entitled to receive and to be paid out of the assets of the
Acquiring Fund available for distribution to its shareholders, before any
payment or distribution shall be made on the Acquiring Fund common shares or on
any other class of shares of the Acquiring Fund ranking junior to the Acquiring
Fund MuniPreferred upon liquidation, an amount equal to the liquidation
preference with respect to such shares. The liquidation preference for shares of
Acquiring Fund MuniPreferred shall be $25,000 per share, plus an amount equal to
all dividends thereon (whether or not earned or declared) accumulated but unpaid
to (but not including) the date of final distribution in same-day funds,
together with any applicable Gross-up Payments in connection with the
liquidation of the Acquiring Fund. After the payment to the holders of the
shares of Acquiring Fund MuniPreferred of the full preferential amounts provided
for as described herein, the holders of shares of Acquiring Fund MuniPreferred
as such shall have no fight or claim to any of the remaining assets of the
Acquiring Fund. In the event the assets of the Acquiring Fund available for
distribution to the holders of shares of Acquiring Fund MuniPreferred upon any
liquidation of the Acquiring Fund, whether voluntary or involuntary, shall be
insufficient to pay in full all amounts to which such holders are entitled, no
such distribution shall be made on account of any other class or series of
Acquiring Fund preferred shares ranking on a parity with the shares of Acquiring
Fund MuniPreferred upon such liquidation unless proportionate distributive
amounts shall be paid on account of the shares of Acquiring Fund MuniPreferred,
ratably, in proportion to the full distributable amounts for which holders of
all such parity shares are respectively entitled upon such liquidation. Subject
to the rights of the holders of any series or class or classes of shares ranking
on a parity with the shares of Acquiring Fund MuniPreferred with respect to the
distribution of assets upon liquidation of the Acquiring Fund, after payment
shall have been made in full to the holders of the shares of Acquiring Fund
MuniPreferred as described herein, but not prior thereto, any other series or
class or classes of shares ranking junior to the shares of Acquiring Fund
MuniPreferred with respect to the distribution of assets upon liquidation 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 shares of Acquiring Fund MuniPreferred shall not be entitled to
share therein.
Neither the sale of all or substantially all the property or business
of the Acquiring Fund, nor the merger or consolidation of the Acquiring Fund
into or with any Massachusetts business trust or corporation nor the merger or
consolidation of any Massachusetts business trust or corporation into or with
the Acquiring Fund shall be a liquidation, whether voluntary or involuntary, for
the purposes of the foregoing paragraph.
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<PAGE> 90
DESCRIPTION OF THE AUCTIONS FOR
MUNIPREFERRED ISSUED BY THE ACQUIRING FUND
GENERAL
The Acquiring Fund Statement provides that, except as otherwise
described herein, the Applicable Rate for shares of each series of Acquiring
Fund MuniPreferred, including Acquiring Fund MuniPreferred, Series T, and Series
TH, issued pursuant to the Reorganization, for each Rate Period after the
Initial Rate Period thereof shall be equal to the rate per annum that the
Auction Agent advises has resulted on the Business Day preceding the first day
of such Subsequent Rate Period (an "Auction Date") from implementation of the
auction procedures (the "Auction Procedures") set forth in the Acquiring Fund
Statement and summarized below, in which persons determine to hold or offer to
sell or, based on dividend rates bid by them, offer to purchase or sell shares
of such series. Each periodic implementation of the Auction Procedures, which
are attached as Annex B to this Statement of Additional Information, is referred
to herein as an "Auction." The following summary does not purport to be complete
and is subject to and qualified in its entirety by reference to the Auction
Procedures set forth in the Acquiring Fund Statement.
As used herein with respect to shares of a series of Acquiring Fund
MuniPreferred, (a) "Applicable Rate" means the rate per annum at which dividends
are payable on shares of such series for any Rate Period thereof, (b)
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder
of shares of such series, (c) "Business Day" means a day on which the NYSE is
open for trading and is not a Saturday, Sunday or other day on which banks in
New York City are authorized by law to close, (d) "Date of Original Issue" means
the day on which the Acquiring Fund initially issued shares of such series (in
the case of Acquiring Fund MuniPreferred, Series M, Series T, Series T2, Series
W, Series W2, Series TH, Series F and Series F2 respectively) or the day on
which the Effective Time occurs (in the case of Acquiring Fund MuniPreferred,
Series TH2, if issued in connection with the Reorganization), (e) "Dividend
Payment Date" means any date on which dividends on shares of such series are
payable as provided under "Description of MuniPreferred Issued by the Acquiring
Fund--Dividends--General" above, (f) "Dividend Period" means the period from and
including the Date of Original Issue (in the case of Acquiring Fund
MuniPreferred, Series M, Series W and Series F) or the day following the Date of
Original Issue (in the case of Acquiring Fund MuniPreferred, Series T and Series
TH) 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, (g) "Existing Holder" means a Broker-Dealer (or any
such other person as may be permitted by the Acquiring Fund) that is listed on
the records of the Auction Agent as a holder of shares of such series, (h)
"Initial Rate Period" means the period from and including the Date of Original
Issue to but excluding, June 16, 1993, June 11, 1993 and June 14, 1993 (in the
case of Acquiring Fund MuniPreferred, Series T, Series TH and Series F,
respectively), the period from and including September 9, 1994 to but excluding
February 28, 1995, September 14, 1994, September 15, 1994 and September 12, 1994
(in the case of Acquiring Fund MuniPreferred, Series M, Series T2, Series W
and Series F2, respectively, and the period consisting of the number of days
following the Date of Original Issue that would have remained in the rate period
of Acquiring Fund and Acquired Fund MuniPreferred, Series TH or Series TH2, in
effect immediately prior to the Date of Original Issue but for the
Reorganization (in the case of Acquiring Fund MuniPreferred, Series TH2), (i)
"Potential Beneficial Owner" means 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, (j) "Potential Holder" means a
Broker-Dealer (or any such other Person as may be permitted by the Acquiring
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, (k) "Rate Period" means the Initial
Rate Period of shares of such series and any Subsequent Rate Period of shares of
such series, (l) "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 either (i) the shortening or lengthening, as the case may be, of
such Rate Period or Dividend Period as set forth under "Description of
MuniPreferred Issued by the Acquiring Fund--Dividends--General" above, because
the day on which dividends would otherwise be payable is not a Business Day or
(ii) the shortening of such Rate Period pursuant to the provisions relating to
the designation of Special Rate Periods as set forth under "Description of
MuniPreferred Issued by the Acquiring Fund--Dividends--Designation of Special
Rate Periods" above, (m) "Subsequent Rate Period" means any 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
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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, (n) "Minimum Rate Period" means any Rate Period
consisting of 7 Rate Period Days and (o) "Special Rate Period" means any
Subsequent Rate Period commencing on the date designated by the Acquiring Fund,
as set forth under "Description of MuniPreferred Issued by the Acquiring
Fund--Dividends--Designation of Special Rate Periods" above, and ending on the
last day of the last Dividend Period thereof.
AUCTION AGENCY AGREEMENT. The Acquiring 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 Acquiring Fund MuniPreferred so
long as the Applicable Rate for shares of such series is to be based on the
results of an Auction.
BROKER-DEALER AGREEMENTS. Each Auction requires the participation of
one or more Broker-Dealers. The Auction Agent has entered into agreements
(collectively, the "Broker-Dealer Agreements") with several Broker-Dealers
selected by the Acquiring Fund, which provide for the participation of those
Broker-Dealers in Auctions for shares of Acquiring Fund MuniPreferred. See
"Broker-Dealers" below.
SECURITIES DEPOSITORY. The Depository Trust Company ("DTC") will act as
the Securities Depository for the Agent Members with respect to shares of each
series of Acquiring Fund MuniPreferred. One certificate for all of the shares of
each series of Acquiring Fund MuniPreferred will be registered in the name of
Cede, as nominee of the Securities Depository. Such certificate will bear a
legend to the effect that such certificate is issued subject to the provisions
restricting transfers of shares of Acquiring Fund MuniPreferred contained in the
Acquiring Fund Statement. The Acquiring Fund will also issue stop-transfer
instructions to the transfer agent for shares of each series of Acquiring Fund
MuniPreferred. Prior to the commencement of the right of holders of preferred
shares to elect a majority of the Acquiring Fund's trustees, as described under
"Description of MuniPreferred Issued by the Acquiring Fund--Voting Rights"
above, Cede will be the holder of record of all shares of each series of
Acquiring Fund MuniPreferred and owners of such shares will not be entitled to
receive certificates representing their ownership interest in such shares.
DTC, a New York-chartered limited purpose trust company, performs
services for its participants (including the Agent Members), some of whom
(and/or their representatives) own DTC. DTC maintains lists of its participants
and will maintain the positions (ownership interests) held by each such
participant (the "Agent Member") in shares of Acquiring Fund MuniPreferred,
whether for its own account or as a nominee for another person.
AUCTION DATES; ADVANCE NOTICE OF ALLOCATION OF TAXABLE INCOME
The first Auction for shares of Acquiring Fund MuniPreferred, Series TH
or Series TH2, as the case may be, issued pursuant to the Reorganization will be
the first Tuesday and Thursday, respectively, that is a Business Day preceding
the initial Dividend Payment Date for shares of such series. See "Description of
MuniPreferred Issued by the Acquiring Fund--Dividends--General." Thereafter,
Auctions for shares of such series will normally be held every Tuesday and
Thursday (in the case of Acquiring Fund MuniPreferred, Series TH) and Monday,
Tuesday, Wednesday, Thursday and Friday (in the case of Acquiring Fund
MuniPreferred, Series M, Series T, Series T2, Series W, Series W2, Series F and
Series F2), and each Subsequent Rate Period of shares of such series will
normally begin on the following Friday (in the case of Acquiring Fund
MuniPreferred, Series TH,) and Tuesday, Wednesday, Thursday, Friday and Monday
(in the case of Acquiring Fund MuniPreferred, Series M), unless the then-current
Rate Period of shares of such series is a Special Rate Period or, in certain
circumstances, the day that would normally be the Auction Date or the first day
of such Subsequent Rate Period is not a Business Day. The Auction Date and the
first day of the related Rate Period (also a Dividend Payment Date) must be
Business Days but need not be consecutive days. See "Description of
MuniPreferred Issued by the Acquiring Fund--Dividends--General" for information
concerning the circumstances under which the first day of a Rate Period or the
Auction Date, or both, may be moved to a date other than such specified days.
Whenever the Acquiring Fund intends to include any net capital gains or
other income taxable for Federal income tax purposes in any dividend on shares
of Acquiring Fund MuniPreferred, the Acquiring Fund shall, in the case
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of Minimum Rate Periods or Special Rate Periods of 28 Rate Period Days or fewer,
and may, in the case of any other Special Rate Period, notify the Auction Agent
of the amount to be so included not later than the Dividend Payment Date next
preceding the Auction Date on which the Applicable Rate for such dividend is to
be established. Whenever the Auction Agent receives such notice from the
Acquiring Fund, it will be required in turn to notify each Broker-Dealer, who,
on or prior to such Auction Date, in accordance with its Broker-Dealer
Agreement, will be required to notify its customers who are Beneficial Owners
and Potential Beneficial Owners believed by it to be interested in submitting an
Order in the Auction to be held on such Auction Date. See also "Description of
MuniPreferred Issued by the Acquiring Fund--Dividends--Gross-Up Payments" above.
ORDERS BY EXISTING HOLDERS AND POTENTIAL HOLDERS
Prior to the Submission Deadline on each Auction Date for shares of a
series of Acquiring Fund MuniPreferred:
(a) each Beneficial Owner of shares of such series may submit to its
Broker-Dealer by telephone or otherwise a:
(i) "Hold Order"--indicating the number of outstanding shares,
if any, of such series that such Beneficial Owner desires to continue
to hold without regard to the Applicable Rate for shares of such series
for the next Rate Period thereof;
(ii) "Bid"--indicating the number of outstanding shares, if
any, of such series that such Beneficial Owner offers to sell if the
Applicable Rate for shares of such series for the next Rate Period
thereof shall be less than the rate per annum specified by such
Beneficial Owner; and/or
(iii) "Sell Order"--indicating the number of outstanding
shares, if any, of such series that such Beneficial Owner offers to
sell without regard to the Applicable Rate for shares of such series
for the next Rate Period thereof; and
(b) Broker-Dealers shall contact customers who are Potential Beneficial
Owners by telephone or otherwise to determine whether such customers desire to
submit Bids, in which they will indicate the number of shares of such series
that they offer to purchase if the Applicable Rate for shares of such series for
the next Rate Period thereof is not less than the rate per annum specified in
such Bids.
The communication to a Broker-Dealer of the foregoing information is
herein referred to as an "Order" and collectively as "Orders." A Beneficial
Owner or a Potential Beneficial Owner placing an Order with its Broker-Dealer is
herein referred to as a "Bidder" and collectively as "Bidders." The submission
by a Broker-Dealer of an Order to the Auction Agent shall likewise be referred
to herein as an "Order" and collectively as "Orders," and an Existing Holder or
Potential Holder who places an Order with the Auction Agent or on whose behalf
an Order is placed with the Auction Agent shall likewise be referred to herein
as a "Bidder" and collectively as "Bidders."
A Beneficial Owner may submit different types of Orders to its
Broker-Dealer with respect to shares of a series of Acquiring Fund MuniPreferred
then held by such Beneficial Owner. A Bid placed by a Beneficial Owner with
respect to shares of such series specifying a rate higher than the Applicable
Rate for shares of such series determined in the Auction therefor shall
constitute an irrevocable offer to sell the shares subject thereto. A Beneficial
Owner of shares of such series that submits a Bid with respect to shares of such
series to its Broker-Dealer having a rate higher than the Maximum Rate for
shares of such series on the Auction Date therefor will be treated as having
submitted a Sell Order with respect to such shares to its Broker-Dealer. A
Beneficial Owner of shares of such series that fails to submit to its
Broker-Dealer prior to the Submission Deadline an Order or Orders covering all
the outstanding shares of such series held by such Beneficial Owner will be
deemed to have submitted a Hold Order to its Broker-Dealer covering the number
of outstanding shares of such series held by such Beneficial Owner and not
subject to Orders with respect to shares of such series submitted to its
Broker-Dealer; provided, however, that if a Beneficial Owner of shares of such
series fails to submit to its Broker-Dealer prior to the Submission Deadline an
Order or Orders covering all of the outstanding shares of such series held by
such Beneficial Owner for an Auction relating to a Special Rate Period
consisting of more than 28 Rate Period Days, such Beneficial Owner will be
deemed to have submitted a Sell Order to
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its Broker-Dealer covering the number of outstanding shares of such series held
by such Beneficial Owner and not subject to Orders submitted to its
Broker-Dealer. A Sell Order shall constitute an irrevocable offer to sell the
shares of Acquiring Fund MuniPreferred subject thereto. A Beneficial Owner that
offers to become the Beneficial Owner of additional shares of Acquiring Fund
MuniPreferred is, for purposes of such offer, a Potential Beneficial Owner.
A Potential Beneficial Owner may submit to its Broker-Dealer Bids in
which it offers to purchase shares of a series of Acquiring Fund MuniPreferred
if the Applicable Rate for shares of such series for the next Rate Period
thereof is not less than the rate specified in such Bid. A Bid placed by a
Potential Beneficial Owner of shares of such series specifying a rate not higher
than the Maximum Rate for shares of such series shall constitute an irrevocable
offer to purchase the number of shares of such series specified in such Bid if
the rate determined in the Auction for shares of such series is equal to or
greater than the rate specified in such Bid.
As described more fully under "Submission of Orders by Broker-Dealers
to Auction Agent" below, the Broker-Dealers will submit the Orders of their
respective customers who are Beneficial Owners and Potential Beneficial Owners
to the Auction Agent, designating themselves (unless otherwise permitted by the
Acquiring Fund) as Existing Holders in respect of shares subject to Orders
submitted or deemed submitted to them by Beneficial Owners and as Potential
Holders in respect of shares subject to Orders submitted to them by Potential
Beneficial Owners. However, neither the Acquiring Fund nor the Auction Agent
will be responsible for a Broker-Dealer's failure to comply with the foregoing.
Any Order placed with the Auction Agent by a Broker-Dealer as or on behalf of an
Existing Holder or a Potential Holder will be treated in the same manner as an
Order placed with a Broker-Dealer by a Beneficial Owner or a Potential
Beneficial Owner, as described in the preceding paragraph. Similarly, any
failure by a Broker-Dealer to submit to the Auction Agent an Order in respect of
any shares of Acquiring Fund MuniPreferred held by it or its customers who are
Beneficial Owners will be treated in the same manner as a Beneficial Owner's
failure to submit to its Broker-Dealer an Order in respect of shares of
Acquiring Fund MuniPreferred held by it, as described in the second preceding
paragraph. For information concerning the priority given to different types of
Orders placed by Existing Holders, see "Submission of Orders by Broker-Dealers
to Auction Agent," below.
Neither the Acquiring Fund nor an affiliate may submit an Order in any
Auction, except that any Broker-Dealer that is an affiliate of the Acquiring
Fund may submit Orders in an Auction, but only if such Orders are not for its
own account.
The Auction Procedures include a pro rata allocation of shares for
purchase and sale, which may result in an Existing Holder continuing to hold or
selling, or a Potential Holder purchasing, a number of shares of Acquiring Fund
MuniPreferred that is fewer than the number of shares of Acquiring Fund
MuniPreferred specified in its Order. See "Acceptance and Rejection of Submitted
Bids and Submitted Sell Orders and Allocation of Shares," below. To the extent
the allocation procedures have that result, Broker-Dealers that have designated
themselves as Existing Holders or Potential Holders in respect of customer
Orders will be required to make appropriate pro rata allocations among their
respective customers. Each purchase or sale shall be made for settlement on the
Business Day next succeeding the Auction Date at a price per share equal to
$25,000. See "Notification of Results; Settlement," below.
As described above, any Bid specifying a rate higher than the Maximum
Rate will (a) be treated as a Sell Order if submitted by Beneficial Owner or an
Existing Holder and (b) not be accepted if submitted by a Potential Beneficial
Owner or a Potential Holder. Accordingly, the Auction Procedures establish the
Maximum Rate as a maximum rate per annum that can result from an Auction. See
"Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate" and "Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
and Allocation of Shares" below.
As used herein, "Maximum Rate," for shares of a series of Acquiring
Fund MuniPreferred on any Auction Date for shares of such series, means:
(a) in the case of any Auction Date which is not the Auction Date
immediately prior to the first day of any proposed Special Rate Period, the
product of (i) the Reference Rate on such Auction Date for the next Rate Period
of shares of such series and (ii) the Rate Multiple on such Auction Date, unless
shares of such series have or had a Special Rate Period (other than a Special
Rate Period of 28 Rate Period Days or fewer) and an Auction at which
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Sufficient Clearing Bids existed has not yet occurred for a Minimum Rate Period
of shares of such series after such Special Rate Period, in which case the
higher of
(A) the dividend rate on shares of such series for the
then-ending Rate Period; and
(B) the product of (x) the higher of (I) the Reference Rate on
such Auction Date for a Rate Period equal in length to the then-ending
Rate Period of shares of such series, if such then-ending Rate Period
was 364 Rate Period Days or fewer, or the Treasury Note Rate on such
Auction Date for a Rate Period equal in length to the then-ending Rate
Period of shares of such series, if such then-ending Rate Period was
more than 364 Rate Period Days, and (II) the Reference Rate on such
Auction Date for a Rate Period equal in length to such Special Rate
Period of shares of such series, if such Special Rate Period was 364
Rate Period Days or fewer, or the Treasury Note Rate on such Auction
Date for a Rate Period equal in length to such Special Rate Period, if
such Special Rate Period was more than 364 Rate Period Days and (y) the
Rate Multiple on such Auction Date; or
(b) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Rate Period, the
product of (i) the highest of (x) the Reference Rate on such Auction Date for a
Rate Period equal in length to the then-ending Rate Period of shares of such
series, if such then-ending Rate Period was 364 Rate Period Days or fewer, or
the Treasury Note Rate on such Auction Date for a Rate Period equal in length to
the then-ending Rate Period of shares of such series, if such then-ending Rate
Period was more than 364 Rate Period Days, (y) the Reference Rate on such
Auction Date for the Special Rate Period for which the Auction is being held if
such Special Rate Period is 364 Rate Period Days or fewer or the Treasury Note
Rate on such Auction Date for the Special Rate Period for which the Auction is
being held if such Special Rate Period is more than 364 Rate Period Days, and
(z) the Reference Rate on such Auction Date for Minimum Rate Periods and (ii)
the Rate Multiple on such Auction Date.
As used herein, "Reference Rate" shall mean (i) the higher of the
Taxable Equivalent of the Short-Term Municipal Bond Rate and the "AA" Composite
Commercial Paper Rate in the case of Minimum Rate Periods and Special Rate
Periods of 28 Rate Period Days or fewer; (ii) the "AA" Composite Commercial
Paper Rate in the case of Special Rate Periods of more than 28 Rate Period Days
but fewer than 183 Rate Period Days; and (iii) the Treasury Bill Rate in the
case of Special Rate Periods of more than 182 Rate Period Days but fewer than
365 Rate Period Days.
As used herein, "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 Acquiring Fund MuniPreferred) and S&P (if S&P is then rating the
shares of Acquiring Fund 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 (i) the per annum rate expressed on an
interest equivalent basis equal to the most recent Kenny Index so made available
for any preceding Business Day, divided by (ii) 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.
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As used herein, "AA" Composite Commercial Paper Rate," on any date for
any Rate Period of shares of a series of Acquiring Fund MuniPreferred, means:
(a) (i) 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 (ii) in the case of any Special Rate Period of (A) 49
or more but fewer than 70 Rate Period Days, the interest equivalent of the
60-day rate; (B) 70 or more but fewer than 85 Rate Period Days, the arithmetic
average of the interest equivalent of the 60-day and 90-day rates; (C) 85 or
more but fewer than 99 Rate Period Days, the interest equivalent of the 90-day
rate; (D) 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; (E) 120 or more but
fewer than 141 Rate Period Days, the interest equivalent of the 120-day rate;
(F) 141 or more but fewer than 162 Rate Period Days, the arithmetic average of
the 120-day and 180-day rates; and (G) 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 immediately preceding such date; or
(b) 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 Acquiring 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 Acquiring 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 (i)
1.00 and (ii) 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. As used herein, "Commercial Paper
Dealers" means 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. As used herein, "Substitute Commercial Paper Dealer" means The First
Boston Company and Morgan Stanley & Co. Incorporated or their respective
affiliates or successors, if such entity is a commercial paper dealer, provided
that none of such entities shall be a Commercial Paper Dealer.
As used herein, "Treasury Bill Rate," on any date for any Rate Period
of shares of a series of Acquiring Fund MuniPreferred, means:
(a) the bond equivalent yield, calculated in accordance with prevailing
industry convention, of the rate on the most recent 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
(b) 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.
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As used herein, "Treasury Note Rate," on any date for any Rate Period
of shares of a series of Acquiring Fund MuniPreferred, means:
(a) 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
(b) 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.
For purposes of the foregoing, "Treasury Bill" means a direct
obligation of the U.S. government having a maturity at the time of issuance of
364 days or less, and "Treasury Note" means 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. If any U.S. Government Securities Dealer does not quote a
rate required to determine the Treasury Bill Rate or the Treasury Note Rate,
such 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 Dealer or
Substitute U.S. Government Securities Dealers selected by the Acquiring 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
Acquiring 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. As used
herein, "U.S. Government Securities Dealer" means 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. As used herein, "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 that
none of such entities shall be a U.S. Government Securities Dealer.
The applicable "AA" Composite Commercial Paper Rates, Taxable
Equivalent of the Short-Term Municipal Bond Rates, Treasury Bill Rates and
Treasury Note Rates will be the rates announced on such Auction Date for the
Business Day immediately prior to such Auction Date.
The "Rate Multiple," for shares of a series of Acquiring Fund
MuniPreferred on any Auction Date for shares of such series, will be a
percentage, determined as set forth below, based on the prevailing rating of
shares of such series in effect at the close of business on the Business Day
next preceding such Auction Date;
<TABLE>
<CAPTION>
PREVAILING RATING PERCENTAGE
- ------------------- ------------
<S> <C>
"aa3"/AA- or higher.............................. 110%
"a3"/A-.......................................... 125%
"baa3"/BBB-...................................... 150%
"ba3"/BB-................................... 200%
Below "ba3"/BB-............................. 250%
</TABLE>
provided, however, that in the event the Acquiring 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
income tax rate, if any, applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income,
whichever is greater. If the shares of Acquiring Fund MuniPreferred are rated by
only one rating agency, such rating will be the prevailing rating.
For purposes of this determination, the "prevailing rating" of shares
of a series of Acquiring Fund MuniPreferred shall be (a) "aa3"/AA- or higher if
shares of such series have a rating of "aa3" or better by Moody's and
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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, (b) if not "aa3"/AA- or higher, then "a3"/A- if shares of such series
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, (c) if not "aa3"/AA- or
higher or "a3"/A-, then "baa3"/BBB- if shares of such series 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, (d) if not "aa3"/AA- or higher, "a3"/A- or
"baa3"/BBB-, then "ba3"/BB- if shares of such series 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 (e) if not "aa3"/AA-, "baa3"/BBB-, or
"ba3"/BB-, then Below "ba3"/BB-; provided, however, that if shares of
such series are rated by only one rating agency, the prevailing rating shall be
determined without reference to the rating of any other rating agency. The
Acquiring Fund will take all reasonable action necessary to enable either
Moody's or S&P to provide a rating for shares of each series of Acquiring Fund
MuniPreferred. If neither Moody's nor S&P shall make such a rating available,
Merrill Lynch, Pierce, Fenner & Smith Incorporated or its successor (in the case
of Series T and Series F MuniPreferred), Kidder, Peabody & Co. Incorporated or
its successor (in the case of Series M MuniPreferred) and Smith Barney Shearson
or its successor (in the case of Series W and Series TH MuniPreferred) shall
select at least one nationally recognized statistical rating organization (as
that term is used in the rules and regulations of the Commission under the
Exchange Act) to act as a substitute rating agency in respect of the shares of
such series of Acquiring Fund MuniPreferred, and the Acquiring Fund shall take
all reasonable action to enable such rating agency to provide a rating for such
shares.
SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT
Prior to 1:30 p.m., New York City time, on each Auction Date, or such
other time on the Auction Date specified by the Auction Agent (the "Submission
Deadline"), each Broker-Dealer will submit to the Auction Agent in writing all
Orders obtained by it for the Auction to be conducted on such Auction Date,
designating itself (unless otherwise permitted by the Acquiring Fund) as the
Existing Holder or Potential Holder in respect of the shares of Acquiring Fund
MuniPreferred subject to such Orders. Any Order submitted by a Beneficial Owner
or a Potential Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to
the Auction Agent, prior to the Submission Deadline on any Auction Date, shall
be irrevocable.
If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent will round such rate to the
next highest one thousandth (.001) of 1%.
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
Acquiring Fund MuniPreferred of a series subject to an Auction held by such
Existing Holder, such Orders will be considered valid in the following order of
priority:
(a) all Hold Orders for shares of such series will be considered valid,
but only up to and including in the aggregate the number of shares of such
series held by such Existing Holder;
(b) (i) any Bid for shares of such series will be considered valid up
to and including the excess of the number of 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 (a) above;
(ii) subject to subclause (i), 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 shares of such series subject to such
Bids is greater than such excess, such Bids will 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 will be reduced pro
rata to cover the number of shares of such series equal to such excess;
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(iii) subject to subclauses (i) and (ii), 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
(iv) in any such event, the number, if any, of shares of such
series subject to Bids not valid under this clause (b) will be treated
as the subject of a Bid for shares of such series by or on behalf of a
Potential Holder at the rate specified therein; and
(c) all Sell Orders for shares of such series will 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 (a) above and valid Bids
referred to in clause (b) above.
If more than one Bid for a Potential Holder is submitted to the Auction
Agent, each Bid submitted will be a separate Bid with the rate and number of
shares therein specified.
DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND APPLICABLE RATE
Not earlier than the Submission Deadline on each Auction Date for
shares of a series of Acquiring Fund MuniPreferred, the Auction Agent will
assemble all valid Orders submitted or deemed submitted to it by the
Broker-Dealers in respect of shares of such series (each such Hold Order, Bid or
Sell Order as submitted or deemed submitted by a Broker-Dealer being herein
referred to as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell
Order," as the case may be, or as a "Submitted Order") and will determine the
excess of the number of outstanding shares of such series over the number of
outstanding shares of such series subject to Submitted Hold Orders (such excess
being referred to as the "Available MuniPreferred" of such series) and whether
Sufficient Clearing Bids for shares of such series have been made in the
Auction. "Sufficient Clearing Bids" for shares of such series will have been
made if the number of outstanding shares of such series that are the subject of
Submitted Bids of Potential Holders specifying rates not higher than the Maximum
Rate for shares of such series equals or exceeds the number of outstanding
shares of such series that are the subject of Submitted Sell Orders (including
the number of shares of such series subject to Bids of Existing Holders
specifying rates higher than the Maximum Rate for shares of such series).
If Sufficient Clearing Bids for shares of such series have been made,
the Auction Agent will determine the lowest rate specified in the Submitted Bids
(the "Winning Bid Rate") which, taking into account the rates in the Submitted
Bids of Existing Holders, would result in Existing Holders 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 Potential
Holders, based on the rates in their Submitted Bids, would equal not less than
the Available MuniPreferred of such series. In such event, the Winning Bid Rate
will be the Applicable Rate for the next Rate Period for all shares of such
series.
If Sufficient Clearing Bids for shares of such series have not been
made (other than because all of the outstanding shares of such series are
subject to Submitted Hold Orders), the Applicable Rate for all shares of such
series for the next Rate Period thereof will be equal to the Maximum Rate for
shares of such series. If Sufficient Clearing Bids for shares of such series
have not been made, Beneficial Owners that have submitted or that are deemed to
have submitted Sell Orders may not be able to sell in the Auction all shares of
such series subject to such Sell Orders but will continue to own shares of such
series for the next Rate Period, dividends for which may include income taxable
to such Beneficial Owners. See "Auction Dates; Advance Notice of Allocation of
Taxable Income" above and "Acceptance and Rejection of Submitted Bids and
Submitted Sell Orders and Allocation of Shares" below.
If all of the outstanding shares of Acquiring Fund MuniPreferred of
such series are subject to Submitted Hold Orders, the Applicable Rate for all
shares of such series for the next Rate Period thereof will be the All Hold
Order Rate--i.e., 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 the 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
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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 income tax rate, if any, applicable to ordinary income or the
maximum marginal regular Federal corporate income tax rate applicable to
ordinary income, whichever is greater; provided, however, that if the Acquiring
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 (A) if the Taxable Yield Rate (as
defined below) is greater than the Benchmark Rate, then the Benchmark Rate, or
(B) 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 income tax rate, if
any, applicable to ordinary income or the maximum marginal regular Federal
corporate income tax rate 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 (1) dividing the amount of Taxable
Income available for distribution per such share of Acquiring Fund MuniPreferred
by the number of days in the Dividend Period in respect of which such Taxable
Income is contemplated to be distributed, (2) multiplying the amount determined
in (1) above by 365 (in the case of the Dividend Period of 7 Rate Period Days)
or 360 (in the case of any other Dividend Period), and (3) dividing the amount
determined in (2) above by $25,000. In calculating the "AA" Composite Commercial
Paper Rate, the Treasury Bill Rate and the Treasury Note Rate for such purpose,
the rates used will be the rates or yields specified in the applicable
definitions of "AA" Composite Commercial Paper Rate, Treasury Bill Rate and
Treasury Note Rate.
ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND
ALLOCATION OF SHARES
Based on the determinations made under "Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate" above and, subject to the
discretion of the Auction Agent to round and allocate certain shares as
described below, Submitted Bids and Submitted Sell Orders in respect of shares
of a series of Acquiring Fund MuniPreferred will be accepted or rejected in the
order of priority set forth in the Auction Procedures, with the result that
Existing Holders and Potential Holders of shares of such series will sell,
continue to hold and/or purchase shares of such series as set forth below.
Existing Holders of shares of such series that submitted or were deemed to have
submitted Hold Orders (or on whose behalf Hold Orders were submitted or deemed
to have been submitted) will continue to hold the shares of such series subject
to such Hold Orders.
If Sufficient Clearing Bids for shares of a series of Acquiring Fund
MuniPreferred have been made:
(a) Each Existing Holder that placed or on whose behalf was placed a
Submitted Sell Order or Submitted Bid specifying any rate higher than the
Winning Bid Rate for shares of such series will sell the outstanding shares of
such series subject to such Submitted Sell Order or Submitted Bid;
(b) Each Existing Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate lower than the Winning Bid Rate for shares of
such series will continue to hold the outstanding shares of such series subject
to such Submitted Bid;
(c) Each Potential Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate lower than the Winning Bid Rate for shares of
such series will purchase the number of outstanding shares of such series
subject to such Submitted Bid;
(d) Each Existing Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate equal to the Winning Bid Rate for shares of such
series will continue to hold the shares of such series subject to such Submitted
Bid, unless the number of outstanding shares of such series subject to all such
Submitted Bids is greater than the number of shares of such series in excess of
the Available MuniPreferred of such series over the number of shares of such
series accounted for in clauses (b) and (c) above, in which event each Existing
Holder with such a Submitted Bid will continue to hold a number of outstanding
shares of such series subject to such Submitted Bid determined on a pro rata
basis based on the number of outstanding shares of such series subject to all
such Submitted Bids of such Existing Holders; and
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(e) Each Potential Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate equal to the Winning Bid Rate for shares of such
series will purchase any shares of Available MuniPreferred of such series not
accounted for in clauses (b) through (d) above on a pro rata basis based on the
outstanding shares of such series subject to all such Submitted Bids.
If Sufficient Clearing Bids for shares of a series of Acquiring Fund
MuniPreferred have not been made (unless this results because all outstanding
shares of such series are subject to Submitted Hold Orders):
(a) Each Existing Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate equal to or lower than the Maximum Rate for
shares of such series will continue to hold the outstanding shares of such
series subject to such Submitted Bid;
(b) Each Potential Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate equal to or lower than the Maximum Rate for
shares of such series will purchase the number of outstanding shares of such
series subject to such Submitted Bid; and
(c) Each Existing Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate higher than the Maximum Rate for shares of such
series or a Submitted Sell Order will sell a number of shares of such series
determined on a pro rata basis based on the number of outstanding shares of such
series subject to all such Submitted Bids and Submitted Sell Orders.
If, as a result of the pro rata allocation described in clauses (d) or
(e) of the second preceding paragraph or clause (c) of the next preceding
paragraph, 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 Acquiring Fund MuniPreferred, the Auction Agent will, in such manner
as, in its sole discretion, it will determine, round up or down to the nearest
whole share the number of shares of Acquiring Fund MuniPreferred being sold or
purchased on such Auction Date so that the number of shares sold or purchased by
each Existing Holder or Potential Holder will be whole shares of Acquiring Fund
MuniPreferred. If as a result of the pro rata allocation described in clause (e)
of the second preceding paragraph, any Potential Holder would be entitled or
required to purchase less than a whole share of Acquiring Fund MuniPreferred,
the Auction Agent will, in such manner as, in its sole discretion, it will
determine, allocate shares of Acquiring Fund MuniPreferred for purchase among
Potential Holders so that only whole shares of Acquiring Fund MuniPreferred are
purchased by any such Potential Holder, even if such allocation results in one
or more of such Potential Holders not purchasing shares of Acquiring Fund
MuniPreferred.
NOTIFICATION OF RESULTS; SETTLEMENT
The Auction Agent will be required to advise 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 such Bid or Sell Order was accepted or
rejected, in whole or in part, by telephone by approximately 3:00 p.m., New York
City time, on each Auction Date. Each Broker-Dealer that submitted an Order for
the account of a customer will then be required to advise such customer of the
Applicable Rate for the next Rate Period and, if such Order was a Bid or Sell
Order, whether such Bid or Sell Order was accepted or rejected, in whole or in
part, will be required to confirm purchases and sales with each customer
purchasing or selling shares of Acquiring Fund MuniPreferred as a result of the
Auction and will be required to advise each customer purchasing or selling
shares of Acquiring Fund MuniPreferred as a result of the Auction to give
instructions to its Agent Member of the Securities Depository to pay the
purchase price against delivery of such shares or to deliver such shares against
payment therefor, as appropriate. The Auction Agent will be required to record
each transfer of shares of Acquiring Fund MuniPreferred on the registry of
Existing Holders to be maintained by the Auction Agent.
In accordance with the Security Depository's normal procedures, on the
Business Day after the Auction Date, the transactions described above will be
executed through the Securities Depository and the accounts of the respective
Agent Members at the Security Depository will be debited and credited and shares
delivered as necessary to effect the purchases and sales of shares of Acquiring
Fund MuniPreferred as determined in the Auction. Purchasers will make payment
through their Agent Members in same-day funds to the Securities Depository
against delivery through their
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Agent Members; the Securities Depository will make payment in accordance with
its normal procedures, which now provide for payment against delivery by their
Agent Members in same-day funds. The settlement procedures to be used with
respect to Auctions for shares of Acquiring Fund MuniPreferred are set forth in
Annex C to this Statement of Additional Information.
If any Existing Holder selling shares of Acquiring Fund MuniPreferred
in an Auction fails to deliver such shares, the Broker-Dealer of any person that
was to have purchased shares of Acquiring Fund MuniPreferred in such Auction may
deliver to such person a number of whole shares of Acquiring Fund MuniPreferred
that is less than the number of shares that otherwise was to be purchased by
such person. In such event, the number of shares of Acquiring Fund MuniPreferred
to be so delivered shall be determined by such Broker-Dealer. Delivery of such
lesser number of shares shall constitute good delivery.
CONCERNING THE AUCTION AGENT
The Auction Agent is acting as agent for the Acquiring Fund in
connection with Auctions. In the absence of bad faith or negligence on its part,
the Auction Agent will not be liable for any action taken, suffered, or omitted
or for any error of judgment made by it in the performance of its duties under
the Auction Agency Agreement and will not be liable for any error of judgment
made in good faith unless the Auction Agent will have been negligent in
ascertaining the pertinent facts.
The Auction Agent may rely upon, as evidence of the identities of the
Existing Holders of shares of Acquiring Fund MuniPreferred, the Auction Agent's
registry of Existing Holders, the results of Auctions and notices from any
Broker-Dealer (or other Person, if permitted by the Acquiring Fund) with respect
to transfers described in the Joint Proxy Statement--Prospectus under "Proposal
No.1--The Reorganization--Description of MuniPreferred Issued by the Acquiring
Fund--The Auction--Secondary Market Trading and Transfer of Acquiring Fund
MuniPreferred." The Auction Agent is not required to accept any such notice for
an Auction unless it is received by the Auction Agent by 3:00 p.m., New York
City time, on the Business Day preceding such Auction.
The Auction Agent may terminate the Auction Agency Agreement upon
notice to the Acquiring Fund on a date no earlier than 45 days after such
notice. If the Auction Agent should resign, the Acquiring 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
Acquiring Fund may remove the Auction Agent provided that prior to such removal
the Acquiring Fund shall have entered into such an agreement with a successor
Auction Agent.
BROKER-DEALERS
The Auction Agent after each Auction for shares of Acquiring Fund
MuniPreferred will pay to each Broker-Dealer, from funds provided by the
Acquiring Fund, a service charge at the annual rate of 1/4 of 1% in the case of
any Auction immediately preceding a Rate Period of less than one year, or a
percentage agreed to by the Acquiring Fund and the Broker-Dealers in the case of
any Auction immediately preceding a Rate Period of one year or longer, of the
purchase price of shares of Acquiring Fund MuniPreferred placed by such
Broker-Dealer at such Auction. For the purposes of the preceding sentence,
shares of Acquiring Fund MuniPreferred will be placed by a Broker-Dealer if such
shares were (a) the subject of Hold Orders deemed to have been submitted to the
Auction Agent by the Broker-Dealer and were acquired by such Broker-Dealer for
its own account or were acquired by such Broker-Dealer for its customers who are
Beneficial Owners or (b) the subject of an Order submitted by such Broker-Dealer
that is (i) a Submitted Bid of an Existing Holder that resulted in such Existing
Holder continuing to hold such shares as a result of the Auction or (ii) a
Submitted Bid of a Potential Holder that resulted in such Potential Holder
purchasing such shares as a result of the Auction or (iii) a valid Hold Order.
The Acquiring Fund may request the Auction Agent to terminate one or
more Broker-Dealer Agreements at any time, provided that at least one
Broker-Dealer Agreement is in effect after such termination.
The Broker-Dealer Agreements provides that a Broker-Dealer (other than
an affiliate of the Acquiring Fund) may submit Orders in Auctions for its own
account, unless the Acquiring Fund notifies all Broker-Dealers that they may
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no longer do so, in which case Broker-Dealers may continue to submit Hold Orders
and Sell Orders for their own accounts. Any Broker-Dealer that is an affiliate
of the Acquiring Fund may submit Orders in Auctions, but only if such Orders are
not for its own account. If a Broker-Dealer submits an Order for its own account
in any Auction, it might have an advantage over other Bidders because it would
have knowledge of all Orders submitted by it in that Auction; such
Broker-Dealer, however, would not have knowledge of Orders submitted by other
Broker-Dealers in that Auction.
TAX MATTERS ASSOCIATED WITH
INVESTMENT IN THE FUNDS
The following is based upon the advice of Vedder, Price, Kaufman &
Kammholz, counsel to the Funds.
The Federal income tax implications for Acquired Fund shareholders who
will own Acquiring Fund Shares after the Reorganization will be substantially
the same as the Federal income tax implications currently applicable to such
shareholders with respect to their ownership of Acquired Fund Shares. The
Acquiring Fund and the Acquired Fund qualify under Subchapter M of the Code as
regulated investment companies and satisfy conditions which enable dividends on
common shares or shares of MuniPreferred which are attributable to interest on
Municipal Obligations to be exempt from Federal income tax in the hands of
owners of such shares, subject to the possible application of the alternative
minimum tax.
To qualify under Subchapter M for tax treatment as a regulated
investment company, each Fund must, among other things: (a) distribute to its
shareholders at least 90% of the sum of (i) its investment company taxable
income (as that term is defined in the Code determined without regard to the
deduction for dividends paid) and (ii) its net tax-exempt income; and (b)
diversify its holdings so that, at the end of each fiscal quarter of such Fund
(i) at least 50% of the market value of such 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
such 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
such Fund's assets is invested in the securities of any one issuer (other than
U.S. government securities or securities of other regulated investment
companies). In meeting these requirements of Subchapter M of the Code, each Fund
may be restricted in the selling of portfolio securities held for less than
three months and in the utilization of certain of the investment techniques
described under "Investment Objectives and Policies of the Funds--Investment
Restrictions" above. If in any year a Fund should fail to qualify under
Subchapter M for tax treatment as a regulated investment company, that Fund
would incur a regular Federal corporate income tax upon its taxable income for
that year, and distributions to its shareholders would be taxable to such
holders as ordinary income to the extent of the earnings and profits of such
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, each 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.
Each Fund intends to qualify to pay "exempt-interest" dividends on its
common shares and shares of MuniPreferred as defined under the Code. Under the
Code, at the close of each quarter of its taxable year, if at least 50% of the
value of its total assets consists of Municipal Obligations, each Fund shall be
qualified to pay exempt interest dividends to its shareholders. Exempt-interest
dividends are dividends or any part thereof (other than a capital gain dividend)
paid by each Fund which are attributable to interest on Municipal Obligations
and are so designated by the Fund. Exempt-interest dividends will be exempt from
Federal income tax, subject to the possible application of the Federal
alternative minimum tax. Insurance proceeds received by each Fund under any
insurance policies in respect of scheduled interest payments on defaulted
Municipal Obligations, as described herein, will be excludable from Federal
gross income under Section 103(a) of the Code. In the case of non-appropriation
by a political subdivision, however, there can be no assurance that payments
made by the issuer representing interest on such "non-appropriation" Municipal
Lease Obligations will be excludable from gross income for Federal income tax
purposes. See "Investment Objectives and Policies of the Funds--Municipal
Obligations" above. Gains of a Fund that are attributable to market discount on
certain Municipal Obligations acquired after April 30, 1993 are treated as
ordinary income. Distributions to
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shareholders by each Fund of net income received, if any, from taxable temporary
investments and net short-term capital gains, if any, realized by such Fund will
be taxable to its shareholders as ordinary income. Distributions by each Fund of
net capital gains, if any, are taxable as long-term capital gains, regardless of
the length of time the shareholder has owned common shares or shares of
MuniPreferred of such Fund and regardless of whether the distribution is
received in additional common shares or shares of MuniPreferred or in cash. As
long as a 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 allocate 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. Accordingly, so long
as the IRS maintains this position, each Fund intends each year to allocate, to
the fullest extent practicable, net tax-exempt interest, net capital gains
(i.e., the excess of net long-term capital gain over net short-term capital
loss) and other taxable income, if any, between its common shares and shares of
MuniPreferred in proportion to the total dividends paid to each class with
respect to such year. To the extent permitted under applicable law, each Fund
reserves the right to make special allocations of income within a class,
consistent with the objectives of such Fund. If, (a) in the case of any Minimum
Rate Period or any Special Rate Period of 28 Rate Period Days or fewer, such
Fund retroactively allocates any net capital gains or other income taxable for
Federal income tax purposes to shares of its MuniPreferred as a result of the
redemption of all or a portion of the outstanding shares of its MuniPreferred or
the liquidation of the Fund without having given advance notice thereof as
required by such Fund's preferred share designation statement or (b) in the case
of any Special Rate Period of more than 28 Rate Period Days, such Fund allocates
any net capital gains or other income taxable for Federal income tax purposes to
shares of its MuniPreferred without having given advance notice thereof as
described above, such Fund will arrange to make certain payments to owners of
shares of its MuniPreferred to which such allocation was made to offset the tax
effect thereof as described under "Description of MuniPreferred Issued by the
Acquiring Fund--Dividends--Gross-up Payments" above.
In general, dividends on a Fund's shares of MuniPreferred will be
exempt from Federal income tax in the hands of owners of such shares subject to
the possible application of the alternative minimum tax. Each Fund is required
to allocate net capital gains and other taxable income, if any, proportionately
between its common shares and shares of MuniPreferred in accordance with the
current position of the IRS. Each Fund shall, in the case of a Minimum Rate
Period or a Special Rate Period of 28 Rate Period Days, and may, in the case of
any other Special Rate Period, notify the Auction Agent of the amount of any net
capital gains or other income taxable for Federal income tax purposes to be
included in any dividend on shares of its MuniPreferred prior to the Auction
establishing the Applicable Rate for such dividend. The amount of taxable income
allocable to a Fund's shares of MuniPreferred will depend upon the amount of
such income realized by such Fund, but is not generally expected to be
significant. Except for dividends paid on shares of a Fund's MuniPreferred which
include an allocated portion of any net capital gains or other taxable income,
each Fund anticipates that all other dividends paid on shares of its
MuniPreferred will constitute exempt-interest dividends for Federal income tax
purposes.
The Funds have received an opinion of counsel to the effect that the
manner in which each Fund intends to allocate items of tax-exempt income, net
capital gains and other taxable income, if any, between its common shares and
shares of MuniPreferred will be respected for Federal income tax purposes. This
opinion of counsel represents only counsel's best legal judgment, and is not
binding on the IRS or the courts. Currently there is no guidance from the IRS or
other sources specifically addressing whether a 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 a Fund's allocation, it either could assert the need to reallocate
that Fund's net capital gains or other taxable income or it could disallow a
portion of that Fund's dividends paid deduction. In the event of a reallocation,
some of the dividends identified by that Fund as tax-exempt to owners of its
shares of MuniPreferred may be recharacterized as additional capital gain or
other taxable income. Under these circumstances, that Fund would not be required
to make payments to such owners to offset the tax effect of such reallocation.
In addition, a reallocation or a disallowance of part of that Fund's dividends
paid deduction would likely cause that Fund to be liable for income tax on any
reallocated taxable income and possibly an excise tax. Counsel has advised the
Funds that, in its opinion, if the IRS were to challenge in court a Fund's
allocations of income and gain, the IRS should not prevail.
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Allocations to a Fund's shares of MuniPreferred of any net income
received from taxable temporary investments and any net short-term capital gains
realized by such Fund will be taxable to owners of such shares as ordinary
income. Allocations of any net capital gains realized by each Fund will be
taxable to owners of that Fund's shares of MuniPreferred as long-term capital
gains regardless of the length of time such owners have owned such shares. As
long as a Fund qualifies as a regulated investment company under the Code, no
part of the distributions to owners of its shares of MuniPreferred will qualify
for the dividends-received deduction for corporations.
In order for any distributions to owners of a Fund's shares of
MuniPreferred to be eligible to be treated as exempt-interest dividends, such
shares of MuniPreferred must be treated as stock for Federal income tax
purposes. Each Fund has received an opinion of counsel to the effect that its
shares of MuniPreferred will constitute stock of such Fund for Federal income
tax purposes and, therefore, distributions declared and paid at the Applicable
Rate as dividends with respect to such Fund's shares of MuniPreferred, to the
extent paid out of current or accumulated earnings and profits of such Fund,
will constitute dividends for Federal income tax purposes. This opinion of
counsel is based, among other things, on (a) a revenue ruling published by the
IRS in 1990, which holds that a preferred stock that has its dividend rate
periodically set pursuant to an auction process substantially similar to the
auction process to be established for each Fund's shares of MuniPreferred is
treated as stock for Federal income tax purposes and (b) each Fund's
representation to counsel that there is no express or implied agreement between
or among a Broker-Dealer or any other party and such Fund, Nuveen or any owner
of such 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 a Fund's shares of MuniPreferred are outstanding
such Fund fails to meet the MuniPreferred Basic Maintenance Amount or the 1940
Act MuniPreferred Asset Coverage, such Fund will be required to suspend
distributions to holders of its common shares until such maintenance amount or
asset coverage, as the case may be, is restored. See "Description of
MuniPreferred Issued by the Acquiring Fund--Dividends--Restrictions on Dividends
and Other Payments" above. This may prevent such Fund from distributing at least
90% of its investment company taxable income and net tax-exempt income, and may
therefore jeopardize such Fund's qualification for taxation as a regulated
investment company or cause such Fund to incur a tax liability or a
nondeductible 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, a Fund will be required to redeem
its shares of MuniPreferred in order to maintain or restore such maintenance
amount or asset coverage and avoid the adverse consequences to such 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. See "Description of MuniPreferred Issued by the Acquiring
Fund--Redemption--Mandatory Redemption" above.
The Code provides that interest on indebtedness incurred or continued
to purchase or carry a Fund's shares to which exempt-interest dividends are
allocated is not deductible. Under rules used by the IRS for determining when
borrowed funds are considered used for the purpose of purchasing or carrying
particular assets, the purchase or ownership of shares may be considered to have
been made with borrowed funds even though such funds are not directly used for
the purchase or ownership of such shares.
The interest on private activity bonds in most instances is not
Federally tax-exempt to a person who is a "substantial user" of a facility
financed by such bonds or a "related person" of such "substantial user." As a
result, a 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
"nonexempt 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."
S-43
<PAGE> 105
Each Fund may, at its option, redeem shares of its MuniPreferred in
whole or in part, and is required to redeem shares of its MuniPreferred to the
extent required to maintain the MuniPreferred Basic Maintenance Amount and the
1940 Act MuniPreferred Asset Coverage. Gain or loss, if any, resulting from a
redemption of the shares of MuniPreferred will be taxed as gain or loss from the
sale or exchange of the shares of MuniPreferred under Section 302 of the Code
rather than as a dividend, but only if the redemption distribution (a) is deemed
not to be essentially equivalent to a dividend, (b) is in complete redemption of
an owner's interest in such Fund, (c) is substantially disproportionate with
respect to the owner, or (d) with respect to non-corporate owners, is in partial
liquidation of such Fund. For purposes of (a), (b) and (c) above, an owner's
common shares ownership of such Fund will be taken into account.
Nonresident alien individuals and certain foreign corporations and
other entities ("foreign investors") generally are subject to U.S. withholding
tax at the rate of 30% (or possibly a lower rate provided by an applicable tax
treaty) on distributions of taxable net investment income and net short-term
capital gains. To the extent received by foreign investors, exempt-interest
dividends, distributions of net long-term capital gains and any gain from the
sale or other disposition of a Fund's shares of MuniPreferred generally are
exempt from U.S. taxation. Different tax consequences may result if the owner is
engaged in a trade or business in the United States or 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 each Fund (and received by
the shareholders) on December 31 of the year declared.
The sale or other disposition of common shares or shares of
MuniPreferred of a Fund will normally result in capital gain or loss to
shareholders. Generally, a shareholder's gain or loss will be a long-term gain
or loss if the shares have been held for more than one year. Present law taxes
both long-term and short-term capital gains of corporations at the rates
applicable to ordinary income. For non-corporate taxpayers, however, under
current law net capital gains will be taxed at a maximum rate of 20%, while
short-term capital gains and other ordinary income will be taxed at a maximum
rate of 39.6%. However, because of the limitations on itemized deductions and
the deduction for personal exemptions applicable to higher income taxpayers, the
effective rate of tax may be higher in certain circumstances. Losses realized by
a shareholder on the sale or exchange of shares of a Fund held for six months or
less are disallowed to the extent of any distribution of exempt-interest
dividends received with respect to such shares, and, if not disallowed, such
losses are treated as long-term capital losses to the extent of any distribution
of long-term capital gain received with respect to such shares.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such as
bonds issued to make loans for housing purposes or to private entities (but not
to certain tax-exempt organizations such as universities and non-profit
hospitals) is included as an item of tax preference in determining the amount of
a taxpayer's alternative minimum taxable income. To the extent that a Fund
receives income from Municipal Obligations subject to the Federal alternative
minimum tax, a portion of the dividends paid by it, although otherwise exempt
from Federal income tax, will be taxable to its shareholders to the extent that
their tax liability is determined under the alternative minimum tax. Each Fund
will annually supply a report indicating the percentage of that Fund's income
attributable to Municipal Obligations subject to the Federal alternative minimum
tax.
In addition, for certain corporations, alternative minimum taxable
income is increased by 75% of the difference between an alternative measure of
income ("adjusted current earnings") and the amount otherwise determined to be
the alternative minimum taxable income. Interest on all Municipal Obligations,
and therefore all distributions by each Fund that would otherwise be tax-exempt,
is included in calculating a corporation's adjusted current earnings.
Tax-exempt income, including exempt-interest dividends paid by each
Fund, is taken into account in calculating the amount of social security and
railroad retirement benefits that may be subject to Federal income tax.
Each Fund is required in certain circumstances to withhold 31% of
taxable dividends and certain other payments paid to non-corporate holders of
that Fund's shares who do not furnish to that Fund their correct taxpayer
S-44
<PAGE> 106
identification number (in the case of individuals, their social security number)
and certain certifications, or who are otherwise subject to backup withholding.
The Code provides that every shareholder required to file a tax return
must include for information purposes on such return the amount of tax-exempt
interest received during the taxable year, including any exempt-interest
dividends received from each Fund.
The value of common shares acquired pursuant to a Fund's Dividend
Reinvestment Plan will generally be excluded from gross income to the extent
that the cash amount reinvested would be excluded from gross income.
The foregoing is a general, abbreviated summary of the provisions of
the Code and regulations thereunder presently in effect as they directly govern
the taxation of each Fund and its shareholders. These provisions are subject to
change by legislative or administrative action, and any such change may be
retroactive with respect to each 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.
S-45
<PAGE> 107
NUVEEN
Exchange-Traded Funds
October 31, 1998
Dependable, tax-free income
to help you keep more of
what you earn.
NPI
Premium Income
NPM
Premium Income 2
NPT
Premium Income 4
F-1
<PAGE> 108
Highlights
As of October 31, 1998
Contents
1 Dear Shareholder
3 Portfolio Manager Roundtable
5 NPI's Performance Overview
6 NPM's Performance Overview
7 NPT's Performance Overview
8 Shareholder Meeting Report
11 Report of Independent Auditors
12 Portfolio of Investments
35 Statement of Net Assets
36 Statement of Operations
37 Statement of Changes in Net Assets
38 Notes to Financial Statements
42 Financial Highlights
44 Building Better Portfolios
45 Fund Information
===============================================================================
Credit Quality Performance Highlights
Nuveen Premium Income Municipal Fund, Inc. (NPI)
o Competitive taxable-equivalent yield of
8.13% for investors in the 31% federal income
tax bracket
o One-year taxable-equivalent total return on
shareprice of 13.38% for investors in the 31%
federal income tax bracket
o Outperformed the Lehman Brothers Municipal
Bond Index and Lipper's peer group average*
pie chart
AAA/U.S. Guaranteed 61%
AA 22%
A 10%
BBB/NR 7%
Nuveen Premium Income Municipal Fund 2, Inc. (NPM)
o Competitive taxable-equivalent yield of
7.99% for investors in the 31% federal income
tax bracket
o One-year taxable-equivalent total return on
share price of 18.76% for investors in the 31%
federal income tax bracket
o Outperformed the Lehman Brothers Municipal
Bond Index and Lipper's peer group average*
pie chart
AAA/U.S. Guaranteed 57%
AA 12%
A 21%
BBB/NR 10%
Nuveen Premium Income Municipal Fund 4, Inc. (NPT)
o Competitive taxable-equivalent yield of
7.99% for investors in the 31% federal income
tax bracket
o One-year taxable-equivalent total return on
share price of 17.29% for investors in the 31%
federal income tax bracket
o Outperformed the Lehman Brothers Municipal
Bond Index and Lipper's peer group average*
pie chart
AAA/U.S. Guaranteed 51%
AA 19%
A 19%
BBB/NR 11%
* The Lehman Brothers 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.
The Lipper Peer Group returns represent the average annualized returns of the
funds in the Lipper National Leveraged Municipal Debt category. Returns assume
reinvestment of dividends and do not reflect any applicable sales charge.
F-2
<PAGE> 109
Dear Shareholder
Photo of: Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
Wealth takes a lifetime to build. Once achieved, it should be preserved.
I'm pleased to report that over the past 12 months, the Nuveen Premium Income
Funds, Inc. (NPI, NPM, and NPT) 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 three
funds and led to higher share prices 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 addition, the funds have generally maintained good
levels of call protection, resulting in relatively stable income streams. 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.
"The key to taking advantage of the exceptional values currently available in
the municipal market is the expertise of a proven investment manager."
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 in the equity market, including Institutional Capital Corporation for
equity value investing and Rittenhouse Financial Services for equity growth
investing. For more information 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,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
December 15, 1998
F-3
<PAGE> 110
Nuveen Exchange-Traded Funds
Portfolio Manager Roundtable
Portfolio managers Tom Futrell, Steve Peterson, and Ted Neild discuss the
current municipal market environment, fund performance, and the outlook for the
Nuveen Premium Income Municipal Funds.
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 have been apparent
in the fixed-income markets over the past 12 months: declining interest rates
and an 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 ending 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 Municipal Bond
Index*:
Taxable- Lehman Brothers
Total Equivalent Municipal Bond
Fund Return Total ReturnIndex Total Return
- - ------------------------------------------------------------------
NPI 8.86% 11.52% 8.02%
- - ------------------------------------------------------------------
NPM 8.93% 11.66% 8.02%
- - ------------------------------------------------------------------
NPT 8.58% 11.15% 8.02%
- - ------------------------------------------------------------------
Along with outperforming the Lehman Index, all three of the funds had better
total returns than their Lipper Peer Group average **, which had a total return
of 8.43%. The funds' durations played a significant role in the solid
performance of the funds.
* The Lehman Brothers 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. **The Lipper Peer Group returns represent the
average annualized returns of the funds in the Lipper National Leveraged
Municipal Debt category. Returns assume reinvestment of dividends and do not
reflect any applicable sales charge.
What were the funds' durations, and what role does duration play regarding
investment risk?
The following chart illustrates the funds' durations compared to the duration of
the Lehman Index, as of October 31, 1998.
Fund Fund Duration* Lehman Brothers Duration
- - ---------------------------------------------------------
NPI 9.47 years 7.30 years
- - ---------------------------------------------------------
NPM 7.90 years 7.30 years
- - ---------------------------------------------------------
NPT 9.30 years 7.30 years
- - ---------------------------------------------------------
* 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 longer than that of the index generally tended to outperform the
market.
F-4
<PAGE> 111
How have dividends been affected?
In the current low interest rate environment, good call protection helped
support the dividends of NPM and NPT and protect the income of these funds from
erosion. As of October 31, 1998, these two funds have provided shareholders with
33 and 42 consecutive months of steady income, respectively. However, the
combination of declining interest rates and a significant number of bond calls
acted to reduce the income level of NPI, the oldest fund in this report. Brought
to market in July 1998, NPI's portfolio is undergoing an anticipated
restructuring as higher-yielding bonds purchased when the fund was first
assembled reach their call dates. The high level of single-family mortgage
revenue bonds (12%) in this portfolio also contributed to the number of calls
when interest rates fell and these bonds were prepaid. As proceeds from the
called bonds were reinvested in bonds paying relatively lower current interest
rates, the change in income level earned by NPI over the past year necessitated
a dividend reduction. Despite this adjustment to NPI, all of the Nuveen Premium
Income funds continue to provide very attractive current market yields. The
following chart highlights the three funds' market yields and their taxable-
equivalent yields at the 31% federal income tax bracket, as of October 31, 1998.
Fund Market Yield Taxable-Equivalent Yield
- - -----------------------------------------------------------
NPI 5.61% 8.13%
- - -----------------------------------------------------------
NPM 5.51% 7.99%
- - -----------------------------------------------------------
NPT 5.51% 7.99%
- - -----------------------------------------------------------
What effect was there to the funds' share price performance?
Share price performance among many of the Nuveen Exchange-Traded Funds has been
strong over the past 12 months. All three funds posted higher closing share
prices as of October 31, 1998, than they did a year ago. In addition, strong
bond market performance boosted all three of the funds' net asset values. The
accompanying chart is as of October 31, 1998.
Fund Share Price Net Asset Value Premium (+)
(NAV) Discount (-)
- - ----------------------------------------------------------------
NPI $15.1875 $15.66 -3.02%
- - ----------------------------------------------------------------
NPM $16.875 $16.15 + 4.49%
- - ----------------------------------------------------------------
NPT $14.8125 $15.05 -1.58%
- - ----------------------------------------------------------------
Were there any particular sectors where Nuveen searched 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. Within
the utilities sector, we concentrated on public power issues, where Nuveen's
excellent surveillance and research helped point out the unique aspects of these
credits. The heavy volume in these two sectors also created additional
opportunities to find value, as hospital and utility bonds often offered
above-market yields and special call provisions to attract buyers.
What key strategies were used over the course of the year?
In NPI, we continued to buy high-quality, investment-grade revenue bonds that we
believe are undervalued when analyzed from the perspective of credit quality,
yield curve position, or sector. Most of these bonds were in the 20-to 30-year
maturity range.
When reinvesting the proceeds from bonds called from NPM, we looked for bonds
with longer maturities to increase the fund's duration as well as bonds that we
anticipate will be refunded in order to realize the gain in price. The fund
continues to be well diversified across sectors and states.
Over the past year, we further enhanced the call protection of NPT by buying
noncallable bonds. Overall, the fund has very high credit quality (70% in bonds
rated AAA and AA), with 11% in the BBB-rated or non-rated categories. Even
though the difference in yield between higher quality (AAA-rated) and lower
quality bonds (at least BBB-rated) narrowed over the past year, we were still
able to find value among the lower quality, investment grade bonds. As this
difference widens and we are compensated with higher yields, we may increase our
allocation in this category.
What is Nuveen's outlook for the future?
Looking ahead for the Nuveen Premium Income funds, our focus will continue to be
on supporting the stability of the funds' income streams, especially if we
remain in a lower interest rate environment. NPI has already entered into a
period where bond calls have affected the portfolio, while NPM and NPT will
begin to face bond calls over the next two to three years. Our goal is to manage
through this call risk by improving the structure of the portfolios, that is,
investing in bonds with longer durations, high yields, and good call protection.
We also will attempt to preemptsome of these calls by selling bonds prior to
their call dates and replacing them with high-quality bonds offering attractive
yields. If credit spreads continue to widen, we will look for opportunities to
assume some additional credit risk, especially in healthcare and utility bonds,
in order to enhance the funds' yields. 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 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 these bonds. 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.
F-5
<PAGE> 112
Nuveen Premium Income Municipal Fund, Inc.
Performance Overview
As of October 31, 1998
NPI
Portfolio Statistics
====================================================================
Inception Date 7/88
- - --------------------------------------------------------------------
Share Price $15 3/16
- - --------------------------------------------------------------------
Net Asset Value $15.66
- - --------------------------------------------------------------------
Current Market Yield Per Share 5.61%
- - --------------------------------------------------------------------
Taxable-Equivalent Yield (Federal Only)(1) 8.13%
- - --------------------------------------------------------------------
Fund Net Assets ($000) $1,473,755
- - --------------------------------------------------------------------
Effective Maturity (Years) 20.41
- - --------------------------------------------------------------------
Fund Duration (Years) 9.47
- - --------------------------------------------------------------------
Annualized Total Return
====================================================================
On Share Price On NAV
- - --------------------------------------------------------------------
1-Year 10.60% 8.86%
- - --------------------------------------------------------------------
5-Year 4.02% 6.30%
- - --------------------------------------------------------------------
10-Year 7.58% 8.42%
- - --------------------------------------------------------------------
Taxable-Equivalent Total Return (2)
====================================================================
On Share Price On NAV
- - --------------------------------------------------------------------
1-Year 13.38% 11.52%
- - --------------------------------------------------------------------
5-Year 7.18% 9.38%
- - --------------------------------------------------------------------
10-Year 10.92% 11.75%
- - --------------------------------------------------------------------
Top Five Sectors (as a % of total investments)
====================================================================
Utilities 21%
- - --------------------------------------------------------------------
Tax Obligation (General) 13%
- - --------------------------------------------------------------------
Tax Obligation (Limited) 13%
- - --------------------------------------------------------------------
U.S. Guaranteed 12%
- - --------------------------------------------------------------------
Housing (Single Family) 12%
- - --------------------------------------------------------------------
BarChart:
1997-1998 Monthly Tax-Free Dividends Per Share (3)
====================================================================
NOV 0.074
DEC 0.074
JAN 0.074
FEB 0.074
MAR 0.074
APR 0.074
MAY 0.074
JUN 0.074
JUL 0.074
AUG 0.071
SEP 0.071
OCT 0.071
LineChart:
Share Price Performance
====================================================================
11/7/97 14.563
14.063
14.25
14.313
14.438
14.438
14.563
14.688
14.75
15.125
15.063
15
15.188
15.125
14.75
14.813
14.875
14.813
14.75
14.75
14.5
14.813
14.75
14.688
14.563
14.438
14.438
14.438
14.563
14.813
14.813
14.813
14.813
14.875
15
14.938
15
15
14.875
14.625
14.625
14.688
14.563
14.625
14.688
14.938
15.25
15
15.25
15.13
10/31/91 15.19
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 $0.0577
per share.
F-6
<PAGE> 113
Nuveen Premium Income Municipal Fund 2, Inc.
Performance Overview
As of October 31, 1998
NPM
Portfolio Statistics
=============================================================
Inception Date 7/92
- - -------------------------------------------------------------
Share Price $16 7/8
- - -------------------------------------------------------------
Net Asset Value $16.15
- - -------------------------------------------------------------
Current Market Yield Per Share 5.51%
- - -------------------------------------------------------------
Taxable-Equivalent Yield (Federal Only)(1) 7.99%
- - -------------------------------------------------------------
Fund Net Assets ($000) $959,840
- - -------------------------------------------------------------
Effective Maturity (Years) 17.17
- - -------------------------------------------------------------
Fund Duration (Years) 7.90
- - -------------------------------------------------------------
Annualized Total Return
=============================================================
On Share Price On NAV
- - -------------------------------------------------------------
1-Year 15.98% 8.93%
- - -------------------------------------------------------------
3-Year 15.89% 9.30%
- - -------------------------------------------------------------
5-Year 9.67% 7.32%
- - -------------------------------------------------------------
Since Inception 8.66% 8.73%
- - -------------------------------------------------------------
Taxable-Equivalent Total Return (2)
=============================================================
On Share Price On NAV
- - -------------------------------------------------------------
1-Year 18.76% 11.66%
- - -------------------------------------------------------------
3-Year 18.92% 12.12%
- - -------------------------------------------------------------
5-Year 12.84% 10.22%
- - -------------------------------------------------------------
Since Inception 11.66% 11.55%
- - -------------------------------------------------------------
Top Five Sectors (as a % of total investments)
=============================================================
U.S. Guaranteed 26%
- - -------------------------------------------------------------
Tax Obligation (General) 16%
- - -------------------------------------------------------------
Housing (Single Family) 12%
- - -------------------------------------------------------------
Tax Obligation (Limited) 9%
- - -------------------------------------------------------------
Transportation 8%
- - -------------------------------------------------------------
BarChart:
1997-1998 Monthly Tax-Free Dividends Per Share (3)
=============================================================
NOV 0.0775
DEC 0.0775
JAN 0.0775
FEB 0.0775
MAR 0.0775
APR 0.0775
MAY 0.0775
JUN 0.0775
JUL 0.0775
AUG 0.0775
SEP 0.0775
OCT 0.0775
LineChart:
Share Price Performance
=============================================================
11/7/97 15.5
15.5
15.625
15.75
15.875
15.75
15.75
15.875
16.125
16.375
16.063
16.063
16.313
16.25
16.125
16.313
16.375
16.313
15.938
15.938
15.875
15.875
15.75
15.75
15.438
15.625
15.438
15.375
15.438
15.813
15.688
15.938
15.938
15.875
16.188
16.25
16.125
16.063
15.875
15.75
15.875
16.188
16.25
16.25
16.063
16.375
17.063
16.438
16.875
16.81
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 $0.0891
per share.
F-7
<PAGE> 114
Nuveen Premium Income Municipal Fund 4, Inc.
Performance Overview
As of October 31, 1998
NPT
Portfolio Statistics
====================================================================
Inception Date 2/93
- - --------------------------------------------------------------------
Share Price $14 13/16
- - --------------------------------------------------------------------
Net Asset Value Per Share $15.05
- - --------------------------------------------------------------------
Current Market Yield 5.51%
- - --------------------------------------------------------------------
Taxable-Equivalent Yield (Federal Only)1 7.99%
- - --------------------------------------------------------------------
Fund Net Assets ($000) $923,004
- - --------------------------------------------------------------------
Effective Maturity (Years) 17.24
- - --------------------------------------------------------------------
Fund Duration (Years) 9.30
- - --------------------------------------------------------------------
Annualized Total Return
====================================================================
On Share Price On NAV
- - --------------------------------------------------------------------
1-Year 14.54% 8.58%
- - --------------------------------------------------------------------
3-Year 13.59% 8.76%
- - --------------------------------------------------------------------
5-Year 7.50% 6.43%
- - --------------------------------------------------------------------
Since Inception 6.15% 7.22%
- - --------------------------------------------------------------------
Taxable-Equivalent Total Return (2)
====================================================================
On Share Price On NAV
- - --------------------------------------------------------------------
1-Year 17.29% 11.15%
- - --------------------------------------------------------------------
3-Year 16.54% 11.42%
- - --------------------------------------------------------------------
5-Year 10.54% 9.18%
- - --------------------------------------------------------------------
Since Inception 9.03% 9.89%
- - --------------------------------------------------------------------
Top Five Sectors (as a % of total investments)
====================================================================
Health Care 17%
- - --------------------------------------------------------------------
Utilities 17%
- - --------------------------------------------------------------------
U.S. Guaranteed 15%
- - --------------------------------------------------------------------
Tax Obligation (General) 10%
- - --------------------------------------------------------------------
Housing (Multifamily) 8%
- - --------------------------------------------------------------------
BarChart:
1997-1998 Monthly Tax-Free Dividends Per Share
====================================================================
NOV 0.0680
DEC 0.0680
JAN 0.0680
FEB 0.0680
MAR 0.0680
APR 0.0680
MAY 0.0680
JUN 0.0680
JUL 0.0680
AUG 0.0680
SEP 0.0680
OCT 0.0680
LineChart:
Share Price Performance
====================================================================
11/7/97 13.688
13.813
13.938
13.938
13.938
13.75
13.875
13.938
14.063
14.938
14.75
14.688
14.875
14.813
14.938
14.875
14.875
14.688
14.625
14.625
14.313
14.625
14.313
14
14
13.75
13.625
13.5
13.563
13.813
13.813
13.938
13.938
14.188
14.625
14.313
14.25
14.375
14.375
14.25
14.313
14.5
14.313
14.125
14.25
14.5
14.875
14.75
14.875
14.69
10/31/98 14.81
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.
F-8
<PAGE> 115
Shareholder Meeting Report
NPI
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Approval of the Directors 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 53,318,929 3,272 3,248 2,982 3,379 2,557
Withhold 536,164 38 2 50 4 7
- - ------------------------------------------------------------------------------------------------------------------------
Total 53,855,093 3,310 3,250 3,032 3,383 2,564
==========================================================================================================================
Lawrence H. Brown
For 53,323,070 3,272 3,248 2,982 3,379 2,557
Withhold 532,023 38 2 50 4 7
- - ------------------------------------------------------------------------------------------------------------------------
Total 53,855,093 3,310 3,250 3,032 3,383 2,564
==========================================================================================================================
Anthony T. Dean
For 53,331,313 3,272 3,248 2,982 3,379 2,557
Withhold 523,780 38 2 50 4 7
- - ------------------------------------------------------------------------------------------------------------------------
Total 53,855,093 3,310 3,250 3,032 3,383 2,564
==========================================================================================================================
Anne E. Impellizzeri
For 53,297,812 3,272 3,248 2,982 3,379 2,556
Withhold 557,281 38 2 50 4 8
- - ------------------------------------------------------------------------------------------------------------------------
Total 53,855,093 3,310 3,250 3,032 3,383 2,564
==========================================================================================================================
Peter R. Sawers
For 53,324,045 3,272 3,228 2,982 3,379 2,556
Withhold 531,048 38 22 50 4 8
- - ------------------------------------------------------------------------------------------------------------------------
Total 53,855,093 3,310 3,250 3,032 3,383 2,564
==========================================================================================================================
William J. Schneider
For -- 3,272 3,248 2,982 3,379 2,557
Withhold -- 38 2 50 4 7
- - ------------------------------------------------------------------------------------------------------------------------
Total -- 3,310 3,250 3,032 3,383 2,564
==========================================================================================================================
Timothy R. Schwertfeger
For -- 3,272 3,248 2,982 3,379 2,557
Withhold -- 38 2 50 4 7
- - ------------------------------------------------------------------------------------------------------------------------
Total -- 3,310 3,250 3,032 3,383 2,564
==========================================================================================================================
Judith M. Stockdale
For 53,251,659 3,272 3,228 2,982 3,379 2,557
Withhold 603,434 38 22 50 4 7
- - ------------------------------------------------------------------------------------------------------------------------
Total 53,855,093 3,310 3,250 3,032 3,383 2,564
==========================================================================================================================
Ratification of auditors was reached as follows:
For 52,803,486 3,252 3,229 3,021 3,380 2,435
Against 164,742 1 6 2 3 125
Abstain 886,865 57 15 9 -- 4
- - ------------------------------------------------------------------------------------------------------------------------
Total 53,855,093 3,310 3,250 3,032 3,383 2,564
==========================================================================================================================
</TABLE>
F-9
<PAGE> 116
Shareholder Meeting Report
NPM
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Approval of the Directors 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 37,763,321 1,546 2,718 1,684 2,692 1,749
Withhold 289,938 41 89 2 14 22
- - ------------------------------------------------------------------------------------------------------------------------
Total 38,053,259 1,587 2,807 1,686 2,706 1,771
==========================================================================================================================
Lawrence H. Brown
For 37,779,299 1,586 2,718 1,684 2,692 1,770
Withhold 273,960 1 89 2 14 1
- - ------------------------------------------------------------------------------------------------------------------------
Total 38,053,259 1,587 2,807 1,686 2,706 1,771
==========================================================================================================================
Anthony T. Dean
For 37,782,809 1,586 2,718 1,684 2,692 1,770
Withhold 270,450 1 89 2 14 1
- - ------------------------------------------------------------------------------------------------------------------------
Total 38,053,259 1,587 2,807 1,686 2,706 1,771
==========================================================================================================================
Anne E. Impellizzeri
For 37,754,163 1,586 2,718 1,684 2,692 1,770
Withhold 299,096 1 89 2 14 1
- - ------------------------------------------------------------------------------------------------------------------------
Total 38,053,259 1,587 2,807 1,686 2,706 1,771
==========================================================================================================================
Peter R. Sawers
For 37,776,559 1,586 2,718 1,684 2,692 1,770
Withhold 276,700 1 89 2 14 1
- - ------------------------------------------------------------------------------------------------------------------------
Total 38,053,259 1,587 2,807 1,686 2,706 1,771
==========================================================================================================================
William J. Schneider
For -- 1,546 2,718 1,684 2,692 1,749
Withhold -- 41 89 2 14 22
- - ------------------------------------------------------------------------------------------------------------------------
Total -- 1,587 2,807 1,686 2,706 1,771
==========================================================================================================================
Timothy R. Schwertfeger
For -- 1,586 2,718 1,684 2,692 1,770
Withhold -- 1 89 2 14 1
- - ------------------------------------------------------------------------------------------------------------------------
Total -- 1,587 2,807 1,686 2,706 1,771
==========================================================================================================================
Judith M. Stockdale
For 37,717,898 1,541 2,718 1,684 2,692 1,749
Withhold 335,361 46 89 2 14 22
- - ------------------------------------------------------------------------------------------------------------------------
Total 38,053,259 1,587 2,807 1,686 2,706 1,771
==========================================================================================================================
Ratification of auditors was reached as follows:
For 37,673,117 1,584 2,721 1,686 2,700 1,770
Against 57,461 1 80 -- 2 --
Abstain 322,681 2 6 -- 4 1
- - ------------------------------------------------------------------------------------------------------------------------
Total 38,053,259 1,587 2,807 1,686 2,706 1,771
==========================================================================================================================
</TABLE>
F-10
<PAGE> 117
Shareholder Meeting Report
NPT
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Approval of the Directors was reached as follows:
Preferred Preferred Preferred Preferred Preferred Preferred Preferred
Common Shares Shares Shares Shares Shares Shares Shares
Shares Series-M Series-T Series-T2 Series-W Series-TH Series-F Series-F2
<S> <C> <C> <C> <C> <C> <C> <C> <C>
====================================================================================================================================
Robert P. Bremner
For 36,677,153 1,815 1,753 1,011 1,459 1,758 1,758 1,282
Withhold 379,645 -- 2 -- 1 1 2 7
- - ----------------------------------------------------------------------------------------------------------------------------------
Total 37,056,798 1,815 1,755 1,011 1,460 1,759 1,760 1,289
====================================================================================================================================
Lawrence H. Brown
For 36,689,341 1,815 1,753 1,011 1,459 1,758 1,758 1,282
Withhold 367,457 -- 2 -- 1 1 2 7
- - ----------------------------------------------------------------------------------------------------------------------------------
Total 37,056,798 1,815 1,755 1,011 1,460 1,759 1,760 1,289
====================================================================================================================================
Anthony T. Dean
For 36,692,312 1,815 1,753 1,011 1,459 1,758 1,758 1,282
Withhold 364,486 -- 2 - 1 1 2 7
- - ----------------------------------------------------------------------------------------------------------------------------------
Total 37,056,798 1,815 1,755 1,011 1,460 1,759 1,760 1,289
====================================================================================================================================
Anne E. Impellizzeri
For 36,664,146 1,815 1,753 1,011 1,459 1,758 1,758 1,282
Withhold 392,652 -- 2 -- 1 1 2 7
- - ----------------------------------------------------------------------------------------------------------------------------------
Total 37,056,798 1,815 1,755 1,011 1,460 1,759 1,760 1,289
====================================================================================================================================
Peter R. Sawers
For 36,680,367 1,815 1,753 1,011 1,459 1,758 1,758 1,282
Withhold 376,341 -- 2 -- 1 1 2 7
- - ----------------------------------------------------------------------------------------------------------------------------------
Total 37,056,708 1,815 1,755 1,011 1,460 1,759 1,760 1,289
====================================================================================================================================
William J. Schneider
For -- 1,815 1,753 1,011 1,459 1,758 1,758 1,282
Withhold -- -- 2 -- 1 1 2 7
- - ----------------------------------------------------------------------------------------------------------------------------------
Total -- 1,815 1,755 1,011 1,460 1,759 1,760 1,289
====================================================================================================================================
Timothy R. Schwertfeger
For -- 1,815 1,753 1,011 1,459 1,758 1,758 1,282
Withhold -- -- 2 -- 1 1 2 7
- - ----------------------------------------------------------------------------------------------------------------------------------
Total -- 1,815 1,755 1,011 1,460 1,759 1,760 1,289
====================================================================================================================================
Judith M. Stockdale
For 36,652,547 1,815 1,753 1,011 1,459 1,758 1,758 1,282
Withhold 404,252 -- 2 -- 1 1 2 7
- - ----------------------------------------------------------------------------------------------------------------------------------
Total 37,056,798 1,815 1,755 1,011 1,460 1,759 1,760 1,289
====================================================================================================================================
Ratification of auditors was reached as follows:
For 36,688,052 1,815 1,755 978 1,460 1,755 1,753 1,278
Against 165,291 -- -- -- -- -- -- 1
Abstain 203,455 -- -- 33 -- 4 7 10
- - ----------------------------------------------------------------------------------------------------------------------------------
Total 37,056,798 1,815 1,755 1,011 1,460 1,759 1,760 1,289
====================================================================================================================================
</TABLE>
F-11
<PAGE> 118
Report of Independent Auditors
The Boards of Directors and Shareholders
Nuveen Premium Income Municipal Fund, Inc.
Nuveen Premium Income Municipal Fund 2, Inc.
Nuveen Premium Income Municipal Fund 4, Inc.
We have audited the accompanying statements of net assets, including the
portfolios of investments, of Nuveen Premium Income Municipal Fund, Inc., Nuveen
Premium Income Municipal Fund 2, Inc. and Nuveen Premium Income Municipal Fund
4, Inc. as of October 31, 1998, and the related statements of operations,
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 Premium Income Municipal Fund, Inc., Nuveen Premium Income Municipal Fund
2, Inc. and Nuveen Premium Income Municipal Fund 4, Inc. at October 31, 1998,
and the results of their operations, changes in their net assets and financial
highlights for the periods indicated therein in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
December 11, 1998
F-12
<PAGE> 119
Portfolio of Investments
Nuveen Premium Income Municipal Fund, Inc. (NPI)
October 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Arizona - 1.1%
$ 11,630,000 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 $ 13,010,365
2,900,000 The Industrial Development Authority of the
County of Pima, Single Family Mortgage Revenue
Bonds (GNMA Mortgage-Backed Securities Program),
Series 1988, 8.125%, 9/01/20 (Alternative Minimum Tax) 3/99 at 102 AAA 2,974,037
- - ----------------------------------------------------------------------------------------------------------------------------------
Arkansas - 0.4%
5,250,000 Arkansas Development Finance Authority, Driver's License
Revenue Bonds (Arkansas State Police -
Headquarters and Wireless Data Equipment),
Series 1997, 5.400%, 6/01/18 6/07 at 100 AAA 5,447,978
- - ----------------------------------------------------------------------------------------------------------------------------------
California - 14.0%
13,000,000 State of California, Various Purpose General Obligation
Refunding Bonds, 5.150%, 10/01/19 10/03 at 102 Aa3 13,138,840
State of California, Veterans General Obligation Bonds,
Series BH:
10,250,000 5.250%, 12/01/12 (Alternative Minimum Tax) 12/08 at 101 AAA 10,395,858
6,000,000 5.600%, 12/01/32 (Alternative Minimum Tax) 12/03 at 102 Aa3 6,194,220
15,975,000 State of California Department of Transportation
East Bay State Building Authority, Certificates
of Participation, Series 1991A, 6.500%, 3/01/16
(Pre-refunded to 3/01/01) 3/01 at 102 A1*** 17,361,950
23,725,000 State Public Works Board of the State of California,
Lease Revenue Refunding Bonds
(The Regents of the University of California),
1993 Series A (Various University of
California Projects), 5.500%, 6/01/21 6/03 at 102 Aa3 24,726,907
11,395,000 State Public Works Board of the State of California,
Lease Revenue Bonds (Department
of Corrections), 1993 Series E (California State Prison-
Madera County (II)), 5.500%, 6/01/15 No Opt. Call A 12,306,372
15,420,000 Los Angeles Convention and Exhibition Center Authority,
Lease Revenue Bonds, 1993 Refunding
Series A, The City of Los Angeles
(California), 5.375%, 8/15/18 8/03 at 102 AAA 15,870,881
5,000,000 Department of Water and Power of the City of Los
Angeles, California, Electric Plant
Refunding Revenue Bonds, Second Issue
of 1993, 4.750%, 11/15/19 11/03 at 102 AAA 4,822,550
12,250,000 Los Angeles County Transportation Commission
(California), Sales Tax Revenue Refunding
Bonds, Series 1991-B, 5.750%, 7/01/18 7/01 at 100 AA- 12,650,453
1,285,000 City of Martinez (California), Home Mortgage
Revenue Bonds, 1983 Issue A, 10.750%, 2/01/16 No Opt. Call AAA 2,012,143
4,125,000 Redevelopment Agency of the City of Moorpark,
Moorpark Redevelopment Project, 1993
Tax Allocation Bonds, 6.125%, 10/01/18 10/03 at 102 A- 4,403,685
20,000,000 City of Pomona, California, Single Family Mortgage
Revenue Refunding Bonds (GNMA and FNMA
Mortgage-Backed Securities), Series 1990A, 7.600%, 5/01/23 No Opt. Call AAA 26,766,800
5,000,000 Sacramento, California, Municipal Utility District,
Electric Revenue Refunding Bonds, 1993 Series D,
5.250%, 11/15/20 11/03 at 102 AAA 5,101,550
San Bernardino Joint Powers Financing Authority,
Tax Allocation Refunding Bonds, Series 1995A:
6,675,000 5.750%, 10/01/15 10/05 at 102 AAA 7,270,477
12,500,000 5.750%, 10/01/25 10/05 at 102 AAA 13,515,625
3,000,000 San Diego Public Facilities Financing Authority,
Sewer Revenue Bonds, Series 1993, 5.250%, 5/15/20 5/03 at 102 AAA 3,057,240
10,000,000 San Joaquin Hills Transportation Corridor Agency,
Toll Road Refunding Revenue Bonds,
Series 1997A, 5.250%, 1/15/30 1/07 at 102 AAA 10,249,500
17,540,000 University of California, 4.750%, 9/01/21 9/03 at 102 AAA 16,888,038
</TABLE>
F-13
<PAGE> 120
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Colorado - 3.1%
$ 3,000,000 Colorado Housing and Finance Authority, Single
Family Program, 1997 Series B-2 Senior Bonds,
7.000%, 5/01/26 (Alternative Minimum Tax) 5/07 at 105 Aa2 $ 3,372,210
4,500,000 Colorado Housing and Finance Authority, Single
Family Program, 1997 Series C-2 Senior Bonds,
6.875%, 11/01/28 (Alternative Minimum Tax) 11/07 at 105 Aa2 5,083,200
City and County of Denver, Colorado, Airport
System Revenue Bonds, Series 1991D:
9,450,000 7.750%, 11/15/13 (Alternative Minimum Tax) No Opt. Call Baa1 12,090,330
1,725,000 7.750%, 11/15/21 (Pre-refunded to 11/15/01)
(Alternative Minimum Tax) 11/01 at 102 Aaa 1,957,202
6,550,000 7.750%, 11/15/21 (Alternative Minimum Tax) 11/01 at 102 Baa1 7,281,897
City and County of Denver, Colorado, Airport
System Revenue Bonds, Series 1992B:
715,000 7.250%, 11/15/23 (Pre-refunded to 11/15/02)
(Alternative Minimum Tax) 11/02 at 102 Aaa 821,735
2,785,000 7.250%, 11/15/23 (Alternative Minimum Tax) 11/02 at 102 Baa1 3,105,581
City and County of Denver, Colorado, Airport
System Revenue Bonds, Series 1992C:
1,830,000 6.750%, 11/15/22 (Pre-refunded to 11/15/02)
(Alternative Minimum Tax) 11/02 at 102 Aaa 2,067,644
6,870,000 6.750%, 11/15/22 (Alternative Minimum Tax) 11/02 at 102 Baa1 7,521,963
2,050,000 Colorado Local Single Family Mortgage
Revenue Bonds (City and County of Denver,
Colorado, GNMA Mortgage-Backed Securities Program),
Series 1988A,
8.125%, 12/01/20 (Alternative Minimum Tax) 12/98 at 102 AAA 2,093,809
742,859 El Paso County, Colorado, Single Family Mortgage
Revenue Tax-Exempt Refunding Bonds,
Series 1992A Class A-2, 8.750%, 6/01/11 No Opt. Call Aaa 827,768
- - ----------------------------------------------------------------------------------------------------------------------------------
District of Columbia - 2.8%
10,470,000 District of Columbia, Hospital Revenue
Refunding Bonds (Providence Hospital Issue),
Series 1988A, 7.875%, 12/01/15 (Pre-refunded to 12/01/98) 12/98 at 102 Aa2*** 10,720,757
7,505,000 District of Columbia (Washington, D.C.),
General Obligation Bonds, Series 1998B,
6.000%, 6/01/20 No Opt. Call AAA 8,526,355
14,800,000 District of Columbia Housing Finance Agency,
Collateralized Single Family Mortgage Revenue
Bonds, Series 1988E-4, 6.375%, 6/01/26
(Alternative Minimum Tax) 12/04 at 103 AAA 15,802,700
5,750,000 District of Columbia Revenue Bonds (Association
of American Medical Colleges Issue),
Series 1997A, 5.375%, 2/15/27 8/07 at 102 AAA 5,930,148
- - ----------------------------------------------------------------------------------------------------------------------------------
Florida - 1.2%
7,465,000 Florida Housing Finance Agency, GNMA Collateralized
Home Ownership Mortgage Revenue Bonds,
1988 Series G1 Bonds, 8.300%, 6/01/20
(Alternative Minimum Tax) 12/98 at 103 Aaa 7,696,415
9,290,000 State of Florida, Full Faith and Credit Department
of Transportation, Right-of-Way Acquisition
and Bridge Construction Bonds, Series 1995, 5.800%, 7/01/21 7/05 at 101 AA+ 10,033,665
- - ----------------------------------------------------------------------------------------------------------------------------------
Georgia - 1.6%
23,420,000 Development Authority of Monroe County (Georgia),
Pollution Control Revenue Bonds
(Georgia Power Company Plant Scherer Project),
Second Series 1994, 6.750%, 10/01/24 10/99 at 102 A+ 24,316,283
- - ----------------------------------------------------------------------------------------------------------------------------------
Illinois - 7.8%
19,220,000 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 19,501,573
10,595,000 City of Chicago, Chicago- O'Hare International Airport,
Special Facility Revenue Bonds (United Air
Lines, Inc. Project), Series 1988A, 8.400%, 5/01/18
(Alternative Minimum Tax) 5/99 at 103 Baa2 11,110,023
6,280,000 City of Chicago, Chicago O'Hare International Airport,
General Airport Second Lien Revenue Refunding
Bonds, 1993 Series C, 5.000%, 1/01/18 1/04 at 102 AAA 6,268,068
4,860,000 City of Chicago, Collateralized Single Family Mortgage
Revenue Bonds, Series 1996-A,
7.000%, 9/01/27 (Alternative Minimum Tax) 3/06 at 105 Aaa 5,451,899
10,000,000 The County of Cook, Illinois, General Obligation
Bonds, Series 1993A, 5.000%, 11/15/23 11/03 at 100 AAA 9,783,100
8,740,000 Illinois Development Finance Authority, Pollution
Control Refunding Revenue Bonds,
1994 Series A (Illinois Power Company Project),
5.700%, 2/01/24 2/04 at 102 AAA 9,311,334
</TABLE>
F-14
<PAGE> 121
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Illinois (continued)
$ 8,500,000 Illinois Educational Facilities Authority, Revenue
Refunding Bonds, The University of Chicago,
Series 1993B, 5.600%, 7/01/24 7/03 at 102 Aa1 $ 8,861,420
5,000,000 Illinois Health Facilities Authority, Revenue Bonds,
Series 1992 (Highland Park Hospital),
6.200%, 10/01/22 10/02 at 102 AAA 5,455,050
2,000,000 Illinois Health Facilities Authority, Revenue Bonds,
Series 1997A (Highland Park Hospital Project),
5.750%, 10/01/26 10/07 at 102 AAA 2,141,480
17,545,000 Illinois Health Facilities Authority, Revenue Bonds,
Series 1997 (Sherman Health Systems),
5.250%, 8/01/27 8/07 at 101 AAA 17,650,972
11,900,000 Illinois Health Facilities Authority, Revenue Bonds,
Series 1988B (Evangelical Hospitals Corporation),
8.100%, 1/01/08 (Pre-refunded to 1/01/99) 1/99 at 102 Aaa 12,233,676
4,925,000 Regional Transportation Authority, Cook, DuPage,
Kane, Lake, McHenry and Will Counties, Illinois,
General Obligation Bonds, Series 1992A, 9.000%, 6/01/06 No Opt. Call AAA 6,486,373
785,000 Regional Transportation Authority, Cook, DuPage,
Kane, Lake, McHenry and Will Counties, Illinois,
General Obligation Bonds, Series 1992B, 9.000%, 6/01/06 No Opt. Call AAA 1,033,869
- - ----------------------------------------------------------------------------------------------------------------------------------
Indiana - 1.3%
4,300,000 Indiana State Office Building Commission,
Correctional Facilities Program Revenue Bonds,
Series 1995A, 5.500%, 7/01/20 7/05 at 102 AAA 4,522,009
8,000,000 Metropolitan School District of Steuben County,
Middle School Building Corporation, First Mortgage
Bonds, Series 1995, Steuben County, Indiana,
6.375%, 7/15/16 (Pre-refunded to 7/15/05) 7/05 at 102 AAA 9,243,120
5,300,000 Whitley County Middle School Building Corporation, First
Mortgage Bonds, Series 1994, Columbia City, Indiana,
6.250%, 7/15/15 (Pre-refunded to 1/15/04) 1/04 at 102 AAA 5,966,899
- - ----------------------------------------------------------------------------------------------------------------------------------
Iowa - 1.3%
3,000,000 Iowa Finance Authority, Private College Refunding
Revenue Bonds (Drake University Project),
Series 1996, 5.400%, 12/01/16 12/05 at 102 AAA 3,126,900
5,565,000 Iowa Finance Authority, Variable Rate Demand
Industrial Revenue Refunding Bonds, Series A 1989
(Urbandale Hotel Corporation Project), 8.500%,
8/01/16 (Pre-refunded to 7/15/14)
(Alternative Minimum Tax) 7/14 at 100 AAA 7,834,574
8,000,000 Iowa Finance Authority, Hospital Facilities Revenue
Bonds, Series 1998 A (Iowa Health System),
5.125%, 1/01/28 7/08 at 102 AAA 7,939,520
- - ----------------------------------------------------------------------------------------------------------------------------------
Kentucky - 0.4%
5,890,000 Kentucky Development Finance Authority
(St. Elizabeth Medical Center), 9.000%, 11/01/00 No Opt. Call AAA 6,245,108
- - ----------------------------------------------------------------------------------------------------------------------------------
Louisiana - 2.5%
9,000,000 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 8,828,730
4,000,000 Louisiana Public Facilities Authority, Hospital Revenue
Refunding Bonds (Louisiana Health System
Corporation Project), Series 1998, 5.000%, 10/01/22 10/08 at 102 AAA 3,931,360
11,860,000 Louisiana Stadium and Exposition District Hotel
Occupancy Tax Bonds, Series 1995-B, 6.375%, 7/01/25 7/05 at 102 AAA 13,470,114
7,660,000 Louisiana Public Facilities Authority, Extended
Care Facilities Revenue Bonds (Comm-Care
Corporation Project), Series 1994, 11.000%, 2/01/14 No Opt. Call BBB 11,027,106
- - ----------------------------------------------------------------------------------------------------------------------------------
Massachusetts - 2.2%
2,900,000 Massachusetts Industrial Finance Agency,
Resource Recovery Revenue Bonds, SEMASS Project,
Series 1991B, 9.250%, 7/01/15 (Alternative Minimum Tax) 7/01 at 103 N/R 3,227,613
15,000,000 Massachusetts Industrial Finance Agency,
General Obligation Bonds, Suffolk University,
Series 1997, 5.250%, 7/01/27 7/07 at 102 AAA 15,262,650
5,000,000 Massachusetts Turnpike Authority, Metropolitan
Highway System Revenue Bonds, 1997 Series C
(Senior), 5.000%, 1/01/37 1/07 at 102 AAA 4,887,150
8,800,000 Massachusetts Water Resources Authority,
General Revenue Bonds, 1992 Series A, 5.500%, 7/15/22
(Pre-refunded to 7/15/02) 7/02 at 100 Aaa 9,354,312
</TABLE>
F-15
<PAGE> 122
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Michigan - 2.9%
$ 4,000,000 School District of the City of Detroit, Wayne County,
Michigan, School Building and Site Improvement and
Refunding Bonds (Unlimited Tax General Obligation),
Series 1993,
5.400%, 5/01/13 5/03 at 102 AA+ $ 4,238,520
10,550,000 City of Detroit, Michigan, Sewage Disposal System Revenue
Refunding Bonds, Series 1995-B,
5.000%, 7/01/25 7/05 at 100 AAA 10,403,988
Hudsonville Public Schools, Counties of Ottawa and Allegan,
State of Michigan, 1997 School Building and Site and
Refunding Bonds (General Obligation Unlimited Tax):
10,510,000 5.150%, 5/01/22 5/08 at 100 Aaa 10,576,739
8,145,000 5.150%, 5/01/27 5/08 at 100 Aaa 8,190,612
9,625,000 Livonia Public School District, General Obligation Bonds,
5.500%, 5/01/21 5/03 at 102 AAA 10,065,825
- - ----------------------------------------------------------------------------------------------------------------------------------
Minnesota - 2.8%
2,910,000 The Minneapolis/Saint Paul Housing Finance Board, Single
Family Mortgage Revenue Bonds (Minneapolis/Saint Paul
Family Housing Program, Phase X, FNMA and GNMA Mortgage-
Backed Securities Program), Series 1994
(Alternative Minimum Tax) 11/04 at 102 AAA 3,136,049
21,375,000 The Housing and Redevelopment Authority of the City of Saint
Paul, Minnesota, Sales Tax Revenue Refunding Bonds (Civic
Center Project), Series 1996, 7.100%, 11/01/23 11/15 at 103 AAA 26,909,843
2,877,000 The Housing and Redevelopment Authority of the City of Saint
Paul, Minnesota, Single Family Mortgage Revenue Bonds,
Refunding Series 1991-B, 7.250%, 9/01/11 No Opt. Call Aaa 3,144,043
7,675,000 Port Authority of the City of Saint Paul, Energy Park Tax
Increment Revenue Refunding Bonds, Series 1988,
8.000%, 12/01/07 (Pre-refunded to 12/01/98) 12/98 at 102 AAA 7,860,198
- - ----------------------------------------------------------------------------------------------------------------------------------
Missouri - 1.5%
6,540,000 Missouri Housing Development Commission, Single Family
Mortgage Revenue Bonds (Homeownership Loan Program),
1996 Series C, 7.450%, 9/01/27 (Alternative Minimum Tax) 3/07 at 105 AAA 7,472,669
11,120,000 Francis Howell School District, St. Charles County, Missouri,
General Obligation Refunding Bonds,
Series 1994A, 7.800%, 3/01/08 No Opt. Call AAA 14,181,558
- - ----------------------------------------------------------------------------------------------------------------------------------
Nevada - 2.1%
29,410,000 State of Nevada, Colorado River Commission, General
Obligation (Limited Tax) Revenue Supported Bonds,
Series 1994, 5.500%, 7/01/27 7/04 at 101 AA 30,562,284
- - ----------------------------------------------------------------------------------------------------------------------------------
New Hampshire - 2.1%
11,000,000 New Hampshire Housing Finance Authority, Single Family
Mortgage Revenue Bonds, 1993 Series B,
6.050%, 7/01/25 7/03 at 102 Aa 11,520,300
10,000,000 Business Finance Authority of the State of New Hampshire,
Pollution Control Refunding Revenue Bonds (The United
Illuminating Company Project), 1993 Series A,
5.875%, 10/01/33 10/03 at 102 BBB- 10,206,500
8,560,000 New Hampshire Housing Finance Authority, Single Family
Mortgage Acquisition Revenue Bonds, 1996 Series B,
6.400%, 1/01/27 (Alternative Minimum Tax) 7/06 at 102 Aa3 9,130,952
- - ----------------------------------------------------------------------------------------------------------------------------------
New Jersey - 1.1%
15,000,000 New Jersey Housing and Mortgage Finance Agency, Home Buyer
Revenue Bonds, 1997 Series U,
5.850%, 4/01/29 (Alternative Minimum Tax) 10/07 at 101 1/2 AAA 15,842,250
- - ----------------------------------------------------------------------------------------------------------------------------------
New Mexico - 0.3%
4,780,000 New Mexico Mortgage Finance Authority, Single Family
Mortgage Purchase Refunding Senior Bonds, 1992 Series A,
6.900%, 7/01/24 7/02 at 102 Aa1 5,084,056
- - ----------------------------------------------------------------------------------------------------------------------------------
New York - 9.7%
10,650,000 Long Island Power Authority (New York), Electric System
General Revenue Bonds, Series 1998A, 5.250%, 12/01/26 6/08 at 101 A- 10,829,985
7,500,000 The City of New York, General Obligation Bonds, Fiscal 1991
Series B, 9.500%, 6/01/03 No Opt. Call A- 9,189,450
10,000,000 The City of New York, General Obligation Bonds, Fiscal 1996
Series G, 5.750%, 2/01/07 2/06 at 101 1/2 A- 10,979,500
</TABLE>
F-16
<PAGE> 123
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
New York (continued)
The City of New York, General Obligation Bonds, Fiscal 1997
Series G:
$ 100,000 6.000%, 10/15/26 (Pre-refunded to 10/15/07) 10/07 at 101 A-*** $ 115,021
9,900,000 6.000%, 10/15/26 10/07 at 101 A- 10,787,238
16,000,000 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 17,216,960
New York City Transitional Finance Authority, Future Tax
Secured Bonds, Fiscal 1998 Series C:
31,625,000 4.750%, 5/01/23 5/08 at 101 AA 30,364,111
11,000,000 5.000%, 5/01/26 5/08 at 101 AA 10,814,320
12,365,000 New York State Energy Research and Development Authority,
Facilities Revenue Bonds, Series 1993 A
(Consolidated Edison Company of New York, Inc. Project),
6.000%, 3/15/28 (Alternative Minimum Tax) 3/03 at 102 A+ 13,126,808
10,000,000 New York Local Government Assistance Corporation,
Series 1993 B, Refunding Bonds, 5.000%, 4/01/23 4/04 at 100 A+ 9,785,700
18,735,000 New York State Medical Care Facilities Finance Agency,
Hospital and Nursing Home FHA-Insured Mortgage Revenue Bonds,
1993 Series B, 5.500%, 2/15/22 2/04 at 102 AAA 19,340,328
- - ----------------------------------------------------------------------------------------------------------------------------------
Ohio - 1.3%
5,095,000 Ohio Housing Finance Agency, Single Family Mortgage Revenue
Bonds (GNMA Mortgage-Backed Securities Program),
1988 Series B, 8.250%, 12/15/19 (Alternative Minimum Tax) 12/98 at 102 AA+ 5,271,440
12,360,000 State of Ohio, Turnpike Revenue Bonds, 1994 Series A,
Issued by the Ohio Turnpike Commission, 5.750%, 2/15/24 2/04 at 102 AA 13,641,361
- - ----------------------------------------------------------------------------------------------------------------------------------
Oklahoma - 1.1%
9,560,000 Oklahoma Housing Finance Agency, GNMA Collateralized Single
Family Mortgage Revenue Bonds, Series 1988A,
8.250%, 12/01/20 (Alternative Minimum Tax) 12/98 at 102 AAA 9,769,651
6,455,000 Washington County Medical Authority (Bartlesville, Oklahoma),
Hospital Revenue Bonds (Jane Phillips Episcopal Hospital),
Series 1989A, 8.500%, 11/01/10 (Pre-refunded to 5/01/99) 5/99 at 102 N/R*** 6,756,836
- - ----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania - 2.0%
12,875,000 Allegheny County Hospital Development Authority
(Pennsylvania), Health Center Revenue Bonds, Series 1992A
(Presbyterian University Health System, Inc. Project),
6.250%, 11/01/23 (Pre-refunded to 11/01/02) 11/02 at 100 AAA 14,085,121
10,000,000 Pennsylvania Housing Finance Agency, Single Family Mortgage
Revenue Bonds, Series 1993 - 37A, 5.450%, 10/01/17 10/03 at 102 AA+ 10,219,000
5,295,000 The School District of Philadelphia, Pennsylvania, General
Obligation Bonds, Series B of 1995, 5.500%, 9/01/25 9/05 at 101 AAA 5,560,968
- - ----------------------------------------------------------------------------------------------------------------------------------
Puerto Rico - 0.4%
5,250,000 Puerto Rico Electric Power Authority, Power Revenue Bonds,
Series X, 5.500%, 7/01/25 7/05 at 100 BBB+ 5,413,433
- - ----------------------------------------------------------------------------------------------------------------------------------
Rhode Island - 0.9%
13,200,000 Rhode Island Health and Educational Building Corporation,
Hospital Financing Revenue Bonds, Lifespan Obligated Group
Issue, Series 1996, 5.250%, 5/15/26 5/07 at 102 AAA 13,279,332
- - ----------------------------------------------------------------------------------------------------------------------------------
South Carolina - 1.2%
17,250,000 South Carolina Jobs-Economic Development Authority, Hospital
Revenue Bonds (Anderson Area Medical Center, Inc.),
Series 1996, 5.250%, 2/01/26 2/06 at 102 AAA 17,393,175
- - ----------------------------------------------------------------------------------------------------------------------------------
Texas - 7.7%
10,305,000 Alliance Airport Authority, Inc., Special Facilities Revenue
Bonds, Series 1990 (American Airlines, Inc. Project),
7.500%, 12/01/29 (Alternative Minimum Tax) 12/00 at 102 Baa2 11,049,948
11,020,000 Brazos River Authority (Texas), Collateralized Pollution
Control Revenue Bonds (Texas Utilities Electric Company
Project), Series 1994A, 7.875%, 3/01/21
(Alternative Minimum Tax) 3/01 at 102 BBB+ 11,993,286
23,000,000 Brazos River Authority (Texas), Revenue Refunding Bonds
(Houston Industries Incorporated Project),
Series 1998C, 5.125%, 5/01/19 5/08 at 102 AAA 23,059,570
5,615,000 Dallas-Fort Worth International Airport Facility Improvement
Corporation, American Airlines, Inc. Revenue Bonds,
Series 1990, 7.500%, 11/01/25 (Alternative Minimum Tax) 11/00 at 102 Baa2 6,012,261
</TABLE>
F-17
<PAGE> 124
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Texas (continued)
$ 40,000,000 Harris County (Texas), Health Facilities Development
Corporation, Adjustable Convertible Extendable Securities
(Greater Houston Pooled Health Care Loan Program),
Series 1985B, 7.375%, 12/01/25 12/98 at 100 A1 $ 40,136,400
15,000,000 Harris County, Texas, Toll Road Senior Lien Revenue
Refunding Bonds, Series 1994, 5.300%, 8/15/13 8/04 at 102 AAA 15,900,600
4,750,000 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 5,009,635
- - ----------------------------------------------------------------------------------------------------------------------------------
Utah - 1.9%
15,000,000 Intermountain Power Agency (Utah), Power Supply Revenue
Refunding Bonds, 1998 Series A, 5.000%, 7/01/20 7/08 at 101 AAA 14,832,600
8,000,000 Utah Housing Finance Agency, Single Family Mortgage Bonds,
1997 Series F, 5.750%, 7/01/28 (Alternative Minimum Tax) 7/07 at 101 1/2 AAA 8,296,480
4,780,000 Utah Housing Finance Agency, Single Family Mortgage Senior
Bonds, Series 1998F2, 5.100%, 7/01/28
(Alternative Minimum Tax) (DD) 7/08 at 101 1/2 AAA 4,743,529
- - ----------------------------------------------------------------------------------------------------------------------------------
Vermont - 0.9%
12,510,000 Vermont Housing Finance Agency, Single Family Housing Bonds,
Series 9, 5.900%, 5/01/29 (Alternative Minimum Tax) 6/07 at 101 1/2 AAA 13,246,714
- - ----------------------------------------------------------------------------------------------------------------------------------
Virginia - 0.7%
10,000,000 Prince William County Service Authority (Virginia), Water
and Sewer System Refunding Revenue Bonds, Series 1993,
5.000%, 7/01/21 7/03 at 102 AAA 9,872,400
1,000,000 Virginia Housing Development Authority, Commonwealth
Mortgage Bonds, 1987 Series C, Subseries C-7,
8.375%, 1/01/28 (Alternative Minimum Tax) 1/99 at 102 AA+ 1,007,940
- - ----------------------------------------------------------------------------------------------------------------------------------
Washington - 16.9%
19,820,000 Public Utility District No.1 of Chelan County, Washington,
Chelan Hydro Consolidated System Revenue Bonds, Series 1997A,
5.650%, 7/01/32 (Alternative Minimum Tax) 7/07 at 102 AA 20,748,567
8,525,000 King County, Washington, Limited Tax General Obligation
Refunding Bonds (Payable from Sewer Revenues), Series 1998B,
4.750%, 1/01/18 1/08 at 101 AA+ 8,371,891
17,050,000 Municipality of Metropolitan Seattle, Washington, Sewer
Refunding Revenue Bonds, Series Z, 5.500%, 1/01/33 1/03 at 102 AAA 17,721,088
6,360,000 Public Utility District No. 1 of Snohomish County,
Washington, Generation System Revenue Bonds, Series 1993,
5.500%, 1/01/14 1/03 at 100 AAA 6,676,537
7,000,000 City of Spokane, Washington, Regional Solid Waste Management
System Revenue Bonds, Series 1989B, 7.750%, 1/01/11
(Alternative Minimum Tax) 1/99 at 102 AAA 7,193,550
10,000,000 Washington Health Care Facilities Authority, Revenue Bonds,
Series 1998 (Swedish Health Services), 5.125%, 11/15/22 11/08 at 101 Aaa 9,877,200
11,000,000 Washington Health Care Facilities Authority, Revenue Bonds,
Series 1998 (Harrison Memorial Hospital),
5.000%, 8/15/28 (DD) 8/13 at 102 AAA 10,643,490
4,300,000 Washington Public Power Supply System, Nuclear Project
No. 1, Refunding Revenue Bonds, Series 1989B,
7.250%, 7/01/15 (Pre-refunded to 1/01/00) 1/00 at 102 AAA 4,570,341
12,950,000 Washington Public Power Supply System, Nuclear Project
No. 1, Refunding Revenue Bonds, Series 1993A,
5.700%, 7/01/17 7/03 at 102 AAA 13,504,778
29,870,000 Washington Public Power Supply System, Nuclear Project
No. 1, Refunding Revenue Bonds, Series 1993B,
5.600%, 7/01/15 7/03 at 102 AAA 31,257,760
Washington Public Power Supply System, Nuclear Project
No. 1, Refunding Revenue Bonds, Series 1989A:
4,060,000 7.500%, 7/01/15 (Pre-refunded to 7/01/99) 7/99 at 102 AAA 4,262,472
11,900,000 7.500%, 7/01/15 (Pre-refunded to 7/01/99) 7/99 at 102 Aaa 12,491,073
7,500,000 Washington Public Power Supply System, Nuclear Project
No. 2, Refunding Revenue Bonds, Series 1991A,
6.000%, 7/01/12 (Pre-refunded to 7/01/01) 7/01 at 100 Aa1*** 7,944,975
</TABLE>
F-18
<PAGE> 125
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Washington (continued)
$ 14,440,000 Washington Public Power Supply System, Nuclear Project
No. 2, Refunding Revenue Bonds, Series 1993A,
5.750%, 7/01/12 7/03 at 102 Aa1 $ 15,530,798
6,770,000 Washington Public Power Supply System, Nuclear Project
No. 2, Refunding Revenue Bonds, Series 1993B,
5.625%, 7/01/12 7/03 at 102 Aa1 7,079,186
14,500,000 Washington Public Power Supply System, Nuclear Project
No. 2, Refunding Revenue Bonds, Series 1998A,
5.000%, 7/01/12 7/08 at 102 Aa1 14,736,349
13,500,000 Washington Public Power Supply System, Nuclear Project
No. 3, Refunding Revenue Bonds, Series 1989B,
7.250%, 7/01/15 (Pre-refunded to 1/01/00) 1/00 at 102 AAA 14,348,744
22,880,000 Washington Public Power Supply System, Nuclear Project
No. 3, Refunding Revenue Bonds, Series 1993C,
5.375%, 7/01/15 7/03 at 102 Aa1 23,379,469
9,350,000 Washington Public Power Supply System, Nuclear Project
No. 3, Refunding Revenue Bonds, Series 1997A,
5.250%, 7/01/15 7/07 at 102 Aa1 9,536,906
7,275,000 Washington Public Power Supply System, Nuclear Project
No. 3, Refunding Revenue Bonds, Series 1998A,
5.125%, 7/01/18 7/08 at 102 Aa1 7,221,019
- - ----------------------------------------------------------------------------------------------------------------------------------
West Virginia - 1.1%
15,000,000 West Virginia Housing Development Fund, Housing Finance
Bonds, 1992 Series D, 7.050%, 11/01/24 5/02 at 102 AAA 16,180,499
- - ----------------------------------------------------------------------------------------------------------------------------------
$ 1,370,784,859 Total Investments - (cost $1,359,473,254) - 98.3% 1,448,475,312
================ ---------------------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal Securities - 0.1%
1,000,000 Industrial Development Authority of the City of Roanoke,
Virginia, Hospital Revenue Bonds (Carilion Health System
Obligated Group), Series 1997A, Variable Rate Demand Bonds,
3.700%, 7/01/27+ VMIG-1 1,000,000
1,000,000 Roanoke Industrial Development Authority, Hospital Revenue
Demand Bonds, Series 1995A (Carilion Health System),
Variable Rate Demand Bonds, 3.700%, 7/01/19+ VMIG-1 1,000,000
- - ----------------------------------------------------------------------------------------------------------------------------------
$ 2,000,000 Total Temporary Investments - 0.1% 2,000,000
================ ---------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.6% 23,280,105
---------------------------------------------------------------------------------------------------------------
Net Assets - 100% $1,473,755,417
===============================================================================================================
* 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.
*** Security is backed by an escrow or trust containing sufficient U.S. government
or U.S. government agency securities which ensures the timely payment of principal
and interest. Security is normally considered to be equivalent to AAA rated securities.
+ The security has a maturity of more than one year, but has variable rate and demand
features which qualify it as a short-term security. The rate disclosed is that
currently in effect. This rate changes periodically based on market conditions or a
specified market index.
N/R Investment is not rated.
(DD) Security purchased on a delayed delivery basis (note 1).
See accompanying notes to financial statements.
</TABLE>
F-19
<PAGE> 126
<TABLE>
<CAPTION>
Portfolio of Investments
Nuveen Premium Income Municipal Fund 2, Inc. (NPM)
October 31, 1998
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Alaska - 0.5%
$ 3,500,000 Anchorage Parking Authority, Lease Revenue Refunding Bonds,
Series 1993 (5th Avenue Garage Project), 6.750%, 12/1/08 12/02 at 102 Baa1 $ 3,838,800
725,000 City of Valdez, Alaska, Home Mortgage Revenue Refunding
Bonds, 1992 Series, 7.900%, 2/01/10 8/02 at 102 A1 781,151
- - ----------------------------------------------------------------------------------------------------------------------------------
Arizona - 3.1%
The Industrial Development Authority of the County of Mohave,
Hospital System Revenue Refunding Bonds (Medical Environments,
Inc., Phoenix Baptist Hospital and Medical Center Inc),
Series 1993:
5,705,000 6.250%, 7/01/03 No Opt. Call Aaa 6,198,483
6.750%, 7/01/08 (Pre-refunded to 7/01/03) 7/03 at 102 Aaa 3,427,620
9,000,000 City of Phoenix (Arizona), Civic Improvement Corporation,
Wastewater System Lease Revenue Bonds, Series 1993,
6.125%, 7/01/14 (Pre-refunded to 7/01/03) 7/03 at 102 AAA 10,052,370
4,380,000 City of Phoenix Civic Improvement Corporation (Arizona),
Wastewater System Lease Revenue Refunding Bonds,
Series 1993, 4.750%, 7/01/23 7/04 at 102 Aa3 4,240,541
5,045,000 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 5,643,791
- - ----------------------------------------------------------------------------------------------------------------------------------
California - 13.3%
7,710,000 State of California Veterans, General Obligation A Bonds,
Series BH, 5.250%, 12/01/12 (Alternative Minimum Tax) 12/08 at 101 AAA 7,819,713
State Public Works Board of the State of California, Lease
Revenue Bonds (The Trustees of California State University),
1992 Series A (Various California State University Projects):
15,480,000 6.625%, 10/01/10 (Pre-refunded to 10/01/02) 10/02 at 102 Aaa 17,507,106
10,500,000 6.700%, 10/01/17 (Pre-refunded to 10/01/02) 10/02 at 102 AAA 11,903,535
7,150,000 State Public Works Board of the State of California, Lease
Revenue Bonds (The Trustees of the California State
University), 1994 Series A (Various California State
University Projects), 6.375%, 10/01/19
(Pre-refunded to 10/01/04) 10/04 at 102 A+*** 8,258,751
17,500,000 State Public Works Board of the State of California, Lease
Revenue Bonds (Department of Corrections), 1994 Series A
(California State Prison-Monterey County (Soledad II)),
6.875%, 11/01/14 (Pre-refunded to 11/01/04) 11/04 at 102 Aaa 20,736,800
30,000,000 Foothill/Eastern Transportation Corridor Agency (California),
Toll Road Revenue Bonds, Series 1995A, 0.000%, 1/01/21 No Opt. Call Baa 9,326,700
5,000,000 City of Loma Linda, California, Hospital Revenue Bonds (Loma
Linda University Medical Center Project), Series 1993-A,
6.500%, 12/01/18 12/03 at 102 BBB 5,403,650
3,490,000 Community Redevelopment Financing Authority of the Community
Redevelopment Agency of the City of Los Angeles, California
Pooled Financing Bonds, Series D (Crenshaw Redevelopment
Project), 7.000%, 9/01/14 (Pre-refunded to 9/01/02) 9/02 at 102 N/R*** 3,747,143
7,000,000 Los Angeles State Building Authority, Lease Revenue
Refunding Bonds (State of California Department of General
Services Lease), 1993 Series A, 5.625%, 5/01/11 No Opt. Call A1 7,850,150
5,000,000 Los Angeles County Public Works Finance Authority, Revenue
Bonds, Series 1994A (Los Angeles County Regional Park and
Open Space District), 6.125%, 10/01/10
(Pre-refunded to 10/01/04) 10/04 at 102 AA*** 5,709,550
10,000,000 Los Angeles County Transportation Commission (California),
Proposition C Sales Tax Revenue Bonds, Second Senior Bonds,
Series 1992-A , 6.750%, 7/01/19 (Pre-refunded to 7/01/02) 7/02 at 102 Aaa 11,287,400
2,035,000 Parlier Redevelopment Agency (Parlier Redevelopment Project),
1992 Tax Allocation Bonds, Series A, 6.750%, 8/01/22
(Pre-refunded to 8/01/02) 8/02 at 102 BBB*** 2,293,832
Redevelopment Agency of the City and County of San Francisco
(California), Hotel Tax Revenue Bonds, Series 1994:
2,390,000 6.750%, 7/01/15 (Pre-refunded to 7/01/04) 7/04 at 102 AAA 2,797,734
5,905,000 6.750%, 7/01/25 (Pre-refunded to 7/01/04) 7/04 at 102 AAA 6,912,393
960,000 6.750%, 7/01/25 7/04 at 102 AAA 1,097,722
</TABLE>
F-20
<PAGE> 127
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
California (continued)
$ 5,605,000 County of San Joaquin, California, Certificates of
Participation (1994 Solid Waste System System Facilities
Project), 6.600%, 4/01/19 4/04 at 102 A $ 6,113,037
- - ----------------------------------------------------------------------------------------------------------------------------------
Colorado - 9.0%
9,870,000 Colorado Health Facilities Authority, Insured Hospital
Revenue Bonds (PSL Healthcare System Project), Series 1991A,
6.250%, 2/15/21 (Pre-refunded to 2/15/01) 2/01 at 102 AAA 10,627,325
1,335,000 Colorado Housing and Finance Authority, Single Family
Program Senior Bonds, 1994 Series E, 8.125%, 12/01/24
(Alternative Minimum Tax) 12/04 at 105 Aa2 1,479,674
Colorado Housing and Finance Authority, General Obligation
Bonds, 1994 Series A:
5,785,000 6.850%, 8/01/24 8/02 at 102 A 6,197,355
2,295,000 6.875%, 8/01/30 8/02 at 102 A 2,448,352
4,595,000 Colorado Housing and Finance Authority, Single Family
Program Senior Bonds, 1995 Series D,
7.375%, 6/01/26 12/05 at 105 Aa2 5,036,625
City and County of Denver, Colorado, Airport System Revenue
Bonds, Series 1992B:
1,445,000 7.250%, 11/15/23 (Pre-refunded to 11/15/02)
(Alternative Minimum Tax) 11/02 at 102 Aaa 1,660,710
5,635,000 7.250%, 11/15/23 (Alternative Minimum Tax) 11/02 at 102 Baa1 6,283,645
City and County of Denver, Colorado, Airport System Revenue
Bonds, Series 1992C:
2,125,000 6.750%, 11/15/13 (Pre-refunded to 11/15/02)
(Alternative Minimum Tax) 11/02 at 102 Aaa 2,400,953
16,120,000 6.750%, 11/15/13 (Alternative Minimum Tax) 11/02 at 102 Baa1 17,743,929
City and County of Denver, Colorado, Airport System Revenue
Bonds, Series 1991A,
1,925,000 8.000%, 11/15/25 (Pre-refunded to 11/15/01)
(Alternative Minimum Tax) 11/01 at 100 Aaa 2,163,373
5,315,000 8.000%, 11/15/25 (Alternative Minimum Tax) 11/01 at 100 Baa1 5,845,278
City and County of Denver, Colorado, Airport System Revenue
Bonds, Series 1991D:
400,000 7.750%, 11/15/13 (Alternative Minimum Tax) No Opt. Call Baa1 511,760
3,155,000 7.750%, 11/15/21 (Pre-refunded to 11/15/01)
(Alternative Minimum Tax) 11/01 at 102 Aaa 3,579,695
12,115,000 7.750%, 11/15/21 (Alternative Minimum Tax) 11/01 at 102 Baa1 13,468,730
City and County of Denver (FHA Insured), Boston Lofts
Projects, Series 1997A:
1,700,000 5.750%, 10/01/27 (Alternative Minimum Tax) 10/07 at 102 AAA 1,769,887
4,795,000 5.850%, 10/01/38 (Alternative Minimum Tax) 10/07 at 102 AAA 4,991,116
- - ----------------------------------------------------------------------------------------------------------------------------------
Connecticut - 0.4%
3,170,000 Connecticut Housing Finance Authority, Housing Mortgage
Finance Program Bonds, 1996 Series C-2, 6.250%, 11/15/18 5/06 at 102 AA 3,420,272
- - ----------------------------------------------------------------------------------------------------------------------------------
Florida - 2.6%
1,750,000 Alachua County Health Facilities Authority, Health
Facilities Revenue Bonds, Series 1992 (Santa Fe Healthcare
Facilities Project), 7.600%, 11/15/13
(Pre-refunded to 11/15/00) 11/00 at 102 AAA 1,925,683
5,000,000 Dade County, Florida, Aviation Bonds, Series 1996A,
5.750%, 10/01/18 (Alternative Minimum Tax) 10/06 at 102 AAA 5,320,400
2,850,000 State of Florida, Full Faith and Credit Department of
Transportation, Right-of-Way Acquisition and Bridge
Construction Bonds, Series 1995, 5.875%, 7/01/24 7/05 at 101 AAA 3,095,813
12,500,000 City of Tampa, Florida, Revenue Bonds (The Florida Aquarium
Project), Series 1992, 7.750%, 5/01/27
(Pre-refunded to 5/01/02) 5/02 at 102 N/R*** 14,299,750
- - ----------------------------------------------------------------------------------------------------------------------------------
Georgia - 3.2%
10,000,000 City of Atlanta (Georgia), Water and Sewerage Revenue Bonds,
Series 1993, 4.500%, 1/01/18 1/04 at 100 AAA 9,452,300
7,000,000 Development Authority of Burke County, Georgia, Pollution
Control Revenue Bonds (Oglethorpe Power Corporation Vogtle
Project), Series 1992, 8.000%, 1/01/15
(Pre-refunded to 1/01/03) 1/03 at 103 AAA 8,304,240
650,000 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 691,776
Georgia Housing and Finance Authority, Single Family
Mortgage Bonds, 1994 Series B:
5,485,000 6.650%, 12/01/20 (Alternative Minimum Tax) 9/04 at 102 AAA 5,924,239
5,500,000 6.700%, 12/01/25 (Alternative Minimum Tax) 9/04 at 102 AAA 5,939,670
</TABLE>
F-21
<PAGE> 128
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Idaho - 0.3%
$ 2,335,000 Idaho Housing and Finance Association, Single Family
Mortgage Bonds, 1996 Series G, 6.350%, 7/01/26
(Alternative MinimumTax) 7/06 at 102 Aaa $ 2,503,821
- - ----------------------------------------------------------------------------------------------------------------------------------
Illinois - 10.3%
5,000,000 City of Chicago, General Obligation Bonds (Emergency
Telephone System), Series 1993, 5.625%, 1/01/23 1/03 at 102 AAA 5,279,100
17,000,000 City of Chicago, General Obligation Bonds, Project Series A
of 1992, 6.250%, 1/01/12
(Pre-refunded to 1/01/02) 1/02 at 102 AAA 18,514,700
1,000,000 City of Chicago, General Obligation Bonds, Project and
Refunding Series 1998, 5.250%, 1/01/20 7/08 at 102 AAA 1,015,200
36,300,000 Chicago School Reform Board of Trustees of the Board of
Education of the City of Chicago, Illinois, Unlimited Tax
General Obligation Bonds (Dedicated Tax Revenues),
Series 1998A, 0.000%, 12/01/21 No Opt. Call AAA 11,092,191
8,270,000 City of Chicago, Mortgage Revenue Bonds, Series 1992
(FHA Insured Mortgage Loan-Lakeview Towers Project),
6.650%, 12/01/33 6/02 at 102 AAA 8,772,485
1,175,000 City of Chicago, Multifamily Housing Revenue Bonds,
Series 1997 (GNMA Collateralized - Bryn Mawr/Belle Shores
Project), 5.800%, 6/01/23 (Alternative Minimum Tax) 6/09 at 102 Aaa 1,249,530
5,500,000 Chicago Park District, Illinois, General Obligation Capital
Improvement Bonds and Aquarium and Museum Bonds,
Series 1991, 6.700%, 1/01/11 (Pre-refunded to 1/01/02) 1/02 at 102 AA-*** 6,089,380
10,900,000 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 11,674,772
4,535,000 City of Chicago, Tax Increment Allocation Bonds (Dunning
Redevelopment Project), Series 1996B, 7.250%, 1/01/14 1/07 at 102 N/R 4,948,320
3,530,000 City of Chicago, Tax Increment Finance Bonds (Sanitary
Drainage and Ship Canal), Series 1997A, 7.750%, 1/01/14 1/07 at 102 N/R 3,883,353
2,850,000 City of East Louis, Illinois, Mortgage Revenue Refunding
Bonds, Series 1994A (FHA Insured Mortgage Loan-Dawson Manor
Apartments Section 8 Assisted Project), 6.500%, 7/01/24 7/03 at 102 AAA 3,042,774
6,900,000 Illinois Health Facilities Authority, Revenue Refunding
Bonds, Series 1993 (Illinois Masonic Medical Center),
5.500%, 10/01/19 10/03 at 102 A- 7,077,123
3,000,000 Illinois Health Facilities Authority, Revenue Refunding
Bonds, Series 1993C (Lutheran General Health System),
6.000%, 4/01/18 No Opt. Call A+ 3,379,920
11,510,000 The Illinois State Toll Highway Authority, Toll Highway
Priority Revenue Bonds, 1992 Series A, 6.375%, 1/01/15 1/03 at 102 A+ 12,546,936
985,000 Village of Wheeling, Cook and Lake Counties, Illinois,
Single Family Mortgage Revenue Refunding Bonds, Series 1992,
6.850%, 11/01/09 11/02 at 102 AAA 1,052,049
- - ----------------------------------------------------------------------------------------------------------------------------------
Indiana - 7.6%
8,000,000 East Chicago Elementary School Building Corporation
(Lake County, Indiana), First Mortgage Bonds, Series 1992,
7.000%, 1/15/16 (Pre-refunded to 1/15/03) 1/03 at 102 A*** 9,114,480
13,630,000 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+ 14,744,116
6,031,000 City of Greenfield, Indiana, Multifamily Housing Revenue
Bonds, Series 1996 A (Pedcor Investments-1988-V, L.P.
Project), 6.200%, 12/01/28 (Alternative Minimum Tax) 12/05 at 105 Aaa 6,482,662
10,675,000 Highland School Building Corporation (Highland, Indiana),
First Mortgage Bonds, Series 1992A, 6.750%, 1/15/20
(Pre-refunded to 1/15/02) 1/02 at 102 AAA 11,848,396
8,200,000 Indiana Bond Bank, State Revolving Fund Program Bonds,
Series 1993A Guarantee Revenue Bonds, 6.250%, 2/01/09 2/03 at 102 AAA 9,042,714
2,875,000 Indiana Bond Bank, State Revolving Fund Program Bonds,
Series 1994B Guarantee Revenue Bonds, 6.750%, 2/01/17 2/05 at 102 AAA 3,273,360
6,000,000 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 6,284,340
5,250,000 Indiana Transportation Finance Authority, Aviation
Technology Center Lease Revenue Bonds, Series A,
6.500%, 3/01/18 3/03 at 102 A+ 5,735,835
5,905,000 Muncie School Building Corporation, First Mortgage Bonds,
Series 1992, 6.625%, 7/15/14 (Pre-refunded to 7/15/01) 7/01 at 102 N/R*** 6,453,220
</TABLE>
F-22
<PAGE> 129
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Kansas - 0.5%
$ 1,970,000 Johnson County, Kansas, Single Family Mortgage Revenue
Refunding Bonds, Series 1994, 7.100%, 5/01/12 5/04 at 103 A $ 2,156,835
2,310,000 Sedgwick County, Kansas and Shawnee County, Kansas,
Collateralized Single Family Mortgage Refunding Revenue
Bonds (GNMA Certificates), Series 1994A1, 7.900%, 5/01/24
(Alternative Minimum Tax) No Opt. Call Aaa 2,698,242
- - ----------------------------------------------------------------------------------------------------------------------------------
Kentucky - 0.8%
7,000,000 Kentucky Housing Corporation, Housing Revenue Bonds,
1996 Series A, 6.375%, 7/01/28 (Alternative Minimum Tax) 7/06 at 102 AAA 7,519,120
- - ----------------------------------------------------------------------------------------------------------------------------------
Louisiana - 2.9%
4,000,000 Bossier Public Trust Financing Authority, Single Family
Mortgage Revenue Refunding Bonds, Series 1995B,
6.125%, 8/01/28 8/05 at 102 AAA 4,199,760
12,750,000 East Baton Rouge Mortgage Finance Authority, Single Family
Mortgage Revenue Bonds (GNMA and FNMA Mortgage Backed
Securities Program), Series 1994C, 6.350%, 10/01/28
(Alternative Minimum Tax) 10/05 at 102 Aaa 13,533,615
4,980,000 New Orleans Home Mortgage Authority, Single Family Mortgage
Revenue Bonds, Series 1995A, 6.300%, 6/01/28
(Alternative Minimum Tax) 6/05 at 102 Aaa 5,390,701
4,510,000 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 4,971,012
- - ----------------------------------------------------------------------------------------------------------------------------------
Maine - 1.0%
1,250,000 Maine State Housing Authority, Mortgage Purchase Bonds,
1995 Series B-2, 6.300%, 11/15/26 (Alternative Minimum Tax) 11/05 at 102 AA 1,332,375
7,925,000 Maine State Housing Authority, Mortgage Purchase Bonds,
1990 Series A-4, 6.400%, 11/15/24 (Alternative Minimum Tax) 8/02 at 102 Aa2 8,308,412
- - ----------------------------------------------------------------------------------------------------------------------------------
Maryland - 0.3%
2,560,000 Community Development Administration, Department of Housing
and Community Development, State of Maryland, Multi-Family
Housing Revenue Bonds (Insured Mortgage Loans),
1993 Series C, 6.625%, 5/15/23 5/03 at 102 Aa2 2,749,594
- - ----------------------------------------------------------------------------------------------------------------------------------
Massachusetts - 1.1%
3,080,000 Massachusetts Industrial Finance Agency, Revenue Bonds
(College of the Holy Cross-1996 Issue), 5.625%, 3/01/26 3/06 at 102 AAA 3,277,520
6,900,000 Massachusetts Water Resources Authority, General Revenue
Bonds, 1993 Series C, 5.250%, 12/01/20 12/04 at 102 AAA 7,010,952
- - ----------------------------------------------------------------------------------------------------------------------------------
Michigan - 1.5%
8,000,000 Michigan State Hospital Finance Authority, Hospital Revenue
Refunding Bonds (Oakwood Hospital Obligated Group),
Series 1993A, 5.625%, 11/01/18 11/03 at 102 AAA 8,386,160
5,470,000 Michigan State Housing Development Authority, Rental Housing
Revenue Bonds, 1992 Series A, 6.650%, 4/01/23 10/02 at 102 AA- 5,883,587
- - ----------------------------------------------------------------------------------------------------------------------------------
Minnesota - 2.4%
3,560,000 Housing and Redevelopment Authority of the City of Saint
Paul, Minnesota and the City of Minneapolis, Minnesota Health
Care Facility, Revenue Bonds, Series 1992 (Group Health Plan,
Inc. Project), 6.900%, 10/15/22 12/02 at 102 A- 3,897,737
3,460,000 Minnesota Housing Finance Agency, Rental Housing Bonds,
1995 Series D, 5.950%, 2/01/18 2/05 at 102 AAA 3,660,542
5,090,000 Minnesota Housing Finance Agency, Single Family Mortgage
Bonds, 1996 Series G, 6.250%, 7/01/26
(Alternative Minimum Tax) 1/06 at 102 AA 5,414,335
2,000,000 Southern Minnesota Municipal Power Agency, Power Supply
System Revenue Bonds, Series 1992B, 5.750%, 1/01/11 1/03 at 102 Aaa 2,130,400
2,350,000 Washington County Housing and Redevelopment Authority,
Pooled Housing and Redevelopment Limited Annual Appropriation
Tax and Revenue Bonds (Pooled Refunding Project), Series 1992,
7.200%, 1/01/22 1/03 at 10 BBB 2,492,716
5,170,000 Washington County Housing and Redevelopment Authority, Lease
Revenue Bonds (South Washington County Schools Project),
Series 1992, 7.400%, 12/01/14 (Pre-refunded to 12/01/02) 12/02 at 100 A3*** 5,875,808
</TABLE>
F-23
<PAGE> 130
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Mississippi - 0.5%
$ 4,000,000 Mississippi Hospital Equipment and Facilities Authority,
Revenue Bonds, Series 1992A (Wesley Health Systems),
6.050%, 4/01/12 (Pre-refunded to 10/01/02) 10/02 at 102 AAA $ 4,409,200
- - ----------------------------------------------------------------------------------------------------------------------------------
Missouri - 2.8%
9,000,000 Missouri State Health and Educational Facilities Authority,
Revenue Bonds (SSM Health Care), Series 1998A,
5.000%, 6/01/22 6/08 at 101 AAA 8,846,640
5,500,000 The Industrial Development Authority of the City of
St. Louis, Missouri, Industrial Revenue Refunding Bonds
(Kiel Center Multipurpose Arena Project), Series 1992,
7.625%, 12/01/09 (Alternative Minimum Tax) 12/02 at 102 N/R 5,984,935
11,000,000 St. Louis Municipal Finance Corporation, Leasehold Revenue
Refunding Bonds, 6.000%, 7/15/13 7/03 at 102 A1 11,809,820
- - ----------------------------------------------------------------------------------------------------------------------------------
Nevada - 0.5%
4,000,000 Clark County, Nevada, Industrial Development Revenue Bonds
(Nevada Power Company Project), Series 1992A,
6.700%, 6/01/22 (Alternative MinimumTax) 6/02 at 102 AAA 4,386,480
- - ----------------------------------------------------------------------------------------------------------------------------------
New Hampshire - 0.6%
5,215,000 New Hampshire Higher Educational and Health Facilities
Authority, Hospital Revenue Bonds, Catholic Medical Center
Issue, Series 1989, 8.000%, 7/01/04 7/99 at 102 A 5,442,739
- - ----------------------------------------------------------------------------------------------------------------------------------
New Jersey - 2.7%
4,500,000 New Jersey Economic Development Authority, Insured Revenue
Bonds (Educational Testing Service Issue), Series 1995A,
6.000%, 5/15/25 5/05 at 102 AAA 5,062,095
8,720,000 New Jersey Housing and Mortgage Finance Agency, Multi-Family
Housing Revenue Bonds, 1997 Series A, 5.650%, 5/01/40
(Alternative Minimum Tax) 11/07 at 101 AAA 9,045,605
4,145,000 New Jersey Housing and Mortgage Finance Agency, Housing
Revenue Refunding Bonds, 1992 Series One, 6.700%, 11/1/28 11/02 at 102 A+ 4,468,932
1,000,000 Toms River Board of Education, General Obligation Bonds,
Series 1997, 5.750%, 7/15/21 7/07 at 100 AAA 1,075,290
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 Mexico - 0.4%
3,990,000 New Mexico Mortgage Finance Authority, Single Family Mortgage
Program Bonds, 1995 Series E, 6.300%, 7/01/17
(Alternative Minimum Tax) 7/05 at 102 AAA 4,261,240
- - ----------------------------------------------------------------------------------------------------------------------------------
New York - 15.0%
10,750,000 The City of New York, General Obligation Bonds, Fiscal 1995
Series D, 6.600%, 2/01/03 No Opt. Call A- 11,834,460
7,695,000 The City of New York, General Obligation Bonds, Fiscal 1995
Series E, 6.600%, 8/01/03 No Opt. Call A- 8,554,685
17,365,000 The City of New York, General Obligation Bonds, Fiscal 1996
Series F, 7.000%, 2/01/06 No Opt. Call A- 20,264,087
11,130,000 The City of New York, General Obligation Bonds, Fiscal 1996
Series I, 5.875%, 3/15/18 3/06 at 101 1/2 A- 11,936,035
9,000,000 The City of New York, General Obligation Bonds, Fiscal 1996
Series J (Subseries J-1), 5.875%, 2/15/19 2/06 at 101 1/2 A- 9,646,740
8,000,000 The City of New York, General Obligation Bonds, Fiscal 1997
Series E, 5.875%, 8/01/24 8/06 at 101 1/2 A- 8,582,560
The City of New York, General Obligation Bonds, Fiscal 1993
Series A:
2,625,000 6.375%, 8/01/08 (Pre-refunded to 8/01/02) 8/02 at 101 1/2 Aaa 2,905,298
7,375,000 6.375%, 8/01/08 8/02 at 101 1/2 A- 8,076,731
660,000 6.500%, 8/01/11 (Pre-refunded to 8/01/02) 8/02 at 101 1/2 Aaa 733,346
1,340,000 6.500%, 8/01/11 8/02 at 101 1/2 A- 1,471,655
The City of New York, General Obligation Bonds, Fiscal 1997
Series I:
5,675,000 6.250%, 4/15/27 (Pre-refunded to 4/15/07) 4/07 at 101 A-*** 6,590,888
6,345,000 6.250%, 4/15/27 4/07 at 101 A- 6,976,645
1,370,000 New York City (New York), Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds, Fiscal 1997 Series B,
5.500%, 6/15/27 6/07 at 101 AAA 1,448,022
3,150,000 New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds, Fiscal 1996 Series A,
5.875%, 6/15/25 6/05 at 101 AAA 3,420,333
</TABLE>
F-24
<PAGE> 131
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
New York (continued)
$ 4,000,000 The Trust for Cultural Resources of the City of New York,
Revenue Bonds, Series 1997A (American Museum of Natural
History), 5.650%, 4/01/27 4/07 at 101 AAA $ 4,269,880
2,500,000 Dormitory Authority of the State of New York, City University
System Consolidated Revenue Bonds, 1996 Series 2,
6.000%, 7/01/20 7/06 at 102 BBB+ 2,696,600
16,200,000 New York State Energy Research and Development Authority,
Facilities Revenue Bonds, Series 1992B (Consolidated Edison
Company of New York, Inc. Project), 6.375%, 12/01/27
(Alternative Minimum Tax) 12/01 at 101 AAA 17,393,130
3,500,000 New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities Improvement Revenue Bonds,
1994 Series A, 5.250%, 8/15/23 2/04 at 102 AAA 3,557,995
7,635,000 New York State Medical Care Facilities Finance Agency, Mercy
Medical Center Project Revenue Bonds, 1995 Series A,
5.875%, 11/01/15 5/05 at 102 AA- 8,198,768
2,500,000 New York State Urban Development Corporation, Correctional
Facilities Revenue Bonds, 1993A Refunding Series,
5.250%, 1/01/21 1/04 at 102 AAA 2,540,850
2,465,000 Empire Development Corporation, New York State Urban
Development Corporation, Correctional Capital Facilities
Revenue Bonds, Series 6, 5.375%, 1/01/25 1/06 at 102 AAA 2,545,877
- - ----------------------------------------------------------------------------------------------------------------------------------
North Carolina - 0.8%
5,185,000 City of Durham, Urban Redevelopment Mortgage Revenue Bonds
(Durham Hosiery Mill Project) (FHA Insured), Series 1987,
7.500%, 8/01/29 (Alternative Minimum Tax) 8/07 at 105 AAA 5,820,370
1,945,000 North Carolina Housing Finance Agency, Single Family Revenue
Bonds, Series JJ (1985 Resolution), 6.450%, 9/01/27
(Alternative Minimum Tax) 3/06 at 102 AA 2,095,951
- - ----------------------------------------------------------------------------------------------------------------------------------
North Dakota - 0.4%
4,150,000 Mercer County, North Dakota, Pollution Control Revenue Bonds
(Basin Electric Power Cooperative-Antelope Valley Station),
1984 Series B, 7.000%, 1/01/19 1/99 at 103 A 4,290,602
- - ----------------------------------------------------------------------------------------------------------------------------------
Ohio - 1.5%
2,000,000 Ohio Housing Finance Agency, Multifamily Housing Mortgage
Revenue Bonds, Series 1998B-1 (FHA Insured Mortgage Loan-
Courtyards of Kettering Project), 5.550%, 1/01/40
(Alternative Minimum Tax) 1/08 at 102 Aa2 2,036,520
5,250,000 State of Ohio, Ohio Air Quality Development Authority, Air
Quality Development Revenue Bonds (JMG Funding, Limited
Partnership Project), Series 1997, 5.625%, 1/01/23
(Alternative Minimum Tax) 4/07 at 102 AAA 5,485,515
6,750,000 State of Ohio, Ohio Water Development Authority, Solid Waste
Disposal Revenue Bonds (Bay Shore Power Project), Tax Exempt
Series 1998A, 5.875%, 9/01/20 (Alternative Minimum Tax) 9/08 at 102 N/R 6,826,883
- - ----------------------------------------------------------------------------------------------------------------------------------
Oklahoma - 0.5%
1,000,000 Tulsa County Industrial Authority (Tulsa, Oklahoma),
Recreational Facilities Revenue Bonds, Refunding Series 1992,
6.600%, 9/01/08 9/02 at 102 A- 1,098,090
2,990,000 Tulsa County Public Facilities Authority (Tulsa, Oklahoma),
Recreational Facility Refunding Revenue Bonds, Series 1992,
6.600%, 11/01/08 11/02 at 102 A- 3,292,379
- - ----------------------------------------------------------------------------------------------------------------------------------
Oregon - 2.8%
13,350,000 State of Oregon, General Obligation, Elderly and Disabled
Housing Bonds, 1992 Series B, 6.375%, 8/01/24 8/02 at 102 AA 14,597,825
6,160,000 State of Oregon, General Obligation, Veterans Welfare Bonds,
Series 75, 6.000%, 4/01/27 10/05 at 102 AA 6,516,849
1,750,000 State of Oregon, Housing and Community Services Department,
Mortgage Revenue Bonds (Single-Family Mortgage Program),
1997 Series H, 5.650%, 7/01/28 (Alternative Minimum Tax) 7/07 at 101 1 Aa2 1,810,830
3,380,000 City of Portland, Oregon, Limited Tax Improvement Bonds,
1996 Series A, 5.550%, 6/01/16 6/06 at 100 Aa 3,581,076
- - ----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania - 0.1%
1,000,000 Delaware Valley Regional Finance Authority, Local Government
Revenue Bonds, Series 1997B, 5.700%, 7/01/27 No Opt. Call AAA 1,119,940
- - ----------------------------------------------------------------------------------------------------------------------------------
Puerto Rico - 0.1%
1,375,000 Puerto Rico Electric Power Authority, Power Revenue Bonds,
Series X, 5.500%, 7/1/25 7/05 at 100 BBB+ 1,417,804
</TABLE>
F-25
<PAGE> 132
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
South Carolina - 0.2%
$ 2,135,000 School District No. 4 of Lexington County, South Carolina,
Certificates of Participation, Series 1994, 7.000%, 7/1/12 7/04 at 102 Baa $ 2,379,543
- - ----------------------------------------------------------------------------------------------------------------------------------
South Dakota - 1.2%
10,370,000 South Dakota Building Authority, Revenue Bonds, Series 1992,
6.700%, 9/01/17 No Opt.Call AAA 11,963,869
- - ----------------------------------------------------------------------------------------------------------------------------------
Texas - 2.4%
1,415,000 Baytown Housing Finance Corporation, Single Family Mortgage
Revenue Refunding Bonds, Series 1992-A, 8.500%, 9/1/11 9/02 at 103 A1 1,591,267
1,435,000 Hidalgo County Housing Finance Corporation (Texas), Single
Family Mortgage Revenue Bonds (GNMA and FNMA Collateralized),
Series 1994A, 7.000%, 10/01/27 (Alternative Minimum Tax) 4/04 at 102 Aaa 1,536,455
1,385,000 Houston Independent School District Public Facility
Corporation (Harris County, Texas), Lease Revenue Bonds
(Cesar E. Chavez High School), Series 1998A,
0.000%, 9/15/13 No Opt. Call AAA 677,030
6,630,000 Houston Independent School District Public Facility
Corporation (Harris County, Texas), Lease Revenue Bonds
(West Side High School), Series 1998B, 0.000%, 9/15/13 No Opt. Call AAA 3,240,943
1,000,000 Humble Independent School District (Harris County, Texas),
Unlimited Tax Schoolhouse Bonds, Series II 1997,
3.500%, 2/15/18 2/10 at 100 AAA 821,609
1,985,000 Lufkin Health Facilities Development Corporation (Texas),
Health System Revenue and Refunding Bonds (Memorial Health
System of East Texas), Series 1995, 6.875%, 2/15/26 2/06 at 102 BBB 2,197,672
2,390,000 Port Arthur Housing Finance Corporation, Single Family
Mortgage Revenue Refunding Bonds, Series 1992,
8.700%, 3/01/12 9/02 at 103 A 2,628,880
9,465,000 State of Texas, Veterans Housing Assistance Bonds,
Series 1993, General Obligation Bonds, 6.800%, 12/01/23
(Alternative Minimum Tax) 12/03 at 102 AA 10,226,458
- - ----------------------------------------------------------------------------------------------------------------------------------
Utah - 1.6%
6,000,000 Redevelopment Agency of Salt Lake County, Utah, Central
Business District Neighborhood Redevelopment, Junior Lien
Tax Increment Bonds, Series 1992A, 5.800%, 3/01/15 3/02 at 102 A 6,286,259
2,735,000 Utah Housing Finance Agency, Single Family Mortgage Bonds,
1994 Issue B (Federally Insured or Guaranteed Mortgage Loans),
6.450%, 7/01/14 7/04 at 102 Aaa 2,922,155
1,245,000 Utah Housing Finance Agency, Single Family Mortgage Bonds,
1997 Series E2 Class I, 5.875%, 1/01/19
(Alternative Minimum Tax) 7/07 at 101 1/2 AAA 1,314,097
1,560,000 Utah Housing Finance Agency, Single Family Mortgage Bonds,
1997 Series C, 5.600%, 7/01/18 (Alternative Minimum Tax) 1/09 at 101 1/2 AAA 1,595,832
3,000,000 Municipal Building Authority of Weber County, Utah, Lease
Revenue Bonds, Series 1994, 7.500%, 12/15/19
(Pre-refunded to 12/15/04) 12/04 at 102 AAA 3,627,809
- - ----------------------------------------------------------------------------------------------------------------------------------
Vermont - 0.7%
6,620,000 Vermont Housing Finance Agency, Single Family Housing Bonds,
Series 4, 6.400%, 11/1/25 5/02 at 102 A+ 6,976,354
- - ----------------------------------------------------------------------------------------------------------------------------------
West Virginia - 0.8%
7,000,000 The County Commission of Harrison County, West Virginia,
Solid Waste Disposal Revenue Bonds (The Potomac Edison
Company Harrison Station Project), Series B, 6.250%, 5/01/23
(Alternative Minimum Tax) 5/03 at 102 AAA 7,631,329
- - ----------------------------------------------------------------------------------------------------------------------------------
Wisconsin - 2.1%
15,075,000 Wisconsin Housing and Economic Development Authority, Home
Ownership Revenue Bonds, 1995 Series B, 7.100%, 9/01/15
(Alternative Minimum Tax) 1/05 at 102 AA 16,289,441
3,215,000 Wisconsin Health and Educational Facilities Authority,
Revenue Bonds, Series 1997 (Marshfield Clinic Project),
5.625%, 2/15/17 2/07 at 102 AAA 3,410,728
- - ----------------------------------------------------------------------------------------------------------------------------------
$ 920,581,000 Total Investments - (cost $857,604,906) - 98.5% 945,367,447
================ ---------------------------------------------------------------------------------------------------------------
</TABLE>
F-26
<PAGE> 133
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal Securities - 0.1%
$ 800,000 County of Cuyahoga, Ohio, Hospital Revenue Bonds (Cleveland
================ Clinic Foundation), Series 1997D, Variable Rate Demand Bonds,
3.700%, 1/01/26+ VMGI-1 $ 800,000
---------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.4% 13,672,448
---------------------------------------------------------------------------------------------------------------
Net Assets - 100% $ 959,839,895
===============================================================================================================
* Optional Call Provisions (not covered by the report of independent auditors):
Dates (month and year) and prices of the earliest optional call or redemption.
There may be other call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent auditors):
Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S. government
or U.S. government agency securities which ensures the timely payment of principal
and interest. Securities are normally considered to be equivalent to AAA rated securities.
+ The security has a maturity of more than one year, but has variable rate and demand
features which qualify it as a short-term security. The rate disclosed is that currently
in effect. This rate changes periodically based on market conditions or a specified
market index.
N/R Investment is not rated.
See accompanying notes to financial statements.
</TABLE>
F-27
<PAGE> 134
<TABLE>
<CAPTION>
Portfolio of Investments
Nuveen Premium Income Municipal Fund 4, Inc. (NPT)
October 31, 1998
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Alabama - 4.6%
$ 8,000,000 Alabama Higher Education Loan Corporation, Student Loan
Revenue Refunding Bonds, Series 1994-D, 5.850%, 9/01/04
(Alternative Minimum Tax) No Opt. Call AAA $ 8,610,400
20,745,000 Alabama Special Care Facilities Financing Authority of
Birmingham, Hospital Revenue Bonds (Daughters of Charity
National Health System - Providence Hospital and St.
Vincents Hospital), Series 1995, 5.000%, 11/01/25 11/05 at 101 AA+ 20,249,402
2,000,000 The Governmental Utility Services Corporation of the City of
Bessemer (Alabama), Water Supply Revenue Bonds, Series 1998,
5.250%, 6/01/32 6/08 at 102 AAA 2,033,800
11,000,000 The DCH Health Care Authority, Health Care Facilities Revenue
Bonds, Series 1993-B, 5.750%, 6/01/23 12/02 at 102 A+ 11,600,050
- - ----------------------------------------------------------------------------------------------------------------------------------
Arkansas - 0.2%
565,000 Arkansas Development Finance Authority, Single Family
Mortgage Revenue Refunding Bonds, 1991 Series A
(FHA Insured or VA Guaranteed Mortgage Loans),
8.000%, 8/15/11 8/01 at 103 AA 600,770
445,463 City of Jacksonville, Arkansas, Residential Housing
Facilities Board, Single Family Mortgage Revenue Refunding
Bonds, Series 1993A, 7.900%, 1/01/11 7/03 at 103 Aaa 487,973
752,362 Residential Housing Facilities Board of Lonoke County,
Arkansas, Single Family Mortgage Revenue Refunding Bonds,
Series 1993A, 7.900%, 4/01/11 4/05 at 103 Aaa 827,471
- - ----------------------------------------------------------------------------------------------------------------------------------
California - 3.6%
5,000,000 California Health Facilities Financing Authority, Kaiser
Permanente Revenue Bonds, 1990 Series A, 6.500%, 12/01/20 12/00 at 102 A 5,337,250
4,780,000 Foothill/Eastern Transportation Corridor Agency (California),
Toll Road Revenue Bonds, Series 1995A, 0.000%, 1/01/14 No Opt. Call Baa 2,190,722
Community Redevelopment Financing Authority of the Community
Redevelopment Agency of the City of Los Angeles, California,
Grand Central Square Multifamily Housing Bonds, 1993 Series A:
500,000 5.750%, 12/01/13 (Alternative Minimum Tax) 6/03 at 102 BB 503,780
3,900,000 5.900%, 12/01/26 (Alternative Minimum Tax) 12/98 at 100 A 3,901,794
4,500,000 Los Angeles County Transportation Commission (California),
Proposition C Sales Tax Revenue Bonds, Second Senior Bonds,
Series 1992-A , 6.750%, 7/01/19 (Pre-refunded to 7/01/02) 7/02 at 102 Aaa 5,079,330
1,715,000 Housing Authority of the County of Merced (California),
Multifamily Housing Refunding Revenue Bonds, Series 1993A
(Belmont Park Apartments Project), 5.875%, 1/01/19 1/04 at 102 Aaa 1,779,244
2,500,000 Transmission Agency of Northern California, California-Oregon
Transmission Project Revenue Bonds, 1992 Series A,
6.500%, 5/01/16 5/02 at 102 AAA 2,750,675
5,000,000 Airports Commission, City and County of San Francisco,
California, San Francisco International Airport, Second Series
Revenue Bonds, Issue 8, 6.300%, 5/01/25
(Alternative Minimum Tax) 5/04 at 101 AAA 5,479,950
3,545,000 Redevelopment Agency of the City of San Leandro, Plaza 1
and Plaza 2 Redevelopment Projects, 1993 Tax Allocation Bonds,
Series A, 6.125%, 6/01/23 6/03 at 102 A- 3,771,277
1,945,000 South Gate Public Financing Authority (Los Angeles County,
California), Water Revenue Refunding Bonds, 1996 Series A,
6.000%, 10/01/12 No Opt. Call AAA 2,276,272
- - ----------------------------------------------------------------------------------------------------------------------------------
Colorado - 3.2%
City and County of Denver, Colorado, Airport System Revenue
Bonds, Series 1992C:
1,100,000 6.750%, 11/15/22 (Pre-refunded to 11/15/02)
(Alternative Minimum Tax) 11/02 at 102 Aaa 1,242,846
4,140,000 6.750%, 11/15/22 (Alternative Minimum Tax) 11/02 at 102 Baa1 4,532,886
City and County of Denver, Colorado, Airport System Revenue
Bonds, Series 1990A:
405,000 8.500%, 11/15/23 (Pre-refunded to 11/15/00)
(Alternative Minimum Tax) 11/00 at 102 Aaa 452,276
3,695,000 8.500%, 11/15/23 (Alternative Minimum Tax) 11/00 at 102 Baa1 4,062,505
115,000 8.000%, 11/15/25 (Pre-refunded to 11/15/00) 11/00 at 102 Aaa 127,300
1,190,000 8.000%, 11/15/25 (Alternative Minimum Tax) 11/00 at 102 Baa1 1,294,399
</TABLE>
F-28
<PAGE> 135
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Colorado (continued)
City and County of Denver, Colorado, Airport System Revenue
Bonds, Series 1991A:
$ 315,000 8.750%, 11/15/23 (Pre-refunded to 11/15/01)
(Alternative Minimum Tax) 11/01 at 102 Aaa $ 366,389
885,000 8.750%, 11/15/23 (Alternative Minimum Tax) 11/01 at 102 Baa1 1,009,095
City and County of Denver, Colorado, Airport System Revenue
Bonds, Series 1991D:
6,000,000 7.500%, 11/15/02 (Alternative Minimum Tax) 11/01 at 102 Baa1 6,650,880
3,040,000 7.750%, 11/15/13 (Alternative Minimum Tax) No Opt. Call Baa1 3,889,376
865,000 7.750%, 11/15/21 (Pre-refunded to 11/15/01)
(Alternative Minimum Tax) 11/01 at 102 Aaa 981,438
3,280,000 7.750%, 11/15/21 (Alternative Minimum Tax) 11/01 at 102 Baa1 3,646,507
210,000 7.000%, 11/15/25 (Pre-refunded to 11/15/01) 11/01 at 100 Aaa 230,076
790,000 7.000%, 11/15/25 (Alternative Minimum Tax) 11/01 at 100 Baa1 847,741
- - ----------------------------------------------------------------------------------------------------------------------------------
Connecticut - 1.4%
6,500,000 State of Connecticut Health and Educational Facilities
Authority, Revenue Bonds, Yale-New Haven Hospital Issue,
Series F, 7.100%, 7/01/25 (Pre-refunded to 7/01/00) 7/00 at 102 AAA 7,010,120
3,000,000 Connecticut Housing Finance Authority, Housing Mortgage
Finance Program Bonds, 1996 Series C-2, 6.250%, 11/15/18 5/06 at 102 AA 3,236,850
2,400,000 Connecticut Development Authority, Water Facilities Revenue
Refunding Bonds (The Connecticut Water Company Project-1993
Series), 6.650%, 12/15/20 12/03 at 102 AAA 2,720,952
- - ----------------------------------------------------------------------------------------------------------------------------------
District of Columbia - 5.1%
5,000,000 District of Columbia, (Washington, D.C.), General Obligation
Bonds, 6.000%, 6/01/09 6/03 at 102 AAA 5,480,750
6,000,000 District of Columbia (Washington, D.C.), General Obligation
Refunding Bonds, Series 1993 B, 5.500%, 6/01/10 No Opt. Call AAA 6,522,720
3,240,000 District of Columbia, Hospital Revenue Refunding Bonds
(Medlantic Healthcare Group, Inc. Issue), Series 1992B,
6.750%, 8/15/07 8/02 at 102 A3 3,495,247
4,250,000 District of Columbia, Hospital Revenue Refunding Bonds
(Medlantic Healthcare Group, Inc. Issue), Series 1993A,
5.750%, 8/15/14 8/06 at 102 AAA 4,610,273
3,890,000 District of Columbia (Washington, D.C.), General Obligation
Bonds, Series 1993-A3, 5.500%, 6/01/06 No Opt. Call AAA 4,223,341
9,500,000 District of Columbia (Washington, D.C.), General Obligation
Refunding Bonds, Series 1993A, 6.000%, 6/01/07 No Opt. Call AAA 10,675,051
5,000,000 District of Columbia Housing Finance Agency, Collateralized
Single Family Mortgage Revenue Bonds, Series 1988F-1,
5.850%, 12/01/14 (Alternative Minimum Tax) 12/04 at 103 AAA 5,171,600
2,000,000 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 2,173,440
4,500,000 District of Columbia, University Revenue Refunding Bonds
(The Howard University Issue), Series 1992A, 6.750%, 10/01/12
(Pre-refunded to 10/01/02) 10/02 at 102 AAA 5,068,980
- - ----------------------------------------------------------------------------------------------------------------------------------
Florida - 0.9%
8,000,000 City of Sunrise, Florida, Utility System Revenue Refunding
Bonds, Series 1998, 5.000%, 10/01/28 10/18 at 100 AAA 8,085,440
- - ----------------------------------------------------------------------------------------------------------------------------------
Georgia - 2.0%
2,930,000 Development Authority of Burke County, Georgia, Pollution
Control Revenue Bonds (Oglethorpe Power Corporation Vogtle
Project), Series 1992, 7.500%, 1/01/03 No Opt. Call AAA 3,166,568
2,880,000 Municipal Electric Authority of Georgia, General Power
Revenue Bonds, 1992B Series, 8.250%, 1/01/11 No Opt. Call A 3,807,965
4,185,000 Municipal Electric Authority of Georgia, General Power
Revenue Bonds, Series EE, 7.250%, 1/01/24 No Opt. Call AAA 5,572,244
5,500,000 Municipal Electric Authority of Georgia, General Power
Revenue Bonds, 1993B Series, 5.700%, 1/01/19 No Opt. Call AAA 6,025,800
- - ----------------------------------------------------------------------------------------------------------------------------------
Hawaii - 0.7%
1,500,000 State of Hawaii, Airports System Revenue Bonds, Series of
1990 (Payable Solely from the Receipts of the Aviation Fuel
Tax and the Revenues of the State of Hawaii Airports System),
7.300%, 7/01/20 (Alternative Minimum Tax) 7/00 at 102 AAA 1,609,545
5,000,000 Honolulu, Hawaii, City and County Refunding and Improvement
Bonds, Series 1993B, 5.000%, 10/01/13 No Opt. Call AA 5,178,400
</TABLE>
F-29
<PAGE> 136
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Illinois - 12.7%
$ 4,000,000 Board of Education of the City of Chicago, General Obligation
Lease Certificates, 1992 Series A, 6.250%, 1/01/15 No Opt. Call AAA $ 4,669,080
5,000,000 City of Chicago, Illinois, Sales Tax Revenue Bonds,
Series 1998, 5.250%, 1/01/28 7/08 at 102 AAA 5,076,000
Cook County School District 99 (Cicero), General Obligation
School Bonds, Series 1997:
1,345,000 8.500%, 12/01/12 No Opt. Call Aaa 1,882,597
1,455,000 8.500%, 12/01/13 No Opt. Call Aaa 2,051,521
1,685,000 8.500%, 12/01/15 No Opt. Call Aaa 2,401,209
3,140,000 Illinois Development Finance Authority, Child Care Facility
Revenue Bonds, Series 1992 (Illinois Facilities Fund Project),
7.400%, 9/01/04 9/02 at 102 N/R 3,356,629
2,240,000 Illinois Educational Facilities Authority, Revenue Bonds,
Chicago College of Osteopathic Medicine, Series A,
8.750%, 7/01/05 No Opt. Call AAA 2,659,933
10,360,000 Illinois Educational Facilities Authority, Revenue
Refunding Bonds, Loyola University of Chicago, Series 1991-A,
7.125%, 7/01/21 (Pre-refunded to 7/01/01) 7/01 at 102 A1*** 11,452,358
3,000,000 Illinois Health Facilities Authority, Revenue Refunding Bonds,
Series 1993 (Illinois Masonic Medical Center),
5.500%, 10/01/19 10/03 at 102 A- 3,077,010
2,000,000 Illinois Health Facilities Authority, Revenue Bonds, Series
1992 (Trinity Medical Center), 7.000%, 7/01/12 7/02 at 102 BBB 2,165,080
Illinois Health Facilities Authority, Revenue Refunding
Bonds, Series 1993C (Lutheran General Healthsystem):
5,705,000 7.000%, 4/01/08 No Opt. Call A+ 6,788,037
4,075,000 7.000%, 4/01/14 No Opt. Call A+ 5,040,612
8,190,000 Illinois Housing Development Authority, Multi-Family
Program Bonds, Series 5, 6.650%, 9/01/14 9/04 at 102 A+ 8,897,534
3,410,000 Illinois Housing Development Authority, Section 8 Elderly
Housing Revenue Bonds (Skyline Tower Apartments),
Series 1992B, 6.875%, 11/01/17 11/02 at 102 A 3,607,337
3,400,000 Illinois Housing Development Authority, Section 8 Elderly
Housing Revenue Bonds (Morningside North Development),
Series 1992D, 6.600%, 1/01/07 (Pre-refunded to 1/01/03) 1/03 at 102 A*** 3,801,472
5,000,000 Illinois Health Facilities Authority, Revenue Bonds,
Series 1990 (Riverside Senior Living Center Project),
7.500%, 11/01/20 (Pre-refunded to 11/01/00) 11/00 at 102 A3*** 5,471,950
11,690,000 Illinois Health Facilities Authority, Refunding Revenue
Bonds, Series 1990-B (Hinsdale Hospital), 9.000%, 11/15/15 11/00 at 102 AAA 13,175,448
2,025,000 Long Creek Township, Macon County, Illinois, Waterworks
Refunding Revenue Bonds, Series 1993, 7.250%, 5/01/23 5/03 at 100 N/R 2,126,108
3,050,000 Regional Transportation Authority, Cook, DuPage, Kane, Lake,
McHenry and Will Counties, Illinois, General Obligation Bonds,
Series 1990A, 7.200%, 11/01/20 No Opt. Call AAA 3,980,769
14,375,000 Village of Wheeling, Illinois, Multifamily Housing Revenue
Bonds, Series 1993A (FHA Insured Mortgage Loan-Arlington
Club Project), 6.400%, 2/01/40 2/03 at 100 AAA 14,952,013
4,685,000 Town of Wood River, Wood River Township Hospital, Madison
County, Illinois, General Obligation Bonds (Alternate
Revenue Source), Series 1993, 6.625%, 2/01/14 2/04 at 102 BBB 5,144,692
4,460,000 Town of Wood River, Wood River Township Hospital, Madison
County, Illinois, General Obligation Tort Immunity Bonds,
Series 1993, 6.500%, 2/01/14 2/04 at 102 BBB 4,858,992
- - ----------------------------------------------------------------------------------------------------------------------------------
Indiana - 3.4%
2,250,000 Indiana Bond Bank, Special Program Bonds, Series 1992B,
6.750%, 8/01/12 2/03 at 102 A+ 2,511,180
3,200,000 Indiana Health Facility Financing Authority, Hospital
Revenue Refunding Bonds, Series 1992 (The Methodist
Hospitals, Inc.), 6.750%, 9/15/09 9/02 at 102 A 3,537,952
2,100,000 City of Indianapolis, Indiana, Economic Development Revenue
Bonds, Series 1993A (The Meadows-Section 8 Assisted Project),
6.000%, 7/01/23 (Alternative Minimum Tax) 7/03 at 103 N/R 2,115,183
2,000,000 Hospital Authority of the City of Kokomo (Indiana), Hospital
Revenue Refunding Bonds, Series 1993 (Saint Joseph Hospital
and Health Center of Kokomo), 6.250%, 8/15/05 No Opt. Call N/R 2,208,020
3,615,000 Mooresville Consolidated School Building Corporation, First
Mortgage Bonds, Series 1994A (Morgan County, Indiana),
6.200%, 7/15/15 (Pre-refunded to 1/15/04) 1/04 at 101 A*** 4,021,037
5,900,000 Muncie School Building Corporation, First Mortgage Bonds,
Series 1992, 6.625%, 7/15/14 (Pre-refunded to 7/15/01) 7/01 at 102 N/R*** 6,447,756
</TABLE>
F-30
<PAGE> 137
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Indiana (continued)
$ 9,500,000 City of Petersburg, Indiana, Pollution Control Refunding
Revenue Bonds, Series 1993A (Indianapolis Power and Light
Company Project), 6.100%, 1/01/16 1/03 at 102 Aa2 $ 10,212,215
- - ----------------------------------------------------------------------------------------------------------------------------------
Iowa - 0.6%
780,000 City of Davenport, Iowa, Home Ownership Mortgage Revenue
Refunding Bonds, Series 1994, 7.900%, 3/01/10 9/04 at 102 A1 838,399
3,810,000 Iowa Finance Authority, Hospital Revenue Bonds (Trinity
Regional Hospital Project), Series 1993, 7.000%, 7/01/12
(Pre-refunded to 7/01/02) 7/02 at 102 N/R*** 4,285,107
- - ----------------------------------------------------------------------------------------------------------------------------------
Kansas - 0.3%
1,475,000 Johnson County, Kansas, Single Family Mortgage Revenue
Refunding Bonds, Series 1994, 7.100%, 5/01/12 5/04 at 103 A 1,614,889
1,200,000 Labette County, Kansas, Single Family Mortgage Revenue
Refunding Bonds, 1993 Series A, 8.400%, 12/01/11 6/03 at 103 Aa2 1,292,352
- - ----------------------------------------------------------------------------------------------------------------------------------
Kentucky - 0.8%
7,000,000 Kentucky Housing Corporation, Housing Revenue Bonds,
1996 Series A, 6.375%, 7/01/28 (Alternative Minimum Tax) 7/06 at 102 AAA 7,519,120
- - ----------------------------------------------------------------------------------------------------------------------------------
Louisiana - 1.2%
3,415,000 Clover Dale Housing Corporation, 1995 Multifamily Mortgage
Revenue Refunding Bonds (Clover Dale Plaza-FHA Insured
Mortgage, Section 8 Assisted Project), Series A,
6.550%, 2/01/22 4/01 at 100 AA- 3,491,325
6,555,000 Orleans Levee District (A Political Subdivision of the State
of Louisiana), Public Improvement Bonds, Series 1986,
5.950%, 11/01/14 12/05 at 102 AAA 7,280,049
- - ----------------------------------------------------------------------------------------------------------------------------------
Maine - 0.9%
8,000,000 Corporation, Subordinate Student Loan Revenue Bonds,
Series 1994-2, 6.250%, 11/01/06 (Alternative Minimum Tax) No Opt. Call A 8,413,280
- - ----------------------------------------------------------------------------------------------------------------------------------
Maryland - 1.8%
5,000,000 Community Development Administration, Maryland Department of
Housing and Community Development, Housing Revenue Bonds,
Series 1996A, 5.875%, 7/01/16 1/07 at 102 Aa2 5,336,850
2,000,000 Maryland Health and Higher Educational Facilities Authority,
Project and Refunding Revenue Bonds, Doctors Community
Hospital Issue, Series 1993, 5.750%, 7/01/13 7/03 at 102 Baa1 2,049,280
1,790,000 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 1,908,194
6,800,000 Housing Opportunities Commission of Montgomery County
(Montgomery County, Maryland), Multifamily Housing Revenue
Bonds, 1996 Series B, 6.400%, 7/01/28
(Alternative Minimum Tax) 7/06 at 102 Aa 7,317,004
- - ----------------------------------------------------------------------------------------------------------------------------------
Massachusetts - 1.8%
4,500,000 Massachusetts Health and Educational Facilities Authority,
Revenue Bonds, Series 1991-C (New England Deaconess Hospital),
7.200%, 4/01/22 (Pre-refunded to 4/01/01) 4/01 at 102 AAA 4,953,105
2,000,000 Massachusetts Health and Educational Facilities Authority,
Revenue Bonds, Faulkner Hospital Issue, Series C,
6.000%, 7/01/13 7/03 at 102 Baa1 2,089,040
2,000,000 Massachusetts Housing Finance Agency, Housing Project Revenue
Bonds, 6.300%, 10/01/13 4/03 at 102 A+ 2,126,640
4,195,000 Massachusetts Health and Educational Facilities Authority,
Revenue Refunding Bonds, Youville Hospital Issue (FHA Insured
Project), Series B, 6.000%, 2/15/34 2/04 at 102 Aa 4,381,132
3,300,000 Massachusetts Industrial Finance Agency, Resource Recovery
Revenue Bonds, SEMASS Project, 7/01 at 103 N/R 3,672,801
Series 1991B, 9.250%, 7/01/15 (Alternative Minimum Tax)
- - ----------------------------------------------------------------------------------------------------------------------------------
Michigan - 5.6%
5,000,000 City of Detroit, Michigan, Convention Facility Limited Tax
Revenue Refunding Bonds (Cobo Hall Expansion Project),
Series 1993, 5.250%, 9/30/12 9/03 at 102 AAA 5,219,050
10,000,000 City of Detroit, Michigan, Sewage Disposal System Revenue
Bonds, Series 1997-A, 5.000%, 7/01/27 7/07 at 101 AAA 9,871,800
10,225,000 City of Detroit, Michigan, Water Supply System Revenue Bonds
(Senior Lien), Series 1997-A, 5.000%, 7/01/27 7/07 at 101 AAA 10,078,680
</TABLE>
F-31
<PAGE> 138
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Michigan (continued)
$ 2,545,000 City of Hancock Hospital Finance Authority, FHA-Insured
Mortgage Hospital Revenue Bonds (Portage Health System, Inc.),
Series 1998, 4.625%, 8/01/18 8/08 at 100 AAA $ 2,509,166
1,000,000 City of Kalamazoo Hospital Finance Authority, Hospital Revenue
Refunding and Improvement Bonds (Bronson Methodist Hospital),
Series 1996, 5.750%, 5/15/16 5/06 at 102 AAA 1,067,680
2,000,000 Michigan State Hospital Finance Authority, Hospital Revenue
and Refunding Bonds (The Detroit Medical Center Obligated
Group), Series 1993B, 5.000%, 8/15/03 No Opt. Call A- 2,096,520
3,200,000 Michigan State Hospital Finance Authority, Hospital Revenue
and Refunding Bonds, Series 1992 (Bon Secours Health System
Project), 6.100%, 8/15/22 8/02 at 102 AAA 3,373,664
7,000,000 Michigan State Hospital Finance Authority, Hospital Revenue
Bonds (The Detroit Medical Center), Series 1998A,
5.250%, 8/15/23 8/08 at 101 A- 6,842,850
3,750,000 Michigan Strategic Fund, Limited Obligation Refunding Revenue
Bonds (Consumers Power Company Project), Collateralized Series
1993B, 5.800%, 6/15/10 6/03 at 102 AAA 4,073,100
6,000,000 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 10 AAA 6,674,100
- - ----------------------------------------------------------------------------------------------------------------------------------
Minnesota - 1.4%
5,000,000 Minneapolis/St. Paul, Minnesota, Housing Finance Board, Single
Family Mortgage Revenue Bonds, FNMA/GNMA Backed Program,
Phase XI-AB, 5.800%, 11/01/30 (Alternative Minimum Tax) 11/07 at 10 AAA 5,168,500
4,000,000 Minneapolis Community Development Agency, Limited Tax Supported
Development Revenue Bonds, Common Bond Fund, Series 1992G-3,
7.375%, 12/01/12 12/02 at 102 A- 4,458,760
2,720,000 City of Minnetonka, Minnesota, Multifamily Housing Revenue
Refunding Bonds, Series 1994A (GNMA Collateralized Mortgage
Loan-Brier Creek Project), 6.450%, 6/20/24 6/04 at 102 AAA 2,924,299
- - ----------------------------------------------------------------------------------------------------------------------------------
Mississippi - 1.1%
2,000,000 Mississippi Higher Education Assistance Corporation, Student
Loan Revenue Bonds, Senior Series 1993-B, 5.800%, 9/01/06
(Alternative Minimum Tax) 9/02 at 102 Aaa 2,067,200
1,415,000 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 1,477,119
3,000,000 Mississippi Home Corporation, Single Family Mortgage Revenue
Bonds, Series 1995B, 6.550%, 4/01/21
(Alternative Minimum Tax) 4/05 at 102 Aaa 3,207,750
1,695,000 Mississippi Regional Housing Authority No. V, Multifamily
Housing Revenue Refunding Bonds, Series 1993A (FHA Insured
Mortgage Loan-Deville Apartments Section 8 Assisted Project),
7.050%, 7/01/21 7/00 at 105 AAA 1,808,209
1,830,000 Mississippi Educational Facilities Authority, For Private,
Nonprofit Institutions of Higher Learning, Educational
Facilities Revenue Bonds (Tougaloo College Project), Series
1993A, 6.500%, 6/01/18 6/03 at 102 N/R 1,912,917
- - ----------------------------------------------------------------------------------------------------------------------------------
Nebraska - 3.0%
10,000,000 Energy America (Nebraska), Natural Gas Revenue Note
(Metropolitan Utility District Project), Series 1997B,
5.700%, 7/01/08 No Opt. Call N/R 10,164,800
9,000,000 Nebraska Higher Education Loan Program Inc., Senior
Subordinate Bonds, Series A-5A, 6.250%, 6/01/18
(Alternative Minimum Tax) No Opt. Call AAA 9,667,620
Airport Authority of the City of Omaha (Nebraska), Airport
Facilities Revenue Refunding Bonds, Series 1991:
1,665,000 8.375%, 1/01/14 (Pre-refunded to 1/01/02) 1/02 at 102 A1*** 1,922,842
5,075,000 8.375%, 1/01/14 1/02 at 102 A1 5,790,220
- - ----------------------------------------------------------------------------------------------------------------------------------
Nevada - 0.8%
4,500,000 Clark County School District, Nevada, General Obligation
(Limited Tax), School Improvement Bonds (Current Coupon
Bonds), Series 1991A, 7.000%, 6/01/10 No Opt. Call AAA 5,573,745
1,725,000 Nevada Housing Division, Single Family Program Senior Bonds,
1993 Issue B, 6.200%, 10/01/15 4/04 at 102 A1 1,824,550
- - ----------------------------------------------------------------------------------------------------------------------------------
New Hampshire - 0.5%
2,700,000 New Hampshire Housing Finance Authority, Single Family
Residential Mortgage Bonds, 1990 Series A, 7.950%, 7/01/22
(Alternative Minimum Tax) 7/00 at 102 Aa 2,830,410
</TABLE>
F-32
<PAGE> 139
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
New Hampshire (continued)
$ 1,815,000 New Hampshire Housing Finance Authority, Single Family Mortgage
Acquisition Revenue Bonds, 1996 Series C, 6.200%, 7/01/16
(Alternative Minimum Tax) 1/07 at 102 Aa3 $ 1,930,234
- - ----------------------------------------------------------------------------------------------------------------------------------
New Mexico - 0.3%
455,000 New Mexico Educational Assistance Foundation, Student Loan
Revenue Bonds, 1992 Series One, Student Loan Revenue Bonds,
Subordinate 1992 Series One B, 6.850%, 12/01/05 (Alternative
Minimum Tax) 12/02 at 101 A 481,781
2,400,000 New Mexico Mortgage Finance Authority, Single Family Mortgage
Purchase Refunding Senior Bonds, 1992 Series A,
6.900%, 7/01/24 7/02 at 102 Aa1 2,552,664
- - ----------------------------------------------------------------------------------------------------------------------------------
New York - 13.1%
14,000,000 Long Island Power Authority (New York), Electric System
General Revenue Bonds, Series 1998A, 5.500%, 12/01/29 6/03 at 101 A- 14,467,320
1,000,000 The City of New York, General Obligation Bonds, Fiscal 1995
Series A, 7.000%, 8/01/04 No Opt.Call A- 1,146,370
3,500,000 The City of New York, General Obligation Bonds, Fiscal 1996
Series B, 6.750%, 8/15/03 No Opt. Call A- 3,916,780
14,310,000 The City of New York, General Obligation Bonds, Fiscal 1996
Series F, 6.500%, 2/01/05 No Opt. Call A- 16,098,178
The City of New York, General Obligation Bonds, Fiscal 1991
Series D:
4,240,000 9.500%, 8/01/02 (Pre-refunded to 8/01/01) 8/01 at 101 1/2 Aaa 4,946,893
160,000 9.500%, 8/01/02 8/01 at 101 1/2 A- 185,018
16,915,000 New York City Transitional Finance Authority, Future Tax
Secured Bonds, Fiscal 1998 Series C, 5.000%, 5/01/26 5/08 at 101 AA 16,629,475
Dormitory Authority of the State of New York, The New York and
Presbyterian Hospital, FHA-Insured Mortgage Hospital Revenue
Bonds, Series 1998:
5,000,000 5.500%, 2/01/09 No Opt. Call AAA 5,473,350
6,450,000 5.500%, 8/01/09 No Opt. Call AAA 7,084,100
4,350,000 5.500%, 8/01/10 No Opt. Call AAA 4,774,647
5,000,000 5.500%, 8/01/11 No Opt. Call AAA 5,483,350
10,500,000 New York State Medical Care Facilities Finance Agency,
Hospital and Nursing Home FHA-Insured Mortgage Revenue
Bonds, 1992 Series B, 6.200%, 8/15/22 8/02 at 102 AAA 11,214,525
4,200,000 New York State Medical Care Facilities Finance Agency,
FHA-Insured Mortgage Project Revenue Bonds, 1995 Series B,
6.150%, 2/15/35 2/05 at 102 AA 4,565,526
New York State Medical Care Facilities Finance Agency, Hospital
and Nursing Home FHA-Insured Mortgage Revenue Bonds, 1994
Series A:
4,875,000 6.200%, 2/15/21 (Pre-refunded to 2/15/04) 2/04 at 102 AAA 5,491,834
3,365,000 6.200%, 2/15/21 2/04 at 102 AAA 3,729,194
7,500,000 New York State Thruway Authority, General Revenue Bonds,
Series C, 6.000%, 1/01/15 (Pre-refunded to 1/01/05) 1/05 at 102 AAA 8,454,075
6,500,000 New York State Thruway Authority, General Revenue Refunding
Bonds, Series E, 5.250%, 1/01/12 1/08 at 101 AA- 6,883,110
- - ----------------------------------------------------------------------------------------------------------------------------------
North Carolina - 0.6%
3,000,000 North Carolina Medical Care Commission, Health Care Revenue
Bonds (Duke University Health System), Series 1998B,
5.000%, 6/01/28 6/08 at 101 AA 2,934,120
2,000,000 North Carolina Municipal Power Agency, Number 1 Catawba
Electric Revenue Bonds, Series 1992, 6.000%, 1/01/11 No Opt. Call AAA ,291,780
- - ----------------------------------------------------------------------------------------------------------------------------------
North Dakota - 1.0%
8,150,000 Mercer County, North Dakota, Pollution Control Revenue Bonds
(Basin Electric Power Cooperative-Antelope Valley Station),
1984 Series B, 7.000%, 1/01/19 1/99 at 103 A 8,426,122
995,000 City of Minot, North Dakota, Single Family Mortgage Revenue
Refunding Bonds, Series 1993, 7.700%, 8/01/10 8/03 at 102 Aa 1,074,988
- - ----------------------------------------------------------------------------------------------------------------------------------
Ohio - 3.4%
4,500,000 Akron, Bath and Copley Joint Township Hospital District, Ohio,
Hospital Facilities Revenue Bonds, Series 1992 (Summa Health
System Project), 6.250%, 11/15/07 11/02 at 102 A3 4,881,420
1,995,000 County of Franklin, Ohio, Multifamily Housing Mortgage Revenue
Bonds, Series 1994A (FHA Insured Mortgage Loan Hamilton
Creek Apartments Project), 5.550%, 7/01/24 (Alternative
Minimum Tax) 1/05 at 103 Aa 2,017,683
</TABLE>
F-33
<PAGE> 140
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Ohio (continued)
$ 3,800,000 Ohio Housing Finance Agency, Residential Mortgage Revenue
Bonds (GNMA Mortgage-backed Securities Programs),
1995 Series A-1, 6.300%, 9/01/17 3/05 at 102 AAA $ 4,101,302
11,215,000 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 11,537,880
4,215,000 The Student Loan Funding Corporation, Cincinnati, Ohio,
Student Loan Revenue Bonds, Series 1986A, 5.500%, 12/01/01
(Alternative Minimum Tax) No Opt. Call A1 4,364,464
4,370,000 City of Toledo, Ohio, General Obligation (Limited Tax),
Various Purpose Improvement Bonds, Series 1994,
5.750%, 12/01/09 12/04 at 102 AAA 4,813,031
- - ----------------------------------------------------------------------------------------------------------------------------------
Oklahoma - 1.5%
Oklahoma County Finance Authority, Multifamily Housing First
Mortgage Revenue Bonds, Series 1998A (Multiple Apartments
Project):
3,000,000 7.000%, 4/01/18 4/06 at 102 N/R 3,043,080
7,000,000 7.125%, 4/01/28 4/06 at 102 N/R 7,102,340
3,340,000 Tulsa Industrial Authority, Hospital Revenue and Refunding
Bonds (Hillcrest Medical Center Project), Series 1996,
6.500%, 6/01/09 No Opt. Call AAA 3,920,592
- - ----------------------------------------------------------------------------------------------------------------------------------
Puerto Rico - 1.6%
12,390,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1997
(General Obligation Bonds), 6.500%, 7/01/13 No Opt. Call AAA 15,066,488
- - ----------------------------------------------------------------------------------------------------------------------------------
South Carolina - 0.3%
2,460,000 Piedmont Municipal Power Agency (South Carolina), Electric
Revenue Bonds, 1998A Refunding Series, 5.500%, 1/01/13 No Opt. Call AAA 2,692,495
- - ----------------------------------------------------------------------------------------------------------------------------------
South Dakota - 0.7%
5,845,000 South Dakota Student Loan Assistance Corporation, 7.625%,
8/01/06 (Pre-refunded to 8/01/99) (Alternative Minimum Tax) 8/99 at 102 AAA 6,153,090
- - ----------------------------------------------------------------------------------------------------------------------------------
Tennessee - 0.8%
5,000,000 The Metropolitan Government of Nashville and Davidson County (Tennessee), Electric System Revenue
Bonds, 1998 Series A, 5.200%, 5/15/23 5/08 at 102 AA 5,080,200
2,400,000 Tennessee Housing Development Agency, Mortgage Finance Program Bonds, 1994 Series A,
6.900%, 7/01/25 (Alternative Minimum Tax) 7/04 at 102 A+ 2,590,704
- - ----------------------------------------------------------------------------------------------------------------------------------
Texas - 5.7%
1,000,000 Alliance Airport Authority, Inc., Special Facilities Revenue
Bonds, Series 1990 (American Airlines, Inc. Project), 7.500%,
12/01/29 (Alternative Minimum Tax) 12/00 at 102 Baa2 1,072,290
6,000,000 Dallas-Fort Worth International Airport Facility Improvement
Corporation, American Airlines, Inc. Revenue Bonds, Serie
1990, 7.500%, 11/01/25 (Alternative Minimum Tax) 11/00 at 102 Baa2 6,424,500
2,500,000 City of Houston, Texas, Airport System Subordinate Lien
Revenue Bonds, Series 1991A, 6.750%, 7/01/21
(Alternative Minimum Tax) 7/01 at 102 AAA 2,710,575
5,000,000 City of Houston, Texas, Water and Sewer System, Junior Lien
Revenue Refunding Bonds, Series 1997D, 5.000%, 12/01/25 12/07 at 102 AAA 4,930,400
5,000,000 Lower Neches Valley Authority Industrial Development
Corporation (Texas), Refunding Revenue Bonds, Series 1998
(Mobil Oil Refining Corporation Project), 5.550%, 3/01/33 3/08 at 101 AA 5,189,350
1,450,850 The Midland Housing Finance Corporation (Midland, Texas),
Single Family Mortgage Revenue Refunding, Series 1992A,
8.450%, 12/01/11 11/05 at 103 Aaa 1,591,002
2,215,000 North Texas Higher Education Authority Inc., Student Loan
Revenue Bonds, Series 1993D, 6.300%, 4/01/09
(Alternative Minimum Tax) 4/03 at 102 A 2,352,064
3,410,000 Ratama Development Corporation, Special Facilities Revenue
Bonds (Retama Park Racetrack Project), Series 1993,
8.750%, 12/15/12 No Opt. Call AAA 4,881,176
4,694,827 General Services Commission (an Agency of the State of Texas),
as Lessee, Participation Interests, 7.500%, 9/01/22 9/99 at 101 1/2 A 5,332,056
</TABLE>
F-34
<PAGE> 141
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Texas (continued)
$ 8,500,000 Texas Turnpike Authority, Dallas North Tollway Revenue
Bonds, Series 1990, 7.250%, 1/01/10 (Pre-refunded
to 1/01/99) 1/99 at 102 AAA $ 8,728,480
8,500,000 Travis County Health Facilities Development Corporation,
Hospital Revenue Bonds (Daughters of Charity National Health
System - Daughters of Charity Health Services of Austin),
Series 1993B, 6.000%, 11/15/22 11/03 at 102 Aa 9,155,860
- - ----------------------------------------------------------------------------------------------------------------------------------
Utah - 2.1%
3,595,000 City of Bountiful, Davis County, Utah, Hospital Revenue
Refunding Bonds (South Davis Community Hospital Project),
Series 1998, 5.750%, 12/15/18 12/08 at 101 N/R 3,571,417
8,000,000 Intermountain Power Agency (Utah), Power Supply Revenue Bonds,
Series 1996A, 6.150%, 7/01/14 7/06 at 102 A+ 8,864,880
6,000,000 Intermountain Power Agency (Utah), Power Supply Revenue
Refunding Bonds, 1997 Series B, 5.750%, 7/01/19 7/07 at 102 AAA 6,505,080
- - ----------------------------------------------------------------------------------------------------------------------------------
Virginia - 1.8%
2,645,000 Suffolk Redevelopment and Housing Authority, Multifamily
Housing Revenue Refunding Bonds, Series 1994 (Chase
Heritage at Dulles Project), 7.000%, 7/01/24 7/02 at 104 Baa2 2,942,589
14,405,000 Upper Occoquan Sewage Authority (Virginia), Regional Sewerage
System Revenue Bonds, Series of 1995A, 4.750%, 7/01/29 7/06 at 100 AAA 13,744,531
- - ----------------------------------------------------------------------------------------------------------------------------------
Washington - 7.7%
4,705,000 City of Tacoma, Washington, Sewer Revenue Refunding Bonds,
1994 Series B, 8.000%, 12/01/08 No Opt. Call AAA 6,133,062
4,500,000 Washington Public Power Supply System, Nuclear Project No. 1,
Refunding Revenue Bonds, Series 1993A, 5.750%, 7/01/13 7/03 at 102 Aa1 4,839,930
4,845,000 Washington Public Power Supply System, Nuclear Project No. 1,
Refunding Revenue Bonds, Series 1989A, 7.500%, 7/01/15
(Pre-refunded to 7/01/99) 7/99 at 102 AAA 5,086,620
23,000,000 Washington Public Power Supply System (Bonneville), Nuclear
Project No. 1, Refunding Revenue Bonds, Series 1993C,
5.375%, 7/01/15 7/03 at 102 Aa1 23,633,190
Washington Public Power Supply System, Nuclear Project No. 2,
Refunding Revenue Bonds, Series 1992A:
5,710,000 6.250%, 7/01/12 (Pre-refunded to 7/01/02) 7/02 at 102 Aa1*** 6,297,502
1,540,000 6.250%, 7/01/12 7/02 at 102 Aa1 1,673,486
6,475,000 Washington Public Power Supply System, Nuclear Project No. 2,
Refunding Revenue, Series 1990A, 7.250%, 7/01/06 No Opt. Call Aa1 7,715,803
10,000,000 Washington Public Power Supply System, Nuclear Project No. 3,
Refunding Revenue Bonds, Series 1993B, 7.000%, 7/01/09 No Opt. Call Aa1 12,075,499
3,700,000 Washington Public Power Supply System, Nuclear Project No. 3,
Refunding Revenue Bonds, Series 1998A, 5.125%, 7/01/18 7/08 at 102 Aa1 3,672,545
- - ----------------------------------------------------------------------------------------------------------------------------------
Wisconsin - 0.1%
635,000 Wisconsin Housing and Economic Development Authority, Home
Improvement Revenue Bonds, 1992 Series A, 7.000%, 5/01/10
(Alternative Minimum Tax) 5/02 at 102 A1 672,140
- - ----------------------------------------------------------------------------------------------------------------------------------
$ 842,153,502 Total Investments - (cost $845,052,695) - 98.3% 906,909,232
============= ---------------------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal Securities - 0.2%
$ 2,000,000 Geisinger Authority Health System, Variable Rate Demand
============= Revenue Bonds, Series 1998B, 3.700%, 8/15/28+ VMIG-1 2,000,000
---------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.5% 14,094,443
---------------------------------------------------------------------------------------------------------------
Net Assets - 100% $ 923,003,675
===============================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report
of independent auditors): Dates (month and year) and
prices of the earliest optional call or redemption.
There may be other call provisions at varying prices
at later dates.
** Ratings (not covered by the report of independent
auditors): Using the higher of Standard & Poor's or
Moody's rating.
*** Securities are backed by an escrow or trust
containing sufficient U.S. government or U.S.
government agency securities which ensures the
timely payment of principal and interest.
Securities are normally considered to
be equivalent to AAA rated securities.
+ The security has a maturity of more than one year,
but has variable rate and demand features which
qualify it as a short-term security. The rate
disclosed is that currently in effect. This rate
changes periodically based on market conditions or
a specified market index.
N/R Investment is not rated.
See accompanying notes to financial statements.
F-35
<PAGE> 142
Statement of Net Assets
October 31, 1998
<TABLE>
<CAPTION>
Premium Income Premium Income 2 Premium Income 4
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments in municipal securities, at market value (note 1) $1,448,475,312 $945,367,447 $906,909,232
Temporary investments in short-term municipal securities,
at amortized cost, which approximates market value (note 1) 2,000,000 800,000 2,000,000
Cash 82,256 -- 82,347
Receivables:
Interest 28,864,254 17,112,680 17,102,193
Investments sold 14,837,228 559,737 580,000
Other assets 715,561 18,422 53,732
- - ----------------------------------------------------------------------------------------------------------------------------------
Total assets 1,494,974,611 963,858,286 926,727,504
- - ----------------------------------------------------------------------------------------------------------------------------------
Liabilities
Cash overdraft -- 614 --
Payable for investments purchased 15,434,819 -- --
Accrued expenses:
Management fees (note 6) 774,443 510,147 491,486
Other 306,363 239,347 342,260
Preferred share dividends payable 174,804 100,994 112,440
Common share dividends payable 4,528,765 3,167,289 2,777,643
- - ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 21,219,194 4,018,391 3,723,829
- - ----------------------------------------------------------------------------------------------------------------------------------
Net assets (note 7) $1,473,755,417 $959,839,895 $923,003,675
====================================================================================================================================
Preferred shares, at liquidation value $ 475,000,000 $300,000,000 $308,400,000
====================================================================================================================================
Preferred shares outstanding 19,000 12,000 12,336
====================================================================================================================================
Common shares outstanding 63,785,431 40,868,247 40,847,681
====================================================================================================================================
Net asset value per Common share outstanding (net assets less Preferred shares
at liquidation value,
divided by Common shares outstanding) $ 15.66 $ 16.15 $ 15.05
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE> 143
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<CAPTION>
Premium Income Premium Income 2 Premium Income 4
<S> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Investment Income (note 1) $ 84,351,074 $55,123,603 $51,010,547
- - ----------------------------------------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 9,000,100 5,931,563 5,712,194
Preferred shares - auction fees 1,187,498 749,998 771,000
Preferred shares - dividend disbursing agent fees 50,001 46,383 70,000
Shareholders' servicing agent fees and expenses 231,194 76,753 114,505
Custodian's fees and expenses 165,221 121,193 120,757
Directors' fees and expenses (note 6) 13,966 8,792 8,445
Professional fees 26,586 21,160 21,225
Shareholders' reports - printing and mailing expenses 312,275 214,315 215,337
Stock exchange listing fees 54,582 35,449 35,511
Investor relations expense 123,848 74,399 76,291
Other expenses 72,035 51,037 45,741
- - ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 11,237,306 7,331,042 7,191,006
- - ----------------------------------------------------------------------------------------------------------------------------------
Net investment income 73,113,768 47,792,561 43,819,541
- - ----------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 5,695,107 2,300,084 4,094,161
Net change in unrealized appreciation or depreciation of investments 22,102,303 16,299,650 12,806,701
- - ----------------------------------------------------------------------------------------------------------------------------------
Net gain from investments 27,797,410 18,599,734 16,900,862
- - ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $100,911,178 $66,392,295 $60,720,403
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE> 144
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Premium Income Premium Income 2 Premium Income 4
<S> <C> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
10/31/98 10/31/97 10/31/98 10/31/97 10/31/98 10/31/97
- - ----------------------------------------------------------------------------------------------------------------------------------
Operations
Net investment income $ 73,113,768 $ 72,579,397 $ 47,792,561 $ 48,365,729 $ 43,819,541 $ 44,221,844
Net realized gain from
investment transactions
(notes 1 and 4) 5,695,107 4,421,843 2,300,084 4,884,470 4,094,161 3,879,483
Net change in unrealized
appreciation or depreciation
of investments 22,102,303 19,245,861 16,299,650 21,383,160 12,806,701 19,479,315
- - ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
from operations 100,911,178 96,247,101 66,392,295 74,633,359 60,720,403 67,580,642
- - ----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
(note 1) From undistributed
net investment income:
Common shareholders (56,136,763) (59,703,177) (37,981,891) (38,015,000) (33,322,374) (33,488,322)
Preferred shareholders (16,253,788) (12,807,342) (9,776,494) (10,633,759) (10,741,953) (10,890,755)
From accumulated net realized
gains from investment
transactions:
Common shareholders (3,623,618) (1,862,537) (3,704,032) -- -- --
Preferred shareholders (801,154) -- (896,110) -- -- --
- - ----------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from
distributions to shareholders (76,815,323) (74,373,056) (52,358,527) (48,648,759) (44,064,327) (44,379,077)
- - ----------------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions (note 2)
Common shares - net proceeds
from shares issued to shareholders
due to reinvestment of distributions -- -- 2,218,879 -- 583,436 --
Preferred shares - net proceeds
from sale of shares -- 123,593,750 -- -- -- --
- - ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
capital share transactions -- 123,593,750 2,218,879 -- 583,436 --
- - ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 24,095,855 145,467,795 16,252,647 25,984,600 17,239,512 23,201,565
Net assets at beginning
of year 1,449,659,562 1,304,191,767 943,587,248 917,602,648 905,764,163 882,562,598
- - ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $1,473,755,417 $1,449,659,562 $959,839,895 $943,587,248 $923,003,675 $905,764,163
- - ----------------------------------------------------------------------------------------------------------------------------------
Balance of undistributed net
investment income at end
of year $ 1,479,619 $ 756,402 $ 2,110,492 $ 2,076,316 $ 1,228,635 $ 1,473,421
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE> 145
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 Premium Income Municipal Fund, Inc.
(NPI), Nuveen Premium Income Municipal Fund 2, Inc. (NPM) and Nuveen Premium
Income Municipal Fund 4, Inc. (NPT).
Each Fund invests primarily in a diversified portfolio of municipal obligations
issued by state and local government authorities. The Funds are registered under
the Investment Company Act of 1940 as closed-end, diversified management
investment companies.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
The prices of municipal bonds in each Fund's investment portfolio are provided
by a pricing service approved by the Fund's Board of Directors. When price
quotes are not readily available (which is usually the case for municipal
securities), the pricing service establishes fair market value based on yields
or prices of municipal bonds of comparable quality, type of issue, coupon,
maturity and rating, indications of value from securities dealers and general
market conditions. Temporary investments in securities that have variable rate
and demand features qualifying them as short-term securities are valued at
amortized cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. The securities so purchased are subject to
market fluctuation during this period. The Funds have instructed the custodian
to segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At
October 31, 1998, Premium Income had outstanding delayed delivery purchase
commitments of $15,434,819. There were no such outstanding purchase commitments
in either of the other two 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.
F-39
<PAGE> 146
Preferred Shares
The Funds have issued and outstanding $25,000 stated value Preferred shares.
Each Fund's Preferred shares are issued in more than one Series. The dividend
rate on each Series may change every seven days, as set by the auction agent.
The number of shares outstanding, by Series and in total, for each of the Funds
is as follows:
Premium Premium Premium
Income Income 2 Income 4
- --------------------------------------------------------------------------------
Number of Shares:
Series M 3,800 2,000 2,200
Series T 3,800 3,000 2,000
Series T2 -- -- 1,328
Series W 3,800 2,000 1,680
Series Th 3,800 3,000 2,000
Series F 3,800 2,000 1,800
Series F2 -- -- 1,328
- --------------------------------------------------------------------------------
Total 19,000 12,000 12,336
================================================================================
Effective August 12, 1997, the terms of Premium Income's preferred stock were
amended, whereby the Fund's preferred shares were converted from Remarketed
Preferred (dividend rates established primarily every 28 days by a remarketing
process) to MuniPreferred (dividend rates established every seven days by a
"Dutch auction" process), as approved by shareholders on August 6, 1997. In
addition, the Fund issued an additional 5,000 preferred shares, comprising 1,000
shares each of Series M, T, W, Th and F between September 30, 1997 and October
6, 1997.
Derivative Financial Instruments
The Funds may invest in transactions in certain derivative financial instruments
including futures, forward, swap and option contracts, and other financial
instruments with similar characteristics. Although the Funds are authorized to
invest in such financial instruments, and may do so in the future, they did not
make any such investments during the fiscal year ended October 31, 1998.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results may differ
from those estimates.
2. Fund Shares
Transactions in Common and Preferred shares were as follows:
<TABLE>
<CAPTION>
Premium Income Premium Income 2
<S> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
10/31/98 10/31/97 10/31/98 10/31/97
- - -------------------------------------------------------------------------------------------------------------------
Common shares issued to shareholders
due to reinvestment of distributions -- -- 137,128 --
=====================================================================================================================
Premium Income 4
- - -------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended
10/31/98 10/31/97
- - -------------------------------------------------------------------------------------------------------------------
Common shares issued to shareholders
due to reinvestment of distributions 39,216 --
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
Premium Income issued 5,000 additional preferred shares, comprising 1,000
shares of each M, T, W, Th and F, during the fiscal year ended
October 31, 1997.
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>
Premium Premium Premium
Income Income 2 Income 4
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend per share $.0710 $.0775 $.0680
================================================================================
</TABLE>
F-40
<PAGE> 147
Notes to Financial Statements (continued)
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>
Premium Premium Premium
Income Income 2 Income 4
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases:
Investments in municipal securities $290,272,414 $80,762,778 $211,191,134
Temporary municipal investments 216,380,000 39,500,000 133,450,000
Sales and Maturities:
Investments in municipal securities 274,000,685 64,982,754 188,925,826
Temporary municipal investments 242,380,000 54,500,000 131,450,000
==============================================================================================================
</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, Premium Income 4 had unused capital loss carryforwards of
$13,256,518 available for federal income tax purposes to be applied against
future capital gains, if any. If not applied, $8,044,841 of the carryforwards
will expire in the year 2002 and $5,211,677 will expire in the year 2003.
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
at October 31, 1998, were as follows:
<TABLE>
<CAPTION>
Premium Premium Premium
Income Income 2 Income 4
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized:
appreciation $89,049,157 $87,820,980 $61,908,128
depreciation (47,099) (58,439) (51,591)
- - ------------------------------------------------------------------------------
Net unrealized appreciation $89,002,058 $87,762,541 $61,856,537
================================================================================
</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 as follows:
Average Daily Net Asset Value Management Fee
- --------------------------------------------------------------------------------
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
================================================================================
The fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Funds pay no
compensation directly to those of its Directors who are affiliated with the
Adviser or to their officers, all of whom receive remuneration for their
services to the Funds from the Adviser.
F-41
<PAGE> 148
7. Composition of Net Assets At October 31, 1998, net assets consisted of:
<TABLE>
<CAPTION>
Premium Premium Premium
Income Income 2 Income 4
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred shares, $25,000 stated value per share, at liquidation value $ 475,000,000 $300,000,000 $308,400,000
Common shares, $.01 par value per share 637,854 408,682 408,477
Paid-in surplus 901,946,522 567,631,874 564,371,822
Balance of undistributed net investment income 1,479,619 2,110,492 1,228,635
Accumulated net realized gain (loss) from investment transactions 5,689,364 1,926,306 (13,261,796)
Net unrealized appreciation of investments 89,002,058 87,762,541 61,856,537
- - ----------------------------------------------------------------------------------------------------------------------------
Net assets $1,473,755,417 $959,839,895 $923,003,675
==============================================================================================================================
Authorized shares:
Common 200,000,000 200,000,000 200,000,000
Preferred 1,000,000 1,000,000 1,000,000
=============================================================================================================================
8. Investment Composition
At October 31, 1998, the revenue sources by municipal purpose, expressed as a
percent of total investments, were as follows:
Premium Premium Premium
Income Income 2 Income 4
- - ---------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations 5% 2% 4%
Financials 3 -- --
Health Care 8 7 17
Housing/Multifamily -- 8 8
Housing/Single Family 12 12 7
Tax Obligation/General 13 16 10
Tax Obligation/Limited 13 9 7
Transportation 8 8 7
U.S. Guaranteed 12 26 15
Utilities 21 8 17
Water and Sewer 4 3 7
Other 1 1 1
- - ---------------------------------------------------------------------------------------------------------------------------
100% 100% 100%
=============================================================================================================================
</TABLE>
Certain long-term and intermediate-term investments owned by the Funds are
either covered by insurance issued by several private insurers or are backed by
an escrow or trust containing U.S. government or U.S. government agency
securities, both of which ensure the timely payment of principal and interest in
the event of default (53% for Premium Income, 46% for Premium Income 2 and 43%
for Premium Income 4). 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 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.
F-42
<PAGE> 149
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>
- --------------------------------------------------------------------------------
Premium Income
Year Ended 10/31:
1998 $15.28 $1.15 $ .43 $1.58
1997 14.96 1.14 .37 1.51
1996 15.11 1.16 (.09) 1.07
1995 14.14 1.24 1.01 2.25
1994 16.30 1.26 (2.02)** (.76)
Premium Income 2
Year Ended 10/31:
1998 15.80 1.17 .46 1.63
1997 15.16 1.18 .65 1.83
1996 14.89 1.19 .27 1.46
1995 13.03 1.20 1.88 3.08
1994 15.60 1.18 (2.53) (1.35)
Premium Income 4
Year Ended 10/31:
1998 14.64 1.07 .42 1.49
1997 14.07 1.08 .58 1.66
1996 13.87 1.10 .19 1.29
1995 12.09 1.10 1.81 2.91
1994 14.87 1.07 (2.76) (1.69)
================================================================================
</TABLE>
<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>
- --------------------------------------------------------------------------------
Premium Income
Year Ended 10/31:
1998 $ (.88) $(.25) $(.06) $(.01) $(1.20)
1997 (.94) (.20) (.03) -- (1.17)
1996 (.97) (.20) (.05) -- (1.22)
1995 (1.06) (.22) -- -- (1.28)
1994 (1.17) (.16) (.07) -- (1.40)
Premium Income 2
Year Ended 10/31:
1998 (.93) (.24) (.09) (.02) (1.28)
1997 (.93) (.26) -- -- (1.19)
1996 (.93) (.26) -- -- (1.19)
1995 (.92) (.30) -- -- (1.22)
1994 (.94) (.24) (.03) (.01) (1.22)
Premium Income 4
Year Ended 10/31:
1998 (.82) (.26) -- -- (1.08)
1997 (.82) (.27) -- -- (1.09)
1996 (.82) (.27) -- -- (1.09)
1995 (.84) (.29) -- -- (1.13)
1994 (.84) (.20) (.03) (.01) (1.08)
- - --------------------------------------------------------------------------------
</TABLE>
<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>
- --------------------------------------------------------------------------------
Premium Income
Year Ended 10/31:
1998 $ -- $15.66 $15.1875 10.60% 8.86%
1997 (.02) 15.28 14.6250 7.81 8.89
1996 -- 14.96 14.5000 8.24 5.92
1995 -- 15.11 14.3750 16.88 14.84
1994 -- 14.14 13.2500 (19.13) (5.88)
Premium Income 2
Year Ended 10/31:
1998 -- 16.15 16.8750 15.98 8.93
1997 -- 15.80 15.5000 16.76 10.72
1996 -- 15.16 14.1250 14.94 8.28
1995 -- 14.89 13.1250 24.22 22.06
1994 -- 13.03 11.3750 (17.76) (10.64)
Premium Income 4
Year Ended 10/31:
1998 -- 15.05 14.8125 14.54 8.58
1997 -- 14.64 13.6875 14.70 10.20
1996 -- 14.07 12.6880 11.57 7.53
1995 -- 13.87 12.1250 21.32 22.41
1994 (.01) 12.09 10.7500 (19.12) (13.29)
- -------------------------------------------------------------------------------
</TABLE>
<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>
- --------------------------------------------------------------------------------
Premium Income
Year Ended 10/31:
1998 $1,473,755 .77% 5.00% 19%
1997 1,449,660 .76 5.51 10
1996 1,304,192 .75 5.67 16
1995 1,313,673 .76 6.13 12
1994 1,252,208 .77 6.08 15
Premium Income 2
Year Ended 10/31:
1998 959,840 .77 5.03 7
1997 943,587 .77 5.23 19
1996 917,603 .77 5.34 24
1995 906,547 .77 5.60 27
1994 830,600 .76 5.41 26
Premium Income 4
Year Ended 10/31:
1998 923,004 .79 4.79 21
1997 905,764 .79 4.98 26
1996 882,563 .79 5.11 20
1995 874,337 .80 5.35 32
1994 801,617 .88 5.15 47
</TABLE>
* Total Return on Market Value is the combination of reinvested dividend
income, reinvested capital gains distributions, if any, and changes in
stock price per share.
Total Return on Net Asset Value is the combination of reinvested dividend
income, reinvested capital gains distributions, if any, and changes in net
asset value per share.
Total returns are not annualized.
** Includes $(.19) effect of the Fund's Rights Offering of shares at a price
below NAV and costs of the offering.
+ The amounts shown are based on Common share equivalents.
++ Ratios do not reflect the effect of dividend payments to Preferred
shareholders.
F-43
<PAGE> 150
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 Advisers(SM) 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.
F-44
<PAGE> 151
Fund Information
Board of Directors
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.
F-45
<PAGE> 152
Serving Investors for Generations Photo of:
John Nuveen, Sr.
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.
1898 - 1998
NUVEEN
OUR SECOND CENTURY
helping investors sustain the wealth of a lifetime(tm)
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL60606-1286
www.nuveen.com
FAN-5-10-98
F-46
<PAGE> 153
NUVEEN Exchange-Traded Funds
November 30, 1998
Semiannual Report
Dependable, tax-free income to help you keep more of what you earn.
NTC
Connecticut
NMT
Massachusetts
NOM
Missouri
NPW
Washington
Photo of: People reading
F-47
<PAGE> 154
Highlights
As of November 30, 1998
Credit Quality Performance Highlights
================================================================================
Nuveen Connecticut Premium Income Municipal Fund (NTC)
o One-year taxable-equivalent total return on
share price of 15.7% for investors in the
combined 34.1% federal and state income tax
bracket
o Outperformed the Lehman Brothers Municipal
Bond Index and Lipper Peer Group average
for the one-year period
o Stable tax-free dividend for 16 months
PIE CHART:
AAA/U.S. Guaranteed 69%
AA 18%
A 2%
BBB/NR 11%
Nuveen Massachusetts Premium Income Municipal Fund (NMT)
o One-year taxable-equivalent total return on
share price of 14.77% for investors in the
combined 39.3% federal and state income tax
bracket
o Outperformed the Lehman Brothers Municipal
Bond Index and Lipper Peer Group average
for the one-year period
o Stable tax-free dividend for 22 months
PIE CHART:
AAA/U.S. Guaranteed 62%
AA 16%
A 18%
BBB/NR 4%
Nuveen Missouri Premium Income Municipal Fund (NOM)
o One-year taxable-equivalent total return on
share price of 18.10% for investors in the
combined 35.1% federal and state income tax
bracket
o Outperformed the Lehman Brothers Municipal
Bond Index and paralleled the Lipper Peer
Group average for the one-year period
o Increased its dividend in August, after
posting 12 consecutive months of stable
income
PIE CHART:
AAA/U.S. Guaranteed 78%
AA 12%
A 6%
BBB/NR 4%
Nuveen Washington Premium Income Municipal Fund (NPW)
o One-year taxable-equivalent total return
on share price of 17.86% for investors in
the 31% federal income tax bracket
o Outperformed the Lehman Brothers Municipal
Bond Index and Lipper Peer Group average
for the one-year period
o Increased its dividend in August, after
posting 21 consecutive months of stable
income
PIE CHART:
AAA/U.S. Guaranteed 67%
AA 27%
A 3%
BBB/NR 3%
Contents
1 Dear Shareholder
4 NTC Commentary and Overview
6 NMT Commentary and Overview
8 NOM Commentary and Overview
10 NPW Commentary and Overview
12 Portfolio of Investments
23 Statement of Net Assets
24 Statement of Operations
25 Statement of Changes in Net Assets
26 Notes to Financial Statements
30 Financial Highlights
32 Building Better Portfolios
33 Fund Information
F-48
<PAGE> 155
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 past 12 months, the Nuveen Exchange-Traded
Funds covered here 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 in fixed-income securities, bolstered
by investor demand for quality investments, benefited these funds and led to
increases in share price. 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. To avert a
potential domestic credit crunch and bring some stability to global markets, the
Federal Reserve moved to ease short-term interest rates for the first time in
almost three years. Between the end of September and mid-November, three
successive cuts brought the federal funds rate to 4.75%. 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 addition, the funds have generally maintained good
levels of call protection, resulting in relatively stable income streams.
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 statistics, 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 well into 1999.
F-49
<PAGE> 156
Graphic of: Bond Buyer 40 Chart
Municipal Bonds: A Compelling Value
Over the past year, rising bond prices drove yields on 30-year Treasuries to
historic lows. 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 26 basis points - from 5.36% to 5.10% - compared with the 99-point
drop in Treasury yields over the past 12 months. As of November 30, 1998, the
ratio of long-term municipal yields to 30-year Treasury yields stood at more
than 100.8%, compared with the more typical range of 86-87%. Over the past few
months, this ratio has been as high as 104%. For investors, this means that
quality long-term 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.
The steep decline in Treasury yields during the past year was due to several
factors, including the strong interest in these investments by international
investors. As the financial turmoil in Asia spread to economies worldwide and
the dol lar strengthened against foreign currencies, the demand for U.S. dollar-
denominated Treasury securities increased. Compounding this situation was
the shortage of Treasury issues brought about by the federal budget surplus,
which reversed the multi-billion dollar deficits of the past few years and
reduced the federal government's need to issue bonds. In the municipal market,
where foreign demand was limited by an inability of foreign investors to benefit
from the tax advantages of municipals, 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 11 months of 1998 saw over $255
billion of municipal issuance, up 28.4% over the same period in 1997. In terms
of total municipal issuance, this put 1998 on pace as the second largest year on
record.
In addition, the continued strength of the U.S. economy produced improvements in
the fundamental financial health of many municipalities and boosted the overall
credit quality of municipal bonds. In the third quarter of 1998, issues
upgraded by the two major rating agencies outnumbered downgrades by a margin of
7 to 2.
F-50
<PAGE> 157
Nuveen Expertise Is Key
The key to taking advantage of the exceptional values currently available in the
municipal market is the ability of a proven investment manager. At Nuveen, we
recognize the value of time-tested expertise. The high level of recent municipal
issuance, for example, highlighted the value of Nuveen's in-depth knowledge of
the municipal market, as our portfolio management teams carefully analyzed 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), a group of managers who are experts in
their particular areas of the market, to provide time-tested experience and
insights. In addition to Nuveen Investment Advisory Services, our Premier
Adviser for tax-free investing, you can rely on other Premier Advisers to share
their wisdom in the equity market, including Institutional Capital Corporation
for value investing and Rittenhouse Financial Services, Inc. for growth
investing. For more information about the funds managed by these Premier
Advisers, including charges and expenses, contact your finan cial 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.
Over the past 100 years, Nuveen has evolved from a company that dealt with only
municipal bonds into a well respected firm that handles a variety of investment
options. I look forward to continuing this exciting journey. We are grateful
for the confidence you have placed in us, and we intend to continue earning your
trust in the years ahead.
Sincerely,
Timothy R. Schwertfeger
Chairman of the Board
January 15, 1999
Sidebar text: "The key to taking advantage of the exceptional values currently
available in the municipal market is the ability of a proven investment
manager."
F-51
<PAGE> 158
Nuveen Connecticut Premium Income Municipal Fund (NTC)
Portfolio Manager's Comments
Portfolio manager Dan Solender reviews the municipal market, fund performance,
and key investment strategies for the Connecticut fund. A six-year veteran of
Nuveen, Dan has 11 years of investment experience. He has managed NTC since its
inception in May 1993.
WHERE DID CONNECTICUT RANK IN TERMS OF MUNICIPAL ISSUANCE SINCE THE BEGINNING OF
THE YEAR? WHAT ECONOMIC FACTORS AFFECTED THE STATE?
Connecticut, the wealthiest state in the country, was a relatively quiet
participant in the municipal market, ranking 22nd in issuance for the year ended
November 30, 1998. There has been a shortage of issuers, which makes it
difficult for individual investors to buy single bonds. Nuveen is one of the
largest municipal bond investors in Connecticut and is able to buy big blocks of
bonds when they are issued. This underscores the importance of our brand name in
a competitive marketplace. Connecticut generally sees flurries of trading
activity as opposed to a steady marketplace. New deals are often the catalyst
for these flurries. As investors raise funds to pay for new purchases, other
bonds may have to be sold, which then spurs interest in the secondary market.
Compared to prior years, Connecticut's economy has per formed well and been more
in line with the national economy. Though its economic performance is expected
to taper off slight ly in 1999 due to labor shortages, slower population
increases, and slower national growth, Connecticut is still expected to
experience moderate growth. The state's economy continued to diversify away from
manufacturing and defense-related industries into a more service oriented
economy, with a focus on the financial services sector, healthcare, and
pharmaceuticals. Gaming has become the state's largest growth industry.
HOW DID THE FUND PERFORM OVER THE PAST YEAR?
For the 12-month period ended November 30, 1998, the Nuveen Connecticut Premium
Income Municipal Fund (NTC) produced a total return on net asset value of 9.48%,
providing a taxable-equivalent total return of 12.46% for investors in the
combined 34.1% federal and state income tax bracket. The total return com pares
with the Lehman Brothers Municipal Bond Index's(1) annual return of 7.76%. The
fund also outperformed the relevant Lipper Peer Group(2) average return of
8.86%, ranking third among the group's 18 funds.
Much of the fund's performance over the past 12 months can be tied to its
duration. As of November 30, 1998, NTC had a leverage-adjusted duration(3) of
9.30 years, compared with the unleveraged Lehman index's duration of 7.22 years.
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. Over the past year, as interest rates trended downward, funds with
durations longer than that of the index generally tended to outperform
the market.
HOW WERE THE FUND'S DIVIDEND AND SHARE PRICE AFFECTED?
In the current low interest rate environment, good call protec tion helped
support NTC's dividend and protect the income of this fund from erosion. As of
November 30, 1998, NTC had provided shareholders with 16 consecutive months of
steady income. NTC also offered a competitive mar ket yield of 4.87%, equivalent
to a taxable yield of 7.39% for investors in the combined 34.1% federal and
state income tax bracket.
As Tim mentioned in his letter to shareholders, share price performance among
the Nuveen Exchange-Traded Funds has been strong over the past 12 months. As
interest rates fell, active demand for these funds increased share prices,
further widening the spread between NTC's share price and its net asset value.
As of November 30, 1998, NTC was trading at a premium of 11.02% to its net asset
value and also had a one-year total return on its share price of 12.93%.
WHAT KEY STRATEGIES WERE USED TO MANAGE THE FUND DURING THE PAST YEAR?
The largest issuers in Connecticut are the state itself (general tax obligation
bonds) and the state housing finance authority. The heavier supply of new issues
in these two sectors made it challenging to find other types of issues to keep
the fund well-diversified. One area where we did find opportunities to add value
was the education sector, which represented 22% of the fund's investments, as of
November 30, 1998. A number of small issues in the $10-50 million range enabled
us to be selective and focus on bonds offering the best characteristics, such as
those issued by Sacred Heart University and Fairfield University. We continued
to hold the healthcare issues we purchased several years ago, which made up an
additional 20% of the fund.
We believe NTC is currently well-positioned in terms of duration,
diversification by credit and sector, and call protection. Over the past year,
we worked to further improve call protection by taking advantage of a situation
where we were able to purchase bonds with 10 years of call protection for the
price of a bond with five years of protection. Given the tight credit spreads in
the current market, we continued to focus on high quality issues, with 69% of
the portfolio's holdings invested in bonds rated AAA.
WHAT IS NUVEEN'S OUTLOOK FOR THE FUTURE?
Looking ahead for NTC, we will continue to watch the new issuance market for
value, taking advantage of the buying opportunities that arise as issues come to
market. This is an area where Nuveen's exceptional access to new deals and our
expertise as an experienced investment manager knowledgeable about the unique
aspects of the Connecticut municipal market can result in added value for our
investors. Our goals for the coming year are to continue taking advantage of
opportunities to add yield, extend call protection if we can do so
inexpensively, and keep the fund well-diversified.
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 aware ness 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.
1 The Lehman Brothers Municipal Bond Index is an unleveraged index comprising a
broad range of investment-grade municipal bonds and does not reflect any
initial or ongoing expenses.
2 The Lipper Peer Group return represents the average annualized returns of the
18 funds in the Lipper State Leveraged Municipal Debt category. The return
assumes reinvestment of dividends and does not reflect any applicable sales
charges.
3 Leverage-adjusted duration, also known as fund duration, takes into account
the leveraging process for each fund and therefore differs from the duration
of the actual portfolio of individual bonds that make up the fund. Unless
otherwise noted, refer ences to duration in this commentary are intended to
indicate fund duration.
F-52
<PAGE> 159
Nuveen Connecticut Premium Income Municipal Fund
Performance Overview
As of November 30, 1998
NTC
Portfolio Statistics
==================================================
Inception Date 5/93
- --------------------------------------------------
Share Price $16 3/8
- --------------------------------------------------
Net Asset Value Per Share $14.75
- --------------------------------------------------
Market Yield 4.87%
- --------------------------------------------------
Taxable-Equivalent Yield (Federal Only)(1) 7.06%
- --------------------------------------------------
Taxable-Equivalent Yield
(Federal and State)(1) 7.39%
- --------------------------------------------------
Fund Net Assets ($000) $114,898
- --------------------------------------------------
Average Effective Maturity (Years) 18.67
- --------------------------------------------------
Leverage-Adjusted Duration (Years) 9.30
- --------------------------------------------------
Annualized Total Return
==================================================
On Share Price On NAV
- --------------------------------------------------
1-Year 12.93% 9.48%
- --------------------------------------------------
3-Year 12.83% 8.32%
- --------------------------------------------------
5-Year 7.69% 7.28%
- --------------------------------------------------
Since Inception 7.08% 6.51%
- --------------------------------------------------
Taxable-Equivalent Total Return(2)
==================================================
On Share Price On NAV
- --------------------------------------------------
1-Year 15.70% 12.46%
- --------------------------------------------------
3-Year 15.75% 11.28%
- --------------------------------------------------
5-Year 10.66% 10.35%
- --------------------------------------------------
Since Inception 9.91% 9.43%
- --------------------------------------------------
Top Five Sectors (as a % of total investments)
==================================================
Education and Civic Organizations 22%
- --------------------------------------------------
Health Care 20%
- --------------------------------------------------
Utilities 12%
- --------------------------------------------------
Tax Obligation (General) 8%
- --------------------------------------------------
Transportation 8%
- --------------------------------------------------
1 Taxable-equivalent yield represents the yield on a taxable investment nec
essary 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%. The rate shown for federal and state highlights the added
value of owning shares that are also exempt from state income taxes. It is
based on a combined federal and state income tax rate of 34.1%.
2 Taxable-equivalent total return is based on the annualized total return and a
combined federal and state income tax rate of 34.1%. It represents the return
on a taxable investment necessary to equal the return of the Nuveen fund on an
after-tax basis.
Bar Chart:
1997-1998 Monthly Tax-Free Dividends Per Share
12/97 0.0665
1/98 0.0665
2/98 0.0665
3/98 0.0665
4/98 0.0665
5/98 0.0665
6/98 0.0665
7/98 0.0665
8/98 0.0665
9/98 0.0665
10/98 0.0665
11/98 0.0665
Line Chart:
Share Price Performance
12/5/97 15.563
14.938
14.75
14.875
15
15.5
15.625
15.875
15.875
15.938
15.938
15.688
16
16.188
16.063
16.125
15.688
15.625
15.625
15.438
15.25
15.438
15
15.375
15.5
15.875
16.125
16.125
15.688
15.938
16.313
15.625
15.875
15.875
15.813
15.875
16
15.875
15.938
15.813
15.938
16.063
16.875
16.875
16.75
16.5
16.63
16.69
16.38
16.31
11/30/98 16.375
Weekly Closing Price
Past performance is not predictive of future results.
F-53
<PAGE> 160
Nuveen Massachusetts Premium Income Municipal Fund (NMT)
Portfolio Manager's Comments
Portfolio manager Tom Futrell discusses the municipal market, fund performance,
and key investment strategies for the Massachusetts fund. Tom assumed management
responsibility for NMT on July 1, 1998, as part of Nuveen's efforts to maximize
the efficient use of staff resources and portfolio manager expertise. A 15-year
veteran of Nuveen, Tom manages a range of national and state municipal bond
funds.
WHERE DID MASSACHUSETTS RANK IN TERMS OF MUNICIPAL ISSUANCE SINCE THE BEGINNING
OF THE YEAR? WHAT ECONOMIC FACTORS AFFECTED THE STATE?
Continued growth has benefited the Massachusetts economy, and credit quality in
the state remains very strong. During the first 11 months of 1998, Massachusetts
saw an extremely good supply of new municipal issuance compared with the same
period last year. As of the end of November, the state ranked seventh in the
nation in new issue volume, and total issuance was up 23.8% com pared to
November 30, 1997. Most of this issuance was high credit quality and insured
paper from issuers in the education and health care sectors, such as the
Massachusetts Health and Educational Facilities Authority. Increased supply was
met by good demand, especially from retail investors.
Massachusetts, long known as a high tax state, is starting to lose that
reputation, with a series of tax cuts in recent years easing the tax burden of
its residents. Starting in January of 1999, the tax on investment income will be
lowered from 12% to 5.95%, and a reduction in personal income tax rates is also
being considered.
Massachusetts continues to be a knowledge-based economy, flourishing because of
the growth in high-tech and financial services sectors. This growth is expected
to taper off slightly in 1999, led by a reduction in manufacturing. However, the
state is still expected to experience moderate growth. The service sector
continued to perform well and has been the state's most important source of
recent economic growth.
HOW DID THE FUND PERFORM OVER THE PAST YEAR?
For the 12-month period ended November 30, 1998, the Nuveen Massachusetts
Premium Income Municipal Fund (NMT) produced a total return on net asset value
of 9.41%, providing a taxable-equivalent total return of 13.26% for investors in
the combined 39.3% federal and state income tax bracket. The total return
compares with the Lehman Brothers Municipal Bond Index's(1) annual return of
7.76%. The fund also outperformed the relevant Lipper Peer Group(2) average
return of 8.86%, ranking fourth among the group's 18 funds.
Much of the fund's performance over the past 12 months can be tied to its
duration. As of November 30, 1998, NMT had a leverage-adjusted duration(3) of
9.64 years, compared with the unleveraged Lehman index's duration of 7.22 years.
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. Over the past year, as interest rates trended downward, funds with
durations longer than that of the index generally tended to outperform the
market.
HOW WERE THE FUND'S DIVIDEND AND SHARE PRICE AFFECTED?
In the current low interest rate environment, good call protection helped
support NMT's dividend and protect the income of this fund from erosion. As of
November 30, 1998, NMT had provided shareholders with 22 consecutive months of
steady income and a competitive market yield of 5.11%, equivalent to a taxable
yield of 8.42% for investors in the combined 39.3% federal and state income tax
bracket.
As Tim mentioned in his letter to shareholders, share price performance among
the Nuveen Exchange-Traded Funds has been strong over the past 12 months. As
interest rates fell, active demand for these funds increased share prices. As of
November 30, 1998, NMT was trading at a premium of 9.47% to its net asset value
and also had a one-year total return on its share price of 11.19%.
WHAT KEY STRATEGIES WERE USED TO MANAGE THE FUND DURING THE PAST YEAR?
NMT is a well-structured portfolio offering high credit quality (78% of holdings
rated AAA and AA), good call protection, and a stable dividend. Over the past
year, heavy issuance in the Massachusetts market provided us with a number of
opportunities to purchase bonds that further enhanced the fund's structure.
Given Massachusetts' high concentration of colleges, universities, and secondary
schools and leadership in healthcare-related issues, much of the new issuance
came from the education and healthcare sectors. As of November 30, 1998, 40% of
the portfolio was invested in these two sectors.
Over the year, we focused on purchasing securities with longer durations in
order to improve the fund's total return prospects in the current market
environment. We also sold securities that were not supporting the objectives of
the fund and purchased bonds that we believe will do so, including insured and
investment-grade bonds in attractive sectors that were inexpensively priced. We
also bought a small amount of discount bonds to pick up additional yield.
With spreads between high quality bonds (AAA rated) and low rated, investment
grade bonds (at least BBB rated) remaining rela tively narrow, it was difficult
to find a boost in incremental yield that would have compensated us for buying
lower-rated bonds. Consequently, we continued to focus on higher-quality
credits. The tight credit spreads also restricted our purchase of Massachusetts
housing bonds. Since these bonds can provide attractive income, we continue to
watch new issuance for opportunities to buy in this sector. One such recent
addition to the portfolio was an FHA-insured Boston multi-family housing issue
that provided an above-market yield as well as good volatility characteristics
for a lever aged fund. The ability to find bonds such as these illustrates how
Nuveen's expertise and close relationships with regional firms help us select
the investments that reward shareholders.
WHAT IS NUVEEN'S OUTLOOK FOR THE FUTURE?
Achieving the fund's primary objective of providing current income exempt from
federal and state income taxes is our main goal. We will also focus on
accomplishing the second objective, which is to enhance the fund portfolio's
value by seeking out bonds that our investment advisers feel are undervalued by
the market. To help us accomplish this goal, we will continue monitoring the new
issuance market in Massachusetts for value, taking advantage of any attractive
buy opportunities that arise. Finding bonds such as these is an area where
Nuveen's expertise - as an experienced invest ment manager knowledgeable about
the unique aspects of the Massachusetts municipal market can result in added
value for our investors.
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 munici pal-to-Treasury ratio Tim mentioned in his shareholder letter,
com bined 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.
1 The Lehman Brothers Municipal Bond Index is an unleveraged index comprising a
broad range of investment-grade municipal bonds and does not reflect any
initial or ongoing expenses.
2 The Lipper Peer Group return represents the average annualized returns of the
18 funds in the Lipper State Leveraged Municipal Debt category. The return
assumes reinvestment of dividends and does not reflect any applicable sales
charges.
3 Leverage-adjusted duration, also known as fund duration, takes into account
the leveraging process for each fund and therefore differs from the duration
of the actual portfolio of individual bonds that make up the fund. Unless
otherwise noted, refer ences to duration in this commentary are intended to
indicate fund duration.
F-54
<PAGE> 161
Nuveen Massachusetts Premium Income Municipal Fund
Performance Overview
As of November 30, 1998
NMT
Portfolio Statistics
==================================================
Inception Date 3/93
- --------------------------------------------------
Share Price $16 9/16
- --------------------------------------------------
Net Asset Value Per Share $15.13
- --------------------------------------------------
Market Yield 5.11%
- --------------------------------------------------
Taxable-Equivalent Yield (Federal Only)(1) 7.41%
- --------------------------------------------------
Taxable-Equivalent Yield
(Federal and State)(1) 8.42%
- --------------------------------------------------
Fund Net Assets ($000) $104,113
- --------------------------------------------------
Average Effective Maturity (Years) 17.53
- --------------------------------------------------
Leverage-Adjusted Duration (Years) 9.64
- --------------------------------------------------
Annualized Total Return
==================================================
On Share Price On NAV
- --------------------------------------------------
1-Year 11.19% 9.41%
- --------------------------------------------------
3-Year 13.20% 8.13%
- --------------------------------------------------
5-Year 10.95% 7.66%
- --------------------------------------------------
Since Inception 7.48% 7.12%
- --------------------------------------------------
Taxable-Equivalent Total Return(2)
==================================================
On Share Price On NAV
- --------------------------------------------------
1-Year 14.77% 13.26%
- --------------------------------------------------
3-Year 17.06% 11.99%
- --------------------------------------------------
5-Year 14.94% 11.62%
- --------------------------------------------------
Since Inception 11.21% 10.90%
- --------------------------------------------------
Top Five Sectors (as a % of total investments)
==================================================
Education and Civic Organizations 22%
- --------------------------------------------------
U.S. Guaranteed 20%
- --------------------------------------------------
Health Care 18%
- --------------------------------------------------
Housing (Multifamily) 14%
- --------------------------------------------------
Tax Obligation (General) 9%
- --------------------------------------------------
1 Taxable-equivalent yield represents the yield on a taxable investment nec
essary 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%. The rate shown for federal and state highlights the added
value of owning shares that are also exempt from state income taxes. It is
based on a combined federal and state income tax rate of 39.3%.
2 Taxable-equivalent total return is based on the annualized total return and a
combined federal and state income tax rate of 39.3%. It represents the return
on a taxable investment necessary to equal the return of the Nuveen fund on an
after-tax basis.
Bar Chart:
1997-1998 Monthly Tax-Free Dividends Per Share
12/97 0.0705
1/98 0.0705
2/98 0.0705
3/98 0.0705
4/98 0.0705
5/98 0.0705
6/98 0.0705
7/98 0.0705
8/98 0.0705
9/98 0.0705
10/98 0.0705
11/98 0.0705
Line Chart:
Share Price Performance
12/5/97 15.563
15.5
15.75
15.938
16.125
16.375
16.688
16.25
16.188
16.625
16.563
16.25
16.25
16.625
16.5
16.563
16.313
16.313
16
15.938
16.125
16.25
16.063
16.375
16.438
16.375
16.375
16.625
16.25
16.875
16.688
16.625
16.313
16.375
16.5
16.375
16.563
16.688
16.75
16.438
16.563
16.75
17.5
16.875
16.75
16.75
16.69
16.88
16.56
16.44
11/30/98 16.5625
Weekly Closing Price
Past performance is not predictive of future results.
F-55
<PAGE> 162
Nuveen Missouri Premium Income Municipal Fund (NOM)
Portfolio Manager's Comments
Portfolio manager Mike Davern discusses the municipal market, fund performance,
and key investment strategies for the Missouri fund. Mike assumed management
responsibility for the fund on July 1, 1998, as part of Nuveen's efforts to
maximize the efficient use of staff resources and portfolio manager expertise. A
six-year veteran of Nuveen, Mike has 15 years of investment experience and
manages a range of state municipal bond funds for Nuveen.
WHERE DID MISSOURI RANK IN TERMS OF MUNICIPAL ISSUANCE SINCE THE BEGINNING OF
THE YEAR? WHAT ECONOMIC FACTORS AFFECTED THE STATE?
In response to low interest rates and Missouri's continued population growth,
the state's municipal bond issuance increased almost 85% over 1997 levels, which
ranked the state 19th in the nation, as of November 30, 1998. Supply is expected
to remain strong over the next few years due to the continuing need for
infrastructure financing and increased school spending. Missouri's overall
creditworthiness is reflected in its long-standing Aaa/AAA/AAA rating by
Moody's, Standard & Poor's, and Fitch, respectively.
Missouri maintained a diversified economy, mirroring that of the nation.
Although recent industry growth has shifted to services and tourism, defense and
manufacturing are important elements of the state economy. Population in
Missouri has increased approximately 5.6% from 1990. The state's unemployment
rate has steadily declined from a high of 6.7% in 1991. It was 3.7% in November
1998, compared to the national average of 4.4%.
HOW DID THE FUND PERFORM OVER THE PAST YEAR?
For the 12-month period ended November 30, 1998, the Nuveen Missouri Premium
Income Municipal Fund (NOM) produced a total return on net asset value of 8.73%,
providing a taxable-equivalent total return of 11.65% for investors in the
combined 35.1% federal and state income tax bracket. The fund's total return
outperformed the Lehman Brothers Municipal Bond Index's(1) annual return of
7.76% and compared favorably with the relevant Lipper Peer Group(2) average
return of 8.86%.
Much of the fund's performance over the past 12 months can be tied to its
duration. As of November 30, 1998, NOM had a leverage-adjusted duration(3) of
9.55 years, compared with the unleveraged Lehman index's duration of 7.22
years. 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. Over the past year, as interest rates trended downward, funds with
durations longer than that of the index generally tended to outperform the
market.
HOW WERE THE FUND'S DIVIDEND AND SHARE PRICE AFFECTED?
In the current low interest rate environment, excellent call protection helped
support NOM's dividend and protect the income of this fund from erosion. In
addition, good dividend management strategies allowed us to increase the
dividend, effective August 1998. As of November 30, 1998, the fund offered a
competitive market yield of 4.92%, equivalent to a taxable yield of 7.58% for
investors in the combined 35.1% federal and state income tax bracket.
As Tim mentioned in his letter to shareholders, share price performance among
the Nuveen Exchange-Traded Funds has been strong over the past 12 months. As
interest rates fell, active demand for these funds increased NOM's share price,
eliminating the slight discount of a year ago. As of November 30, 1998, NOM was
trading at a premium of 4.95% to its net asset value and also had a one-year
total return on its share price of 15.15%.
WHAT KEY STRATEGIES WERE USED TO MANAGE THE FUND DURING THE PAST YEAR?
As of November 30, 1998, one of NOM's largest sector weight ings, representing
17% of the fund's holdings, was in general tax obligation bonds, the
top-performing sector over the past six months. One of the reasons behind the
sector's excellent performance has been the recent economic environment, which
has boosted tax receipts and credit quality in general, as the budgets of
municipalities and school districts continue to improve. Over the past year,
escrowed securities - that is, bonds that were prerefunded as interest rates
fell also performed well. Among these bonds in NOM's portfolio are those issued
by the Missouri Health and Educational Facilities Authority for Barnes-Jewish
Christian Health System. Recently, some lower-rated credits became more
attractive and were added to the portfolio. An example of this is the Industrial
Development Authority of St. Charles County, Missouri, for Ashwood Apartments, a
multi-family apartment project, maturing in 2030, which provided attractive
yields for the fund.
NOM is noteworthy for its excellent call protection, with no scheduled calls
over the next 12 months and only 3% of fund scheduled to be called in the year
2000. Overall, the credit quality of the fund is high, with 78% of the portfolio
invested in bonds rated AAA.
WHAT IS NUVEEN'S OUTLOOK FOR THE FUTURE?
Going forward, we will continue to examine the call structure of the portfolio.
With a tight municipal supply relative to retail demand in Missouri, we will
look to take advantage of the most attractive new issues that do come to market.
This would allow us to sell bonds with short call provisions at good prices for
the portfolio and reinvest the proceeds in well-structured new issues. Working
with our research analysts gives us the ability to select lower-rated,
investment grade bonds at attractive prices, if they are available, as a way to
increase the incremental yield of the fund. Selecting the bonds that will help
the fund meet these goals is an area where Nuveen's expertise - as an
experienced investment manager knowledgeable about the unique aspects of the
Missouri municipal market - can result in added value for our investors.
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 Tim mentioned in his shareholder letter,
com bined 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.
1 The Lehman Brothers Municipal Bond Index is an unleveraged index comprising a
broad range of investment-grade municipal bonds and does not reflect any
initial or ongoing expenses.
2 The Lipper Peer Group return represents the average annualized returns of the
18 funds in the Lipper State Leveraged Municipal Debt category. The return
assumes reinvestment of dividends and does not reflect any applicable sales
charges.
3 Leverage-adjusted duration, also known as fund duration, takes into account
the leveraging process for each fund and therefore differs from the duration
of the actual portfolio of individual bonds that make up the fund. Unless
otherwise noted, references to duration in this commentary are intended to
indicate fund duration.
F-56
<PAGE> 163
Nuveen Missouri Premium Income Municipal Fund
Performance Overview
As of November 30, 1998
NOM
Portfolio Statistics
==================================================
Inception Date 5/93
- --------------------------------------------------
Share Price $15 3/8
- --------------------------------------------------
Net Asset Value Per Share $14.65
- --------------------------------------------------
Market Yield 4.92%
- --------------------------------------------------
Taxable-Equivalent Yield (Federal Only)(1) 7.13%
- --------------------------------------------------
Taxable-Equivalent Yield
(Federal and State)(1) 7.58%
- --------------------------------------------------
Fund Net Assets ($000) $47,456
- --------------------------------------------------
Average Effective Maturity (Years) 16.35
- --------------------------------------------------
Leverage-Adjusted Duration (Years) 9.55
- --------------------------------------------------
Annualized Total Return
==================================================
On Share Price On NAV
- --------------------------------------------------
1-Year 15.15% 8.73%
- --------------------------------------------------
3-Year 15.84% 7.44%
- --------------------------------------------------
5-Year 7.83% 6.90%
- --------------------------------------------------
Since Inception 5.87% 6.07%
- --------------------------------------------------
Taxable-Equivalent Total Return(2)
==================================================
On Share Price On NAV
- --------------------------------------------------
1-Year 18.10% 11.65%
- --------------------------------------------------
3-Year 19.02% 10.33%
- --------------------------------------------------
5-Year 11.04% 9.91%
- --------------------------------------------------
Since Inception 8.90% 8.95%
- --------------------------------------------------
Top Five Sectors (as a % of total investments)
==================================================
Tax Obligation (General) 17%
- --------------------------------------------------
Tax Obligation (Limited) 17%
- --------------------------------------------------
Housing (Multifamily) 14%
- --------------------------------------------------
Water and Sewer 11%
- --------------------------------------------------
Health Care 10%
- --------------------------------------------------
1 Taxable-equivalent yield represents the yield on a taxable investment nec
essary 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%. The rate shown for federal and state highlights the added
value of owning shares that are also exempt from state income taxes. It is
based on a combined federal and state income tax rate of 35.1%.
2 Taxable-equivalent total return is based on the annualized total return and a
combined federal and state income tax rate of 35.1%. It represents the return
on a taxable investment necessary to equal the return of the Nuveen fund on an
after-tax basis.
Bar Chart:
1997-1998 Monthly Tax-Free Dividends Per Share
12/97 0.062
1/98 0.062
2/98 0.062
3/98 0.062
4/98 0.062
5/98 0.062
6/98 0.062
7/98 0.062
8/98 0.063
9/98 0.063
10/98 0.063
11/98 0.063
Line Chart:
Share Price Performance
12/5/97 14.063
14.125
14.063
14.188
14.063
14.5
14.563
14.25
14.25
14.938
14.875
14.875
14.938
15
14.5
14.813
14.625
14.625
14.563
14.438
14.375
14.25
14.25
14.125
14.188
14.75
14.25
14.375
14.25
14.5
14.25
14.75
14.75
14.688
14.625
14.75
14.75
14.625
14.688
15
15
15.063
15.125
15.25
15.375
15.13
15.06
15.5
15.19
15.38
11/30/98 15.375
Weekly Closing Price
Past performance is not predictive of future results.
F-57
<PAGE> 164
Nuveen Washington Premium Income Municipal Fund (NPW)
Portfolio Manager's Comments
Portfolio manager Mike Davern discusses the municipal market, fund performance,
and key investment strategies for the Washington state fund. Mike assumed
management responsibility for NPW on July 1, 1998, as part of Nuveen's efforts
to maximize the efficient use of staff resources and portfolio manager
expertise. A six-year veteran of Nuveen, Mike has 15 years of investment
experience and manages a range of state municipal bond funds for Nuveen.
WHERE DID WASHINGTON RANK IN TERMS OF MUNICIPAL ISSUANCE SINCE THE BEGINNING OF
THE YEAR? WHAT ECONOMIC FACTORS AFFECTED THE STATE?
Washington saw an increase in municipal supply of 12.9% over 1997's figure,
which ranked the state 11th in the nation in terms of total municipal issuance
for the 11 months ended November 30, 1998. Its total issuance for that period
was $5.8 billion.
Unemployment in the state, as of November 30, 1998, was 4.7%, compared to the
national level of 4.4%. The state's economic diversification has seen a shift in
its sector allocations. Boeing, a leader in aerospace technology and based in
Seattle, once accounted for nearly 10% of total state employment. As of
December 11, 1998, that number had been reduced to 3.5%. Furthermore, Boeing is
expected to cut its workforce by 48,000 people over the next two years. However,
the slack caused by these layoffs is expected to be picked up by available jobs
in other sectors, such as construction, retail trade, and services industries.
The growth in the construction industry is of particular interest, due to its
previous six year slump.
HOW DID THE FUND PERFORM OVER THE PAST YEAR?
For the 12 month period ended November 30, 1998, the Nuveen Washington Premium
Income Municipal Fund (NPW) produced a total return on net asset value of 9.01%,
providing a taxable-equivalent total return of 11.39% for investors in the 31%
federal income tax bracket. The total return compares with the Lehman Brothers
Municipal Bond Index's(1) annual return of 7.76%. The fund also outperformed the
relevant Lipper Peer Group(2) average return of 8.86%.
Much of the fund's performance over the past 12 months can be tied to its
duration. As of November 30, 1998, NPW had a leverage-adjusted duration(3) of
9.45 years, compared with the unleveraged Lehman index's duration of 7.22 years.
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. Over the past year, as interest rates trended downward, funds with
durations longer than that of the index generally tended to outperform the
market.
HOW WERE THE FUND'S DIVIDEND AND SHARE PRICE AFFECTED?
In the current low interest rate environment, good call protection helped
support NPW's dividend and protect the income of this fund from erosion. In
addition, good dividend management strategies allowed us to increase the
dividend effective August 1998. As of November 30, 1998, the fund offered a
competitive market yield of 5.24%, equivalent to a taxable yield of 7.59% for
investors in the 31% federal income tax bracket.
As Tim mentioned in his letter to shareholders, share price performance among
the Nuveen exchange-traded funds has been strong over the past 12 months. As
interest rates fell, active demand for these funds increased share prices. At
the same time, strong bond market performance boosted NPW's net asset value,
narrowing the spread between the fund's share price and net asset value by
almost 500 basis points. As of November 30, 1998, NPW was trading at a discount
of 2.90% to its net asset value and also had a one-year total return on its
share price of 15.27%.
WHAT KEY STRATEGIES WERE USED TO MANAGE THE FUND DURING THE PAST YEAR?
As of November 30, 1998, NPW's largest sector - representing 21% of its holdings
- - was general tax obligation bonds, which was also the top-performing sector
over the past six months. One of the reasons this sector has performed so well
is the strong economic environment, which has boosted tax receipts and credit
quality in general, as the budgets of municipalities and school districts
continue to improve. Overall, the credit quality of the fund is high, with 67%
invested in bonds rated AAA. With the tight credit spreads between higher-rated
(AAA) and lower-rated, investment grade bonds (at least BBB rated) of the past
year, we maintained our heavy weighting in the AAA sector, while watching for
opportunities in lower or non-rated bonds that would allow us to pick up
additional yield for the fund. One example of this was our purchase of bonds
issued by the Spokane Parking Revenue Facility Downtown Development Authority
for the River Park Square project. These BBB/non-rated bonds, which mature in
2019, enabled us to add incremental yield to the fund.
WHAT IS NUVEEN'S OUTLOOK FOR THE FUTURE?
Going forward, we will continue to examine the call structure of the portfolio.
We will also look to take advantage of the most attractive new issues that come
to market. This would allow us to sell bonds with short call provisions at good
prices for the portfolio and reinvest the proceeds in well-structured new
issues. Working with our research analysts gives us the ability to select
lower-rated, investment grade bonds at attractive prices, if they are available,
as a way to increase the incremental yield of the fund. Selecting the bonds that
will help the fund meet these goals is an area where Nuveen's expertise - as an
experienced investment manager knowledgeable about the unique aspects of the
Washington state municipal market - can result in added value for our investors.
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.
1 The Lehman Brothers Municipal Bond Index is an unleveraged index comprising a
broad range of investment-grade municipal bonds and does not reflect any
initial or ongoing expenses.
2 The Lipper Peer Group return represents the average annualized returns of the
18 funds in the Lipper State Leveraged Municipal Debt category. The return
assumes reinvestment of dividends and does not reflect any applicable sales
charges.
3 Leverage-adjusted duration, also known as fund duration, takes into account
the leveraging process for each fund and therefore differs from the duration
of the actual portfolio of individual bonds that make up the fund. Unless
otherwise noted, refer ences to duration in this commentary are intended to
indicate fund duration.
F-58
<PAGE> 165
Nuveen Washington Premium Income Municipal Fund
Performance Overview
As of November 30, 1998
NPW
Portfolio Statistics
==================================================
Inception Date 3/93
- --------------------------------------------------
Share Price $14 7/8
- --------------------------------------------------
Net Asset Value Per Share $15.32
- --------------------------------------------------
Market Yield 5.24%
- --------------------------------------------------
Taxable-Equivalent Yield (Federal Only)(1) 7.59%
- --------------------------------------------------
Fund Net Assets ($000) $52,547
- --------------------------------------------------
Average Effective Maturity (Years) 17.95
- --------------------------------------------------
Leverage-Adjusted Duration (Years) 9.45
- --------------------------------------------------
Annualized Total Return
==================================================
On Share Price On NAV
- --------------------------------------------------
1-Year 15.27% 9.01%
- --------------------------------------------------
3-Year 13.40% 8.06%
- --------------------------------------------------
5-Year 7.47% 6.97%
- --------------------------------------------------
Since Inception 5.72% 7.01%
- --------------------------------------------------
Taxable-Equivalent Total Return(2)
==================================================
On Share Price On NAV
- --------------------------------------------------
1-Year 17.86% 11.39%
- --------------------------------------------------
3-Year 16.12% 10.47%
- --------------------------------------------------
5-Year 10.26% 9.53%
- --------------------------------------------------
Since Inception 8.35% 9.47%
- --------------------------------------------------
Top Five Sectors (as a % of total investments)
==================================================
Tax Obligation (General) 21%
- --------------------------------------------------
Utilities 15%
- --------------------------------------------------
Water and Sewer 13%
- --------------------------------------------------
Health Care 12%
- --------------------------------------------------
Transportation 8%
- --------------------------------------------------
1 Taxable-equivalent yield represents the yield on a taxable investment nec
essary 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.
Bar Chart:
1997-1998 Monthly Tax-Free Dividends Per Share
12/97 0.063
1/98 0.063
2/98 0.063
3/98 0.063
4/98 0.063
5/98 0.063
6/98 0.063
7/98 0.063
8/98 0.065
9/98 0.065
10/98 0.065
12/98 0.065
Line Chart:
Share Price Performance
12/5/97 13.875
13.938
13.688
13.563
13.75
14.625
14.063
14
14
14.375
14.125
13.688
13.875
13.938
14.125
13.75
13.75
13.625
13.5
13.813
13.5
13.5
13.5
13.5
13.625
13.625
13.563
13.563
13.688
13.875
13.813
13.938
13.75
13.625
14.125
14.063
14
14.25
14.188
14.125
14.25
14.25
14.5
14.375
14.25
14.44
14.44
14.31
14.75
14.88
11/30/98 14.875
Weekly Closing Price
Past performance is not predictive of future results.
F-59
<PAGE> 166
Portfolio of Investments
Nuveen Connecticut Premium Income Municipal Fund (NTC)
November 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education and Civic Organizations - 18.0%
$ 4,450,000 State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Quinnipiac College Issue, Series D, 6.000%, 7/01/23 7/03 at 103 BBB- $4,587,372
Connecticut Higher Education Supplemental Loan Authority,
Revenue Bonds (Family Education Loan Program), 1996 Series A:
1,570,000 5.800%, 11/15/14 (Alternative Minimum Tax) 11/06 at 102 AAA 1,691,031
995,000 5.875%, 11/15/17 (Alternative Minimum Tax) 11/06 at 102 AAA 1,030,621
2,000,000 State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Trinity College Issue, Series E, 5.875%, 7/01/26 7/06 at 102 AAA 2,170,500
2,040,000 State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, The Loomis Chaffee School Issue, Series C,
5.500%, 7/01/16 7/06 at 102 AAA 2,143,387
2,250,000 State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Fairfield University Issue, Series H, 5.000%, 7/01/23 7/08 at 102 AAA 2,252,835
2,920,000 State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Connecticut College Issue, Series C-1, 5.500%, 7/01/20 7/07 at 102 AAA 3,101,682
3,810,000 The University of Connecticut, Student Fee Revenue Bonds, 1998 Series A,
4.750%, 11/15/27 11/08 at 101 AAA 3,690,480
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care - 19.5%
1,000,000 State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Newington Childrens Hospital, Series A, 6.050%, 7/01/10 7/04 at 102 AAA 1,103,910
1,500,000 State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Lawrence and Memorial Hospital Issue, Series D,
5.000%, 7/01/22 7/03 at 102 AAA 1,476,450
2,000,000 State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Hospital of Saint Raphael Issue, Series H,
5.200%, 7/01/08 No Opt. Call AAA 2,157,240
2,725,000 State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Saint Francis Hospital and Medical Center Issue,
Series B, 6.200%, 7/01/22 7/02 at 102 AAA 2,967,253
2,200,000 State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Day Kimball Hospital Issue, Series A, 5.375%, 7/01/26 7/06 at 102 AAA 2,254,538
4,160,000 State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Yale-New Haven Hospital Issue, Series H, 5.625%, 7/01/16 7/06 at 102 AAA 4,435,850
1,000,000 State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, The William W. Backus Hospital Issue, Series D,
5.750%, 7/01/27 7/07 at 102 AAA 1,073,360
3,000,000 State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Middlesex Health Services Issue, Series I,
5.125%, 7/01/27 7/07 at 101 Aaa 2,986,470
2,000,000 Connecticut Development Authority, Solid Waste Disposal Facilities Revenue
Bonds, Pfizer Inc. Project, 1994 Series, 7.000%, 7/01/25
(Alternative Minimum Tax) 7/05 at 102 AAA 2,338,880
1,500,000 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority, Hospital Revenue Refunding Bonds,
1995 Series A (FHA Insured Mortgage Pila-Hospital Project),
6.125%, 8/01/25 8/05 at 101 1/2 AAA 1,660,740
- ------------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 5.9%
3,000,000 Housing Authority of the City of Waterbury (Connecticut), Mortgage Refunding
Revenue Bonds, Series 1998C (FHA Insured Mortgage Loan - Waterbury
NSA-II Section 8 Assisted Project), 5.450%, 7/01/23 1/02 at 100 AAA 3,032,040
1,360,000 Waterbury Nonprofit Housing Corporation, Connecticut Taxable Mortgage
Revenue Refunding Bonds (FHA Insured Mortgage Loan - Fairmont Height
Section 8 Assisted Project), Series 1993A, 6.500%, 7/01/07 7/02 at 101 AAA 1,459,280
</TABLE>
F-60
<PAGE> 167
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Multifamily (continued)
$ 1,930,000 Housing Authority of the City of Willimantic, Multi-Family Housing Revenue
Bonds, Series 1995A (GNMA Collateralized Mortgage Loan - Village Heights
Apartments Project), 8.000%, 10/20/30 10/05 at 105 AAA $2,233,222
- ------------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 5.2%
3,175,000 Connecticut Housing Finance Authority, Housing Mortgage Finance Program,
Series B, 6.200%, 5/15/12 5/03 at 102 AA 3,392,234
2,445,000 Connecticut Housing Finance Authority, Housing Mortgage Finance Program
Bonds, 1996 Subseries E-2, 6.150%, 11/15/27 (Alternative Minimum Tax) 11/06 at 102 AA 2,627,642
- ------------------------------------------------------------------------------------------------------------------------------------
Long Term Care - 6.1%
2,000,000 State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Nursing Home Program Issue, Series 1994, AHF/Hartford,
Inc. Project, 7.125%, 11/01/24 11/04 at 102 AA- 2,316,100
2,000,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds,
Nursing Home Program Issue, Series 1993, Mansfield Center for Nursing and
Rehabilitation Project, 5.875%, 11/01/12 11/03 at 102 AAA 2,190,800
Connecticut Development Authority, Health Facility Refunding Revenue Bonds,
Alzheimers Resource Center of Connecticut, Inc. Project, Series 1994:
1,300,000 6.875%, 8/15/04 No Opt. Call N/R 1,391,533
1,000,000 7.000%, 8/15/09 8/04 at 102 N/R 1,085,560
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 8.2%
1,750,000 State of Connecticut, General Obligation Bonds, 1993 Series D,
5.100%, 8/01/11 8/03 at 101 1/2 AA 1,820,543
2,000,000 State of Connecticut, General Obligation Bonds, 1993 Series E,
6.000%, 3/15/12 No Opt. Call AA 2,309,460
1,650,000 State of Connecticut, General Fund Obligation Bonds, 1994 Series A, Issued By
Connecticut Development Authority, 6.375%, 10/15/14 10/04 at 102 AA- 1,859,501
3,500,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1998
(General Obligation Bonds), 4.875%, 7/01/23 7/08 at 101 AAA 3,480,015
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 4.8%
1,900,000 Capitol Region Education Council (Connecticut), 6.700%, 10/15/10 10/05 at 102 BBB 2,073,945
1,800,000 State of Connecticut, Special Tax Obligation Bonds, Transportation
Infrastructure Purposes, 1991 Series B, 6.500%, 10/01/10 No Opt. Call AA- 2,154,006
1,250,000 City of Waterbury, Connecticut, General Obligation Tax Revenue Intercept
Refunding Bonds, 1993 Issue, 5.375%, 4/15/08 4/03 at 102 AAA 1,324,013
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation - 7.4%
3,000,000 State of Connecticut, Airport Revenue Refunding Bonds, Bradley International
Airport, Series 1992, 7.650%, 10/01/12 10/04 at 100 AAA 3,550,140
City of New Haven, Connecticut, Air Rights Parking Facility Revenue Bonds,
Series 1991:
3,000,000 6.625%, 12/01/05 12/01 at 102 AAA 3,290,340
1,500,000 6.500%, 12/01/15 12/01 at 102 AAA 1,636,890
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 8.7%
2,355,000 State of Connecticut Health and Educational Facilities Authority, Revenue
Bonds, University of Hartford Issue, Series C, 8.000%, 7/01/18
(Pre-refunded to 7/01/03) 7/03 at 100 AAA 2,710,322
State of Connecticut Health and Educational Facilities
Authority, Revenue Bonds, Sacred Heart University Issue, Series B:
2,600,000 5.700%, 7/01/16 7/03 at 102 BBB-*** 2,644,772
1,000,000 5.800%, 7/01/23 7/03 at 102 BBB-*** 1,014,400
2,020,000 State of Connecticut Health and Educational Facilities Authority, Revenue
Bonds, Trinity College Issue, Series C, 6.000%, 7/01/22
(Pre-refunded to 7/01/02) 7/02 at 102 AAA 2,212,546
1,250,000 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 1,455,238
</TABLE>
F-61
<PAGE> 168
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utilities - 11.6%
$ 3,250,000 Connecticut Municipal Electric Energy Cooperative, Power Supply System
Revenue Bonds, 1993 Series A, 5.000%, 1/01/18 1/04 at 102 AAA $3,262,350
2,200,000 Connecticut Resources Recovery Authority, Bridgeport Resco Company,
L.P. Project Bonds, Series A, 7.625%, 1/01/09 1/03 at 100 A 2,282,940
3,235,000 Connecticut Resources Recovery Authority, Resource Recovery Revenue
Bonds, American Ref-Fuel Company of Southeastern Connecticut Project,
1989 Series A, 7.700%, 11/15/11 11/99 at 103 AA 3,426,253
2,795,000 Connecticut Development Authority, Water Facilities Revenue Bonds,
Bridgeport Hydraulic Company Project, 1993 A Series, 5.600%, 6/01/28
(Alternative Minimum Tax) 6/03 at 102 AAA 2,906,772
1,400,000 Connecticut Development Authority, Water Facilities Refunding Revenue
Bonds (Bridgeport Hydraulic Company Project - 1993B Series),
5.500%, 6/01/28 6/03 at 102 AAA 1,469,720
- ------------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 2.9%
1,000,000 State of Connecticut, Clean Water Fund Subordinate Revenue Refunding
Bonds, 1996 Series, 5.250%, 7/01/10 1/05 at 101 AAA 1,056,700
2,000,000 South Central, Connecticut, Regional Water Authority, Water System
Revenue Bonds, Eleventh Series, 5.750%, 8/01/12 8/03 at 102 AAA 2,173,258
- ------------------------------------------------------------------------------------------------------------------------------------
$ 105,785,000 Total Investments - (cost $105,757,983) - 98.3% 112,965,134
=============
Other Assets Less Liabilities - 1.7% 1,933,050
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $114,898,184
====================================================================================================================
</TABLE>
* Optional Call Provisions: Dates (month and year) and prices of the earliest
optional call or redemption. There may be other call provisions at varying
prices at later dates.
** Ratings: Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities which ensures the timely payment
of principal and interest. Securities are normally considered to be equivalent
to AAA rated securities.
N/R Investment is not rated.
See accompanying notes to financial statements.
F-62
<PAGE> 169
Portfolio of Investments
Nuveen Massachusetts Premium Income Municipal Fund (NMT)
November 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education and Civic Organizations - 21.0%
$ 835,000 Massachusetts Educational Financing Authority, Education Loan Revenue
Bonds, Issue E, Series 1995, 6.150%, 7/01/10 (Alternative Minimum Tax) 7/04 at 102 AAA $ 887,279
1,970,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds,
Boston College Issue, Series K, 5.250%, 6/01/23 6/03 at 102 AAA 1,996,516
1,500,000 Massachusetts Industrial Finance Agency, Revenue Bonds (College of the
Holy Cross - 1996 Issue), 5.500%, 3/01/20 3/06 at 102 AAA 1,581,600
2,645,000 Massachusetts Industrial Finance Agency, Revenue Bonds (Whitehead
Institute for Biomedical Research - 1993 Issue), 5.125%, 7/01/26 7/03 at 102 Aa1 2,625,559
1,175,000 Massachusetts Industrial Finance Agency, Revenue Bonds (Brooks
School Issue), Series 1993, 5.950%, 7/01/23 7/03 at 102 A3 1,235,242
3,500,000 Massachusetts Industrial Finance Agency, Revenue Bonds (Phillips
Academy Issue), Series 1993, 5.375%, 9/01/23 9/08 at 102 AA+ 3,651,690
3,300,000 Massachusetts Industrial Finance Agency, Education Revenue Bonds
(Belmont Hill School Issue - Series 1998), 5.250%, 9/01/28 9/08 at 101 A 3,297,261
1,765,000 The New England Education Loan Marketing Corporation, Student Loan
Revenue Bonds, 1992 Subordinated Issue C, 6.750%, 9/01/02
(Alternative Minimum Tax) No Opt. Call A3 1,912,607
4,000,000 The New England Education Loan Marketing Corporation, Student Loan
Revenue Bonds, 1992 Subordinated Issue H, 6.900%, 11/01/09
(Alternative Minimum Tax) No Opt. Call A3 4,648,000
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care - 17.5%
4,000,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds,
New England Medical Center Hospitals Issue, Series G-1, 5.375%, 7/01/24 7/04 at 102 AAA 4,084,680
2,000,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds
(Daughters of Charity National Health System - The Carney Hospital),
Series D, 6.100%, 7/01/14 7/04 at 102 AA+ 2,178,800
1,000,000 Massachusetts Health and Educational Facilities Authority, Revenue
Bonds, Massachusetts General Hospital Issue, Series G, 5.375%, 7/01/11 7/00 at 100 AAA 1,049,650
3,000,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds,
Lahey Clinic Medical Center Issue, Series B, 5.625%, 7/01/15 7/03 at 102 AAA 3,151,170
400,000 Massachusetts Health and Educational Facilities Authority, Revenue
Refunding Bonds (Cardinal Cushing General Hospital), Series 1989-A,
8.500%, 7/01/00 7/99 at 102 1/2 N/R 412,656
Massachusetts Health and Educational Facilities Authority,
Revenue Refunding Bonds, Youville Hospital ssue (FHA Insured
Project), Series B:
2,460,000 6.125%, 2/15/15 2/04 at 102 Aa 2,602,828
1,000,000 6.000%, 2/15/25 2/04 at 102 Aa 1,044,500
2,805,000 Massachusetts Health and Educational Facilities Authority,
Revenue Bonds, Caregroup Issue, Series A, 5.000%, 7/01/25 7/08 at 102 AAA 2,771,144
1,000,000 Massachusetts Health and Educational Facilities Authority, Revenue
Bonds, Harvard Pilgrim Health Care Issue, Series A, 4.750%, 7/01/22 7/08 at 101 AAA 958,210
- ------------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 13.2%
3,800,000 Massachusetts Housing Finance Agency, Housing Project Revenue Bonds,
6.300%, 10/01/13 4/03 at 102 A+ 4,045,328
4,000,000 Massachusetts Housing Finance Agency, Housing Development Bonds,
1998 Series A, 5.375%, 6/01/16 (Alternative Minimum Tax) 6/08 at 101 AAA 4,115,880
</TABLE>
F-63
<PAGE> 170
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Multifamily (continued)
$ 3,315,000 Massachusetts Housing Finance Agency, Rental Housing Mortgage
Revenue Bonds, 1997 Series C, 5.625%, 7/01/40 (Alternative Minimum Tax) 7/07 at 101 AAA $3,414,815
1,935,000 Massachusetts Housing Finance Agency, Rental Housing Mortgage
Revenue Bonds, 1995 Series A (FHA Insured Mortgage Loans),
7.350%, 1/01/35 (Alternative Minimum Tax) 1/05 at 102 AAA 2,130,919
- ------------------------------------------------------------------------------------------------------------------------------------
Long Term Care - 2.7%
1,000,000 Massachusett Health and Educational Facilities Authority, Revenue
Refunding Bonds, Youville Hospital Issue (FHA Insured Project),
Series A, 6.250%, 2/15/41 2/07 at 102 Aa2 1,086,310
1,125,000 Massachusetts Industrial Financial Agency, Revenue Bonds, Heights
Crossing Limited Partnership Issue (FHA Insured Project), Series 1995,
6.000%, 2/01/15 (Alternative Minimum Tax) 2/06 at 102 AAA 1,191,566
500,000 Massachusetts Industrial Finance Agency, Revenue Bonds, Briscoe
House Assisted Living Issue (FHA Insured Project), 6.050%, 2/01/17
(Alternative Minimum Tax) 8/07 at 105 AAA 550,715
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 8.8%
Town of Barnstable, Massachusetts, General Obligation Bonds:
1,020,000 5.750%, 9/15/10 9/04 at 102 Aa3 1,118,716
1,020,000 5.750%, 9/15/11 9/04 at 102 Aa3 1,117,879
965,000 5.750%, 9/15/12 9/04 at 102 Aa3 1,049,785
1,000,000 City of Chelsea, Massachusetts, General Obligation Bonds, School
Project Loan Act of 1948, 7.000%, 6/15/03 No Opt. Call AAA 1,125,430
4,375,000 City of Lowell, Massachusetts, General Obligation State Qualified
Bonds, 5.600%, 11/01/12 11/03 at 102 AAA 4,722,944
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation - 6.6%
4,000,000 Massachusetts Port Authority, Special Facilities Revenue Bonds
(U.S. Air Project), Series 1996-A, 5.750%, 9/01/16
(Alternative Minimum Tax) 9/06 at 102 AAA 4,317,120
2,500,000 Massachusetts Industrial Finance Agency, Parking Facility Revenue
Bonds (Avon Associates LLC Project), Series 1998A, 5.375%, 4/01/20 4/03 at 102 AAA 2,560,425
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 19.0%
2,500,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds,
Malden Hospital Issue (FHA Insured Project), Series A, 5.000%, 8/01/16 No Opt. Call AAA 2,551,450
Massachusetts Health and Educational Facilities Authority,
Revenue Bonds, New England Deaconess Hospital Issue, Series D:
3,310,000 6.625%, 4/01/12 (Pre-refunded to 4/01/02) 4/02 at 102 AAA 3,666,851
1,000,000 6.875%, 4/01/22 (Pre-refunded to 4/01/02) 4/02 at 102 AAA 1,115,410
1,000,000 Massachusetts Port Authority, Revenue Bonds, Series 1982,
13.000%, 7/01/13 No Opt. Call AAA 1,717,830
2,500,000 Massachusetts Industrial Finance Agency, Revenue Refunding Bonds,
College of the Holy Cross, 1992 Issue II, 6.375%, 11/01/15
(Pre-refunded to 11/01/02) 11/02 at 102 AA-*** 2,782,700
1,300,000 Massachusetts Industrial Finance Agency, Revenue Bonds, Merrimack
College Issue, Series 1992, 7.125%, 7/01/12 (Pre-refunded to 7/01/02) 7/02 at 102 AAA 1,470,053
3,000,000 Massachusetts Water Resources Authority, General Revenue Bonds,
1991 Series A, 5.750%, 12/01/21 (Pre-refunded to 12/01/01) 12/01 at 100 Aaa 3,180,900
3,000,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series P,
7.000%, 7/01/21 (Pre-refunded to 7/01/01) 7/01 at 102 Aaa 3,311,010
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities - 5.5%
2,000,000 Massachusetts Municipal Wholesale Electric Company, Power Supply
System Revenue Bonds, 1992 Series A, 6.000%, 7/01/18 7/02 at 100 AAA 2,126,480
3,275,000 Massachusetts Industrial Finance Agency, Resource Recovery Revenue
Bonds, SEMASS Project, Series 1991B, 9.250%, 7/01/15
(Alternative Minimum Tax) 7/01 at 103 N/R 3,636,003
</TABLE>
F-64
<PAGE> 171
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Water and Sewer - 2.8%
$ 3,000,000 Massachusetts Water Resources Authority, General Revenue Refunding Bonds,
1993 Series B, 5.000%, 3/01/22 3/03 at 100 A1 $2,949,150
- ------------------------------------------------------------------------------------------------------------------------------------
$ 94,795,000 Total Investments - (cost $93,649,807) - 97.1% 101,145,061
=============
Other Assets Less Liabilities - 2.9% 2,967,494
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $104,112,555
====================================================================================================================
</TABLE>
* Optional Call Provisions: Dates (month and year) and prices of the
earliest optional call or redemption. There may be other call provisions at
varying prices at later dates.
** Ratings: Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient
U.S. government or U.S. government agency securities which ensures the timely
payment of principal and interest. Securities are normally considered to be
equivalent to AAA rated securities.
N/R Investment is not rated.
See accompanying notes to financial statements.
F-65
<PAGE> 172
Portfolio of Investments
Nuveen Missouri Premium Income Municipal Fund (NOM)
November 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education and Civic Organizations - 5.7%
$ 500,000 The Industrial Development Authority of the City of Kansas City, Missouri,
(Ewing Marion Kauffman Foundation Project), Fixed Rate Revenue Bonds,
Series 1997B, 5.700%, 4/01/27 4/07 at 100 AAA $ 531,110
1,775,000 Northwest Missouri State University, Housing System Revenue Bonds,
Series 1998, 7.000%, 6/01/11 6/08 at 100 Aaa 2,135,627
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care - 10.1%
1,000,000 Health and Educational Facilities Authority of the State of Missouri,
Health Facilities Refunding Revenue Bonds (SSM Health Care),
Series 1992AA, 6.250%, 6/01/07 6/02 at 102 AAA 1,093,720
1,000,000 Health and Educational Facilities Authority of the State of Missouri,
Health Facilities Revenue Bonds (BJC Health System), Series 1994A,
6.750%, 5/15/12 No Opt. Call AA 1,212,240
1,000,000 Health and Educational Facilities Authority of the State of Missouri,
Health Facilities Revenue Bonds (Lake of the Ozarks General
Hospital Inc.), Series 1996, 6.500%, 2/15/21 2/06 at 102 BBB+ 1,092,300
400,000 Health and Educational Facilities Authority of the State of Missouri,
Health Facilities Revenue Bonds (BJC Health System), Series 1998,
5.000%, 5/15/28 5/08 at 101 AA 391,240
1,000,000 Ray County, Missouri, Hospital Revenue Bonds (Ray County
Memorial Hospital), Series 1997, 5.750%, 11/15/12 5/05 at 101 1/2 N/R 1,015,520
- ------------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 14.0%
650,000 The Industrial Development Authority of the City of Kansas City,
Missouri, Multifamily Housing Revenue Refunding Bonds (President
Gardens Apartment Project), Series 1997A, 5.550%, 8/01/25 2/08 at 102 AAA 667,934
1,550,000 Missouri Housing Development Commission, Multifamily Housing
Revenue Bonds (Brookstone Village Apartments Project),
1996 Series A, 6.100%, 12/01/21 (Alternative Minimum Tax) 12/06 at 102 AAA 1,646,550
1,250,000 The Industrial Development Authority of St. Charles County, Missouri,
Multifamily Housing Revenue Bonds (Ashwood Apartments Project),
Series 1998A, 5.600%, 4/01/30 (Alternative Minimum Tax) 4/08 at 102 AAA 1,276,200
1,045,000 The Industrial Development Authority of the County of St. Louis, Missouri,
Multifamily Housing Revenue Refunding Bonds (GNMA Collateralized -
South Summit Apartments Project), Series 1997A, 5.950%, 4/20/17 4/07 at 102 AAA 1,120,240
600,000 The Industrial Development Authority of the County of St. Louis, Missouri,
Multifamily Housing Revenue Refunding Bonds (GNMA
Collateralized - South Summit Apartments Project), Series 1997B,
6.000%, 10/20/15 (Alternative Minimum Tax) 4/07 at 102 AAA 640,104
1,250,000 The Industrial Development Authority of University City, Missouri,
Multifamily Housing Revenue Refunding Bonds (GNMA
Collateralized - Canterbury Gardens Project), Series 1995A,
5.900%, 12/20/20 12/05 at 102 AAA 1,314,350
- ------------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 8.9%
1,795,000 Missouri Housing Development Commission, Single Family Mortgage
Revenue Bonds (Homeownership Loan Program), 1995 Series C,
7.250%, 9/01/26 (Alternative Minimum Tax) 3/06 at 105 AAA 2,034,938
2,075,000 Missouri Housing Development Commission, Single Family Mortgage
Revenue Bonds (GNMA Mortgage-Backed Securities Program),
1991 Series A, 7.375%, 8/01/23 (Alternative Minimum Tax) 2/01 at 102 AAA 2,188,897
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 17.2%
2,020,000 Ritenour School District of St. Louis County, Missouri, General Obligation
School Bonds, Series 1995, 7.375%, 2/01/12 No Opt. Call AAA 2,553,623
1,500,000 Francis Howell School District, St. Charles County, Missouri, General
Obligation Refunding Bonds, Series 1994A, 7.800%, 3/01/08 No Opt. Call AAA 1,900,695
1,000,000 School District of the City of St. Charles, Missouri, General Obligation
Bonds (Missouri Direct Deposit Program), Series 1996A,
5.625%, 3/01/14 3/06 at 100 AA 1,072,590
1,395,000 The Board of Education of the City of St. Louis (Missouri), General
Obligation School Refunding Bonds, Series 1993A, 8.500%, 4/01/07 No Opt. Call AAA 1,815,383
625,000 Reorganized School District No. R-IV of Stone County, Missouri (Reeds
Spring, Missouri), General Obligation School Building, Refunding
and Improvement Bonds, Series 1995, 7.600%, 3/01/10 No Opt. Call AAA 808,194
</TABLE>
F-66
<PAGE> 173
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/Limited - 16.6%
$ 1,000,000 Fort Zumwalt School District Improvement Corporation, Leasehold
Revenue Bonds, Fort Zumwalt S.D., St Charles County, Series 1997,
5.600%, 3/01/17 3/07 at 100 Aaa $1,060,270
1,000,000 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 1,086,290
1,000,000 Kansas City Municipal Assistance Corporation, Leasehold Revenue
Capital Improvement Bonds (Kansas City, Missouri, Lessee),
Series 1996B, 5.700%, 1/15/13 1/06 at 101 AAA 1,081,520
1,000,000 Regional Convention and Sports Complex Authority, Convention and
Sports Facility Project and Refunding Bonds, Series A 1993
(State of Missouri Sponsor), 5.500%, 8/15/13 8/03 at 102 A+ 1,041,700
1,500,000 St. Louis Municipal Finance Corporation, Leasehold Revenue Refunding
Bonds, 5.850%, 7/15/09 7/03 at 102 A1 1,608,360
1,800,000 St. Louis Municipal Finance Corporation, City Justice Center, Leasehold
Revenue Improvement Bonds, Series 1996A (City of St. Louis, Missouri,
Lessee), 5.750%, 2/15/11 2/06 at 102 AAA 1,977,822
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation - 6.0%
1,500,000 City of Kansas City, Missouri, General Improvement Airport Bonds,
Series 1994 A, 6.900%, 9/01/11 (Alternative Minimum Tax) 9/04 at 101 AAA 1,708,095
1,000,000 The City of St. Louis, Missouri, Airport Revenue Bonds, Series 1997
(1997 Capital Improvement Program), Lambert - St.Louis International
Airport, 6.000%, 7/01/12 (Alternative Minimum Tax) No Opt. Call AAA 1,134,260
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 9.4%
1,290,000 Health and Educational Facilities Authority of the State of Missouri,
Health Facilities Revenue Bonds (SSM Health Care Obligated
Group Projects), Series 1990B, 7.000%, 6/01/15 6/00 at 102 AAA 1,391,226
1,500,000 Certificates of Receipt, Series 1993, St. Louis County, Missouri,
GNMA Collateralized Mortgage Revenue Bonds (Escrowed with
United States Governmental Obligations), 5.650%, 7/01/20
(Alternative Minimum Tax) No Opt. Call AAA 1,651,950
1,275,000 St. Louis Municipal Finance Corporation, Leasehold Revenue Improvement
and Refunding Bonds, Series 1992 (City of St. Louis, Missouri, Lessee),
6.250%, 2/15/12 (Pre-refunded to 2/15/05) 2/05 at 100 AAA 1,433,852
- ------------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 10.3%
1,225,000 State Environmental Improvement and Energy Resources Authority
(State of Missouri), Water Pollution Control Revenue Bonds (State
Revolving Fund Program - City of Kansas City Project),
Series 1995B, 7.750%, 1/01/08 1/05 at 102 Aa1 1,473,908
1,000,000 State Environmental Improvement and Energy Resources Authority
(State of Missouri), Water Pollution Control Revenue Bonds (State
Revolving Fund Program - City of Branson Project),
Series 1995A, 6.050%, 7/01/16 7/04 at 102 AAA 1,106,810
1,000,000 State Environmental Improvement and Energy Resources Authority
(State of Missouri), Water Pollution Control Revenue Bonds (State
Revolving Fund Program - Multiple Participant Series),
Series 1996D, 5.875%, 1/01/15 1/06 at 101 Aa1 1,074,460
350,000 State Environmental Improvement and Energy Resources Authority
(State of Missouri), Water Pollution Control Revenue Bonds (State
Revolving Fund Program - City of Kansas City Project),
Series 1997C, 6.750%, 1/01/12 No Opt. Call Aa1 $ 426,642
750,000 The City of St. Louis, Missouri, Water Revenue Refunding and
Improvement Bonds, Series 1994, 6.000%, 7/01/14 7/04 at 102 AAA 829,050
- ------------------------------------------------------------------------------------------------------------------------------------
$ 41,620,000 Total Investments - (cost $43,112,428) - 98.2% 46,597,670
=============
Other Assets Less Liabilities - 1.8% 858,537
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $47,456,207
====================================================================================================================
</TABLE>
* Optional Call Provisions: Dates (month and year) and prices of the
earliest optional call or redemption. There may be other call provisions at
varying prices at later dates.
** Ratings: Using the higher of Standard & Poor's or Moody's rating.
N/R Investment is not rated.
See accompanying notes to financial statements.
F-67
<PAGE> 174
Portfolio of Investments
Nuveen Washington Premium Income Municipal Fund (NPW)
November 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education and Civic Organizations - 5.1%
$ $1,000,000 University of Washington, Housing and Dining System Revenue Refunding
Bonds, Junior Lien Series 1996, 5.125%, 12/01/15 12/06 at 102 AAA $1,022,860
1,400,000 Washington State University, Housing and Dining System Revenue and
Refunding Bonds, Series 1994, 6.375%, 10/01/18 10/04 at 101 AAA 1,560,510
65,000 Western Washington University, Housing and Dining System Revenue
Bonds, Series 1992, 6.375%, 10/01/22 10/02 at 101 AAA 70,788
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care - 11.7%
1,000,000 Washington Health Care Facilities Authority, Revenue Bonds,
Series 1993A (The Heart Institute of Spokane), 5.800%, 8/15/18 8/04 at 102 AA- 1,051,550
2,000,000 Washington Health Care Facilities Authority, Revenue Bonds, Series 1992
(The Childrens Hospital and Medical Center, Seattle), 6.125%, 10/01/13 10/02 at 102 AAA 2,203,960
2,000,000 Washington Health Care Facilities Authority, Revenue Bonds, Series 1998
(Highline Community Hospital), 5.000%, 8/15/21 8/08 at 102 AA 1,930,100
1,000,000 Washington Health Care Facilities Authority, Revenue Bonds, Series 1998
(Harrison Memorial Hospital), 5.000%, 8/15/28 8/13 at 102 AAA 973,520
- ------------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 5.9%
2,000,000 Housing Authority of the County of King Washington, Housing Revenue Bonds,
Series 1995 (Woodridge Park Project), 6.350%, 5/01/25
(Alternative Minimum Tax) 5/05 at 100 AA+ 2,108,460
965,000 Washington State Housing Finance Commission, Multifamily Mortgage
Revenue Bonds (GNMA Mortgage Backed Securities Program),
Series 1989A, 7.700%, 7/01/32 (Alternative Minimum Tax) 1/00 at 103 AAA 1,006,360
- ------------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 4.4%
1,610,000 Washington State Housing Finance Commission, Single-Family Mortgage
Revenue Bonds (Mortgage Backed Securities Program), Series 1992D-1,
6.150%, 1/01/26 (Alternative Minimum Tax) No Opt. Call AAA 1,796,519
475,000 Washington State Housing Finance Commission, Single Family Program
Bonds, 1997 Series 2A, 6.050%, 12/01/16 6/07 at 102 Aaa 504,987
- ------------------------------------------------------------------------------------------------------------------------------------
Long Term Care - 3.5%
1,640,000 Housing Authority of Skagit County, Low-Income Housing Assistance
Revenue Bonds, Series 1993 (GNMA Collateralized Mortgage Loan -
Sea Mar Project), 7.000%, 6/20/35 11/04 at 104 AAA 1,818,038
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 20.9%
1,655,000 City of Everett, Washington, Limited Tax General Obligation Bonds,
Series 1997, 5.125%, 9/01/17 9/07 at 100 Aaa 1,681,828
1,000,000 Federal Way School District No. 210, King County, Washington,
Unlimited Tax General Obligation and Refunding Bonds,
Series 1993, 5.750%, 12/01/12 No Opt. Call AAA 1,126,040
1,360,000 Tahoma School District No. 409, King County, Washington, Unlimited
Tax General Obligation Improvement and Refunding Bonds,
Series 1997, 6.000%, 12/01/10 No Opt. Call Aaa 1,561,919
1,000,000 Peninsula School District No. 401, Pierce County, Washington, Unlimited
Tax General Obligation Refunding Bonds, Series 1993, 5.500%, 12/01/08 No Opt. Call AAA 1,099,710
1,000,000 The City of Renton, Washington, Limited Tax General Obligation Bonds,
General Purpose/Public Improvement Bonds, Series 1997B,
5.750%, 12/01/17 6/07 at 100 AAA 1,075,440
1,500,000 Mukilteo School District No. 6, Snohomish County, Washington, Unlimited
Tax General Obligation and Refunding Bonds, Series 1993,
5.700%, 12/01/12 No Opt. Call AAA 1,684,665
</TABLE>
F-68
<PAGE> 175
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/General (continued)
$ 500,000 Edmonds School District No. 15, Snohomish County, Washington,
Unlimited Tax General Obligation Bonds, Series 1994,
6.500%, 12/01/08 No Opt. Call AA- $ 587,105
2,000,000 State of Washington, General Obligation Bonds, Series 1994B,
6.000%, 5/01/19 5/04 at 100 AA+ 2,144,260
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 3.6%
Seattle Indian Services Commission, Special Obligation Bonds, Series 1994:
1,000,000 6.000%, 11/01/16 11/04 at 100 AA+ 1,080,650
750,000 6.150%, 11/01/24 11/04 at 100 AA+ 820,905
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation - 7.9%
1,300,000 Port of Seattle, Washington, Revenue Bonds, Series 1996A,
5.500%, 9/01/21 9/06 at 101 AAA 1,366,677
1,000,000 Port of Vancouver, Clark County, Washington, Limited Tax General
Obligation Bonds, 1994 Series B, 6.000%, 12/01/04
(Alternative Minimum Tax) No Opt. Call AAA 1,107,760
1,675,000 Spokane Downtown Foundation, Parking Revenue Bonds, Series 1998
(River Park Square Project), 5.600%, 8/01/19 8/08 at 102 BBB- 1,687,713
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 7.6%
1,000,000 Port of Seattle, Washington, Revenue Bonds, Series 1990A,
6.000%, 12/01/14 (Pre-refunded to 12/01/00) 12/00 at 100 AA-*** 1,048,900
1,250,000 Washington Health Care Facilities Authority, Revenue Bonds, Refunding
Series 1992 (Franciscan Health System/Saint Clare Hospital, Tacoma),
6.625%, 7/01/20 (Pre-refunded to 7/01/02) 7/02 at 102 AAA 1,392,038
1,400,000 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 1,555,162
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities - 14.3%
1,100,000 Public Utility District No. 1 of Klickitat County, Washington, Electric
Revenue Bonds, Series 1995, 5.650%, 10/01/15 10/05 at 101 AAA 1,171,995
1,000,000 Lewis County Public Utility District, Cowlitz Falls Hydroelectric Project,
Revenue Refunding Bonds, Series 1993, 5.500%, 10/01/22 10/03 at 102 Aa1 1,033,550
1,000,000 The City of Seattle, Washington, Municipal Light and Power Revenue
Bonds, 5.625%, 10/01/21 10/06 at 102 AAA 1,066,030
500,000 The City of Seattle, Washington, Municipal Light and Power Revenue
Bonds, Series 1992A, 5.750%, 8/01/12 8/02 at 102 AA 536,690
1,385,000 Public Utility District No. 1 of Snohomish County, Washington, Generation
System Revenue Bonds, Series 1993B, 5.750%, 1/01/09
(Alternative Minimum Tax) 1/04 at 102 A+ 1,479,402
1,000,000 Washington Public Power Supply System, Nuclear Project No. 1
Refunding Revenue Bonds, Series 1993A, 5.700%, 7/01/17 7/03 at 102 AAA 1,045,270
1,000,000 Washington Public Power Supply System, Nuclear Project No. 3
Refunding Revenue Bonds, Series 1993B, 7.000%, 7/01/09 No Opt. Call Aa1 1,201,630
- ------------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 13.2%
1,050,000 City of Bellevue, King County, Washington, Water and Sewer Revenue
Refunding Bonds, Series 1994, 5.875%, 7/01/09 7/04 at 100 Aa 1,139,985
1,035,000 Covington Water District, 6.050%, 3/01/20 3/05 at 100 AAA 1,120,046
800,000 Kitsap County, Washington, Sewer Revenue Bonds, Series 1996,
5.750%, 7/01/16 7/06 at 100 AAA 865,504
900,000 City of Richland, Washington, Water and Sewer Improvement Revenue
Bonds, Series 1993, 5.625%, 4/01/12 4/03 at 100 AAA 963,918
1,200,000 Sammamish Plateau Water and Sewer District, King County, Washington,
Water and Sewer Revenue Refunding Bonds, 1996, 5.500%, 12/01/16 12/06 at 100 AAA 1,250,820
</TABLE>
F-69
<PAGE> 176
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Water and Sewer (continued)
$ 500,000 The City of Seattle, Washington, Water System and Refunding Revenue
Bonds, 1993, 5.250%, 12/01/23 6/03 at 101 AA $ 505,345
1,000,000 Yakima - Tieton Irrigation District, Yakima County, Washington, Refunding
Revenue Bonds, 1992, 6.125%, 6/01/13 6/03 at 102 AAA 1,099,798
- ------------------------------------------------------------------------------------------------------------------------------------
$ 48,015,000 Total Investments - (cost $47,698,973) - 98.1% 51,548,407
=============
Other Assets Less Liabilities - 1.9% 999,041
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $52,547,448
====================================================================================================================
</TABLE>
* Optional Call Provisions: Dates (month and year) and prices of the earliest
optional call or redemption. There may be other call provisions at varying
prices at later dates.
** Ratings: Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities which ensures the timely payment
of principal and interest. Securities are normally considered to be equivalent
to AAA rated securities.
See accompanying notes to financial statements.
F-70
<PAGE> 177
Statement of Net Assets
November 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Connecticut Massachusetts Missouri Washington
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments in municipal securities, at
market value (note 1) $112,965,134 $101,145,061 $46,597,670 $51,548,407
Cash 407,976 76,500 145,573 327,998
Receivables:
Interest 1,978,935 1,881,649 859,177 895,701
Investments sold -- 1,438,100 40,725 --
Other assets 10,146 8,644 8,652 7,061
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 115,362,191 104,549,954 47,651,797 52,779,167
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities
Accrued expenses:
Management fees (note 6) 61,182 55,422 25,283 27,990
Other 47,487 44,424 30,233 46,685
Preferred share dividends payable 9,989 10,957 4,819 6,241
Common share dividends payable 345,349 326,596 135,255 150,803
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 464,007 437,399 195,590 231,719
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets (note 7) $114,898,184 $104,112,555 $47,456,207 $52,547,448
====================================================================================================================================
Preferred shares, at liquidation value $ 38,300,000 $ 34,000,000 $16,000,000 $17,000,000
====================================================================================================================================
Preferred shares outstanding 1,532 1,360 640 680
====================================================================================================================================
Common shares outstanding 5,193,215 4,632,575 2,146,908 2,320,051
====================================================================================================================================
Net asset value per Common share outstanding
(net assets less Preferred shares at liquidation
value, divided by Common shares outstanding) $ 14.75 $ 15.13 $ 14.65 $ 15.32
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-71
<PAGE> 178
Statement of Operations
Six Months Ended November 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Connecticut Massachusetts Missouri Washington
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income (note 1) $3,099,304 $2,846,455 $1,272,941 $1,415,081
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 372,005 337,135 153,744 170,294
Preferred shares - auction fees 48,006 42,617 20,055 21,309
Preferred shares - dividend disbursing agent fees 5,014 5,014 5,014 5,014
Shareholders' servicing agent fees and expenses 8,106 4,152 3,616 1,498
Custodian's fees and expenses 19,380 18,803 15,930 16,344
Trustees' fees and expenses (note 6) 536 487 223 245
Professional fees 8,660 8,647 8,570 8,577
Shareholders' reports - printing and mailing expenses 19,314 18,897 10,885 10,660
Stock exchange listing fees 8,147 8,131 1,001 1,087
Investor relations expense 5,078 4,343 2,200 2,101
Other expenses 4,672 4,546 3,180 3,228
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 498,918 452,772 224,418 240,357
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 2,600,386 2,393,683 1,048,523 1,174,724
- ------------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain (loss) from investment transactions
(notes 1 and 4) 63,498 28,637 (6,830) 148,001
Net change in unrealized appreciation or
depreciation of investments 1,235,664 1,054,087 482,804 461,416
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain from investments 1,299,162 1,082,724 475,974 609,417
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $3,899,548 $3,476,407 $1,524,497 $1,784,141
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-72
<PAGE> 179
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Connecticut Massachusetts
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
11/30/98 5/31/98 11/30/98 5/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income $ 2,600,386 $ 5,159,370 $ 2,393,683 $ 4,891,388
Net realized gain (loss) from investment transactions
(notes 1 and 4) 63,498 422,013 28,637 671,439
Net change in unrealized appreciation or
depreciation of investments 1,235,664 4,143,106 1,054,087 3,102,632
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 3,899,548 9,724,489 3,476,407 8,665,459
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Common shareholders (2,069,968) (4,108,452) (1,964,836) (3,905,877)
Preferred shareholders (523,143) (1,169,485) (467,634) (1,096,311)
- -----------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (2,593,111) (5,277,937) (2,432,470) (5,002,188)
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions (note 2)
Net proceeds from Common shares issued to shareholders due
to reinvestment of distributions 207,675 413,844 132,648 266,611
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 1,514,112 4,860,396 1,176,585 3,929,882
Net assets at beginning of period 113,384,072 108,523,676 102,935,970 99,006,088
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $114,898,184 $113,384,072 $104,112,555 $102,935,970
===================================================================================================================================
Balance of undistributed net investment
income at end of period $ 291,378 $ 284,103 $ 175,441 $ 214,228
===================================================================================================================================
<CAPTION>
Missouri Washington
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
11/30/98 5/31/98 11/30/98 5/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income $ 1,048,523 $ 2,134,126 $ 1,174,724 $ 2,368,345
Net realized gain (loss) from investment transactions
(notes 1 and 4) (6,830) 380,799 148,001 94,941
Net change in unrealized appreciation or
depreciation of investments 482,804 1,267,040 461,416 2,195,317
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 1,524,497 3,781,965 1,784,141 4,658,603
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Common shareholders (812,903) (1,629,870) (895,539) (1,753,958)
Preferred shareholders (257,887) (526,508) (289,249) (596,423)
- -----------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (1,070,790) (2,156,378) (1,184,788) (2,350,381)
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions (note 2)
Net proceeds from Common shares issued to shareholders due
to reinvestment of distributions 67,180 85,411 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 520,887 1,710,998 599,353 2,308,222
Net assets at beginning of period 46,935,320 45,224,322 51,948,095 49,639,873
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $47,456,207 $46,935,320 $52,547,448 $51,948,095
===================================================================================================================================
Balance of undistributed net investment
income at end of period $ 134,615 $ 156,882 $ 95,564 $ 105,628
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-73
<PAGE> 180
Notes to Financial Statements
(Unaudited)
1. General Information and Significant Accounting Policies
The state Funds (the "Funds") covered in this report and their corresponding
stock exchange symbols are Nuveen Connecticut Premium Income Municipal Fund
(NTC), Nuveen Massachusetts Premium Income Municipal Fund (NMT), Nuveen Missouri
Premium Income Municipal Fund (NOM) and Nuveen Washington Premium Income
Municipal Fund (NPW). Connecticut and Massachusetts are traded on the New York
Stock Exchange while Missouri and Washington are traded on the American Stock
Exchange.
Each Fund invests primarily in a diversified portfolio of municipal obligations
issued by state and local government authorities within a single state. 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 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
November 30, 1998, there were no such outstanding purchase commitments in any of
the 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.
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 and designated state income
taxes, if any, to retain such tax-exempt status when distributed to shareholders
of the Funds. 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.
F-74
<PAGE> 181
Preferred Shares
The Funds have issued and outstanding $25,000 stated value Preferred shares.
Each Fund's Preferred shares are issued in one Series. The dividend rate on each
Series may change every seven days, as set by the auction agent. The number of
shares outstanding for each Fund is as follows:
<TABLE>
<CAPTION>
Connecticut Massachusetts Missouri Washington
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of Shares:
Series Th 1,532 1,360 640 680
================================================================================
</TABLE>
Derivative Financial Instruments
The Funds may invest in transactions in certain derivative financial instruments
including futures, forward, swap and option contracts, and other financial
instruments with similar characteristics. Although the Funds are authorized to
invest in such financial instruments, and may do so in the future, they did not
make any such investments during the six months ended November 30, 1998.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results may differ
from those estimates.
2. Fund Shares
Transactions in Common shares were as follows:
<TABLE>
<CAPTION>
Connecticut Massachusetts
- ---------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
11/30/98 5/31/98 11/30/98 5/31/98
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued to shareholders
due to reinvestment of
distributions 13,023 27,446 8,051 17,254
===============================================================================================================
<CAPTION>
Missouri Washington
- ---------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
11/30/98 5/31/98 11/30/98 5/31/98
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued to shareholders
due to reinvestment of
distributions 4,448 5,923 -- --
===============================================================================================================
</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 28, 1998, to shareholders of
record on December 15, 1998, as follows:
<TABLE>
<CAPTION>
Connecticut Massachusetts Missouri Washington
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dividend per share $.0665 $.0705 $.0630 $.0650
================================================================================
</TABLE>
At the same time, Massachusetts and Missouri also declared taxable
distributions, which include capital gains and/or market discount, of $.0051 and
$.0095 per share, respectively.
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the six months ended November
30, 1998, were as follows:
<TABLE>
<CAPTION>
Connecticut Massachusetts Missouri Washington
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases:
Investments in municipal securities $2,205,923 $ 8,343,284 $ 389,732 $2,627,838
Temporary municipal investments 2,500,000 11,800,000 800,000 300,000
Sales and Maturities:
Investments in municipal securities 2,439,755 8,940,500 155,000 2,704,045
Temporary municipal investments 2,500,000 12,100,000 1,100,000 500,000
===========================================================================================================
</TABLE>
At November 30, 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.
F-75
<PAGE> 182
At May 31, 1998, the Funds' last fiscal year end, the Funds had unused capital
loss carryforwards available for federal income tax purposes to be applied
against future capital gains, if any. If not applied, the carryforwards will
expire as follows:
<TABLE>
<CAPTION>
Connecticut Massachusetts Missouri Washington
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expiration year:
2003 $ 895,482 $ 615,511 $ 949,075 $469,931
2004 1,105,901 945,779 708,417 70,082
2005 847,914 195,761 -- --
- -----------------------------------------------------------------------------------------------------------
Total $2,849,297 $ 1,757,051 $1,657,492 $540,013
===========================================================================================================
</TABLE>
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
at November 30, 1998, were as follows:
<TABLE>
<CAPTION>
Connecticut Massachusetts Missouri Washington
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross unrealized:
appreciation $7,207,151 $7,509,607 $3,485,242 $3,854,825
depreciation -- (14,353) -- (5,391)
- -----------------------------------------------------------------------------------------------------------
Net unrealized appreciation $7,207,151 $7,495,254 $3,485,242 $3,849,434
===========================================================================================================
</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 as follows:
Average Daily Net Asset Value Management Fee
- --------------------------------------------------------------------------------
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
================================================================================
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 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.
F-76
<PAGE> 183
7. Composition of Net Assets
At November 30, 1998, net assets consisted of:
<TABLE>
<CAPTION>
Connecticut Massachusetts Missouri Washington
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred shares, $25,000 stated value per share,
at liquidation value $ 38,300,000 $ 34,000,000 $16,000,000 $17,000,000
Common shares, $.01 par value per share 51,932 46,326 21,469 23,201
Paid-in surplus 71,832,934 64,123,948 29,479,203 31,971,262
Balance of undistributed net investment income 291,378 175,441 134,615 95,564
Accumulated net realized gain (loss)
from investment transactions (2,785,211) (1,728,414) (1,664,322) (392,013)
Net unrealized appreciation of investments 7,207,151 7,495,254 3,485,242 3,849,434
- -----------------------------------------------------------------------------------------------------------
Net assets $114,898,184 $104,112,555 $47,456,207 $52,547,448
===========================================================================================================
Authorized shares:
Common Unlimited Unlimited Unlimited Unlimited
Preferred Unlimited Unlimited Unlimited Unlimited
===========================================================================================================
</TABLE>
F-77
<PAGE> 184
Financial Highlights
(Unaudited)
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>
Connecticut
Year Ended 5/31:
1999 (a) $14.49 $ .50 $ .26 $ .76
1998 13.63 1.00 .89 1.89
1997 12.99 1.00 .60 1.60
1996 13.20 .98 (.21) .77
1995 12.45 .98 .74 1.72
1994 13.96 .77 (1.40) (.63)
<CAPTION>
Massachusetts
<S> <C> <C> <C> <C>
Year Ended 5/31:
1999 (a) 14.91 .52 .22 .74
1998 14.11 1.06 .83 1.89
1997 13.58 1.06 .53 1.59
1996 13.76 1.05 (.19) .86
1995 12.90 1.04 .84 1.88
1994 14.08 .87 (1.01) (.14)
<CAPTION>
Missouri
<S> <C> <C> <C> <C>
Year Ended 5/31:
1999 (a) 14.44 .49 .22 .71
1998 13.68 .99 .78 1.77
1997 13.11 1.00 .55 1.55
1996 13.37 .96 (.30) .66
1995 12.35 .95 1.02 1.97
1994 13.90 .76 (1.40) (.64)
<CAPTION>
Washington
<S> <C> <C> <C> <C>
Year Ended 5/31:
1999 (a) 15.06 .51 .27 .78
1998 14.07 1.02 .99 2.01
1997 13.48 1.02 .58 1.60
1996 13.71 1.02 (.23) .79
1995 12.97 1.01 .77 1.78
1994 14.09 .91 (.93) (.02)
</TABLE>
F-78
<PAGE> 185
<TABLE>
<CAPTION>
Less Distributions
--------------------------------------------------------------------------
Net Net
Investment Investment Capital Capital
Income Income Gain Gain
To Common To Preferred To Common To Preferred
Shareholders Shareholders+ Shareholders Shareholders+ Total
<S> <C> <C> <C> <C> <C>
Connecticut
Year Ended 5/31:
1999 (a) $(.40) $(.10) $-- $-- $ (.50)
1998 (.80) (.23) -- -- (1.03)
1997 (.76) (.20) -- -- (.96)
1996 (.73) (.25) -- -- (.98)
1995 (.74) (.23) -- -- (.97)
1994 (.61) (.13) -- -- (.74)
<CAPTION>
Massachusetts
<S> <C> <C> <C> <C> <C>
Year Ended 5/31:
1999 (a) (.42) (.10) -- -- (.52)
1998 (.85) (.24) -- -- (1.09)
1997 (.84) (.22) -- -- (1.06)
1996 (.80) (.24) -- -- (1.04)
1995 (.78) (.24) -- -- (1.02)
1994 (.74) (.15) -- -- (.89)
<CAPTION>
Missouri
<S> <C> <C> <C> <C> <C>
Year Ended 5/31:
1999 (a) (.38) (.12) -- -- (.50)
1998 (.76) (.25) -- -- (1.01)
1997 (.73) (.25) -- -- (.98)
1996 (.67) (.25) -- -- (.92)
1995 (.69) (.26) -- -- (.95)
1994 (.59) (.14) -- -- (.73)
<CAPTION>
Washington
<S> <C> <C> <C> <C> <C>
Year Ended 5/31:
1999 (a) (.39) (.13) -- -- (.52)
1998 (.76) (.26) -- -- (1.02)
1997 (.75) (.26) -- -- (1.01)
1996 (.74) (.28) -- -- (1.02)
1995 (.77) (.27) -- -- (1.04)
1994 (.76) (.16) (.01) -- (.93)
</TABLE>
F-79
<PAGE> 186
<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>
Connecticut
Year Ended 5/31:
1999 (a) $-- $14.75 $16.3750 8.29% 4.59%
1998 -- 14.49 15.5000 15.61 12.39
1997 -- 13.63 14.1250 9.58 11.01
1996 -- 12.99 13.6250 14.06 3.97
1995 -- 13.20 12.6250 2.22 12.74
1994 (.14) 12.45 13.1250 (8.73) (6.74)
<CAPTION>
Massachusetts
<S> <C> <C> <C> <C> <C>
Year Ended 5/31:
1999 (a) -- 15.13 16.5625 2.98 4.36
1998 -- 14.91 16.5000 18.08 11.91
1997 -- 14.11 14.7500 13.76 10.28
1996 -- 13.58 13.7500 8.99 4.55
1995 -- 13.76 13.3750 14.12 13.58
1994 (.15) 12.90 12.5000 (13.64) (3.38)
<CAPTION>
Missouri
<S> <C> <C> <C> <C> <C>
Year Ended 5/31:
1999 (a) -- 14.65 15.3750 11.12 4.10
1998 -- 14.44 14.1875 14.53 11.31
1997 -- 13.68 13.0625 10.53 10.09
1996 -- 13.11 12.5000 10.07 3.09
1995 -- 13.37 12.0000 6.13 14.74
1994 (.18) 12.35 12.0000 (17.26) (7.16)
<CAPTION>
Washington
<S> <C> <C> <C> <C> <C>
Year Ended 5/31:
1999 (a) -- 15.32 14.8750 12.15 4.33
1998 -- 15.06 13.6250 15.26 12.64
1997 -- 14.07 12.5000 12.94 10.16
1996 -- 13.48 11.7500 7.44 3.75
1995 -- 13.71 11.6250 .41 12.36
1994 (.17) 12.97 12.3750 (16.88) (2.73)
</TABLE>
F-80
<PAGE> 187
<TABLE>
<CAPTION>
Ratios/Supplemental Data
-------------------------------------------------------------------------------------------------
Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment
Expenses to Income to Expenses to Income to
Average Average Average Total Average Total
Ending Net Assets Net Assets Net Assets Net Assets Portfolio
Net Assets Applicable to Applicable to Including Including Turnover
(000) Common Shares++ Common Shares++ Preferred++ Preferred++ Rate
<S> <C> <C> <C> <C> <C> <C>
Connecticut
Year Ended 5/31:
1999 (a) $114,898 1.31%* 6.84%* .87%* 4.54%* 2%
1998 113,384 1.33 7.02 .88 4.61 13
1997 108,524 1.38 7.46 .89 4.79 18
1996 104,928 1.40 7.37 .89 4.71 15
1995 105,851 1.49 8.09 .92 4.99 18
1994 101,595 1.36 5.60 .95 3.95 9
<CAPTION>
Massachusetts
<S> <C> <C> <C> <C> <C> <C>
Year Ended 5/31:
1999 (a) 104,113 1.30* 6.87* .87* 4.61* 8
1998 102,936 1.31 7.22 .88 4.81 17
1997 99,006 1.34 7.63 .88 4.99 22
1996 96,303 1.35 7.61 .88 4.95 18
1995 97,071 1.49 8.28 .94 5.20 29
1994 93,078 1.43 6.24 .97 4.26 33
<CAPTION>
Missouri
<S> <C> <C> <C> <C> <C> <C>
Year Ended 5/31:
1999 (a) 47,456 1.44* 6.71* .95* 4.43* --
1998 46,935 1.47 7.03 .97 4.60 25
1997 45,224 1.54 7.38 .99 4.74 36
1996 44,014 1.57 7.13 1.01 4.57 34
1995 44,566 1.75 7.88 1.08 4.86 34
1994 42,343 1.51 5.62 1.05 3.92 39
<CAPTION>
Washington
<S> <C> <C> <C> <C> <C> <C>
Year Ended 5/31:
1999 (a) 52,547 1.36* 6.65* .92* 4.48* 5
1998 51,948 1.36 6.92 .91 4.62 10
1997 49,640 1.43 7.38 .94 4.83 11
1996 48,266 1.44 7.37 .94 4.81 20
1995 48,812 1.64 7.97 1.04 5.04 16
1994 47,095 1.58 6.45 1.08 4.42 29
</TABLE>
* Annualized.
** Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gain 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 gain 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; income ratios reflect income earned on assets attributable to
Preferred shares.
(a) For the six months ended November 30, 1998.
F-81
<PAGE> 188
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.
F-82
<PAGE> 189
Fund Information
Board of 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 six-months ended November 30, 1998. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
F-83
<PAGE> 190
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
quality investments designed for individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them pursue their financial goals.
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 investments and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and tax-free income funds, along with our defined portfolios and
private asset management, can help you build a better, well-diversified
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you. Or call us at (800) 257-8787 for more
information, including a prospectus where applicable. Please read that
information carefully before investing.
FSA-3-11-98
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
www.nuveen.com
F-84
<PAGE> 191
NUVEEN Exchange-Traded Funds
MAY 31, 1998
ANNUAL REPORT
DEPENDABLE, TAX-FREE INCOME
TO HELP YOU KEEP MORE OF
WHAT YOU EARN.
NTC
Connecticut
NMT
Massachusetts
NOM
Missouri
NPW
Washington
Photo of: People reading
F-85
<PAGE> 192
Highlights
As of May 31, 1998
CONTENTS
1 Dear Shareholder
4 NTC Commentary and Overview
6 NMT Commentary and Overview
8 NOM Commentary and Overview
10 NPW Commentary and Overview
12 Report of Independent Auditors
13 Portfolio of Investments
24 Statement of Net Assets
25 Statement of Operations
26 Statement of Changes in Net Assets
27 Notes to Financial Statements
30 Financial Highlights
32 Building Better Portfolios
33 Fund Information
================================================================================
Credit Quality Performance Highlights
Nuveen Connecticut Premium Income Municipal Fund (NTC)
o Steady dividend for 10 consecutive months
o Taxable-equivalent yield of 7.81%*
o One-year total return on net asset value
of 12.39%
Pie Chart:
AAA/Pre-refunded 68%
AA 18%
A 2%
BBB/NR 12%
Nuveen Massachusetts Premium Income Municipal Fund (NMT)
o Steady dividend for 16 consecutive months
o Taxable-equivalent yield of 8.45%*
o One-year total return on net asset value
of 11.91%
Pie Chart:
AAA/Pre-refunded 57%
AA 19%
A 20%
BBB/NR 4%
Nuveen Missouri Premium Income Municipal Fund (NOM)
o Steady dividend for 10 consecutive months
o Taxable-equivalent yield of 8.07%*
o One-year total return on net asset value
of 11.31%
Pie Chart:
AAA/Pre-refunded 78%
AA 15%
A 2%
BBB/NR 5%
Nuveen Washington Premium Income Municipal Fund (NPW)
o Steady dividend for 19 consecutive months
o Taxable-equivalent yield of 8.04%*
o One-year total return on net asset value
of 12.64%
Pie Chart:
AAA/Pre-refunded 68%
AA 29%
A 3%
*For investors in the 31% federal and applicable state income tax bracket.
See your fund's performance overview for more information.
================================================================================
A New Benefit for Nuveen Exchange-Traded Fund Shareholders
The benefits of your Nuveen Exchange-Traded Fund just got better. Now investors
with at least $50,000 in Nuveen holdings - including Exchange-Traded Funds - are
eligible for a reduction in the sales charge on purchases of Class A shares of
any Nuveen Mutual Fund.
This program is available for any of Nuveen's collection of Premier Adviser(SM)
equity and municipal bond investments. Now you can diversify your portfolio with
the quality investments you count on from Nuveen and the benefit of reduced
rates.
For more information, contact your financial adviser and ask for a prospectus.
Or call Nuveen Investor Services at (800) 257-8787. Please read it carefully
before you invest.
F-86
<PAGE> 193
PHOTO OF: TIMOTHY R. SCHWERTFEGER
CHAIRMAN OF THE BOARD
SIDEBAR TEXT: Wealth takes a lifetime to build. Once achieved, it should
be preserved.
Graphic of: Bond Buyer 40 chart
Dear Shareholder
I'm pleased to share with you this performance report for the Nuveen
Connecticut, Massachusetts, Missouri and Washington Exchange-Traded Funds. Over
the past 12 months, each of these funds continued to perform well and meet their
objectives of providing you with attractive tax-free income and strong after-tax
total returns.
THE ECONOMY IN REVIEW
Fixed-income investments enjoyed bullish performance over the past year, as
declining interest rates and low inflation spurred a bond market rally. The
equity markets also exhibited continued strength despite recent volatility
sparked by Asia's financial problems and their possible effects on U.S.
corporate earnings. Although interest rates have trended slightly upward in
recent months, a year-to-date comparison shows that today's rates are
significantly lower than they were one year ago. As shown in the accompanying
chart, between the end of May 1997 and May 1998, the yield on the Bond Buyer 40,
an unmanaged index of long-term municipal bonds, fell from 5.74% to 5.22%.
Much of the decline in interest rates resulted from expectations that the
financial problems of Asia would restrain the prices of imported goods and
reduce foreign demand for U.S. products and services, thereby keeping inflation
at moderate levels. These inflation expectations were largely fulfilled, as the
Consumer Price Index rose only 1.5% for the 12 months ended May 1998, remaining
at one of its lowest levels in years. The Asian situation also provided
additional strength to the bond market rally, as many investors made a "flight
to quality" by moving assets into high-quality U.S. bonds in the face of the
uncertainty in that region.
In coming months, we will continue to watch closely several key factors that are
likely to affect the future of the economy, including the demand for goods and
services, the availability of qualified employees, the strength of the dollar,
and indications from the Federal Reserve. With many investors still waiting for
the full impact of Asia's difficulties to show up in U.S. economic statistics,
the potential long-term effect of this crisis on American markets continues to
cause concern. We expect that the development of these factors will continue to
influence the tone of the fixed-income markets during the remainder of the year.
MUNICIPAL MARKET REVIEW
As interest rates continued to decline over the past year, bond prices rose.
This price appreciation for the bonds in our portfolios contributed to strong
total returns for the year.
Another major factor in bond performance over the last 12 months was the
continued strength of the U.S. economy, which helped boost the credit quality of
many municipal bonds. With the improvements in the fundamental financial health
of many municipalities and revenue projects financed by bonds, major credit
rating agencies upgraded the credit quality of thousands of issuers over the
past year, while downgrading relatively few. These boosts in credit quality also
contributed to the funds' performance as upgraded bonds increased in value.
The combination of low interest rates and a strong economy set new issuance on a
record pace and stimulated a dramatic increase in the refinancing of existing
bonds as issuers sought to lower their interest costs. The first quarter of 1998
saw $68 billion of new municipal issuance, up 70% from the same period in 1997.
The flood of new issues continued with May's long-awaited sale of the first
segment of Long Island (New York) Power Authority's $7 billion offering, the
largest issuance in municipal bond history. Although the nationwide supply of
municipal bonds remained heavy, the supply of bonds in each state varied
according to local economic conditions. This level of issuance high lights the
value of Nuveen's expertise in the municipal market, as our portfolio management
teams worked diligently to sift through the available issues to select those
undervalued securities that would help the funds achieve their investment
objectives.
DIVERSIFICATION: THE KEY TO A BETTER PORTFOLIO
In view of current market conditions, we believe that investors will find
diversification to be an increasingly important investment strategy in the
months ahead. An appropriately diversified portfolio - one that balances
different types of investments, levels of risk and tax management - can help
cushion your portfolio against volatility and enhance your return potential.
Many investors select Nuveen's municipal bond funds because their emphasis on
dependable tax-free income and attractive after-tax returns makes them ideal for
building and sustaining long-term financial security. These funds also work well
with other Nuveen investments to create the foundation of a diversified,
well-balanced portfolio. In fact, recent studies by Nuveen Research have found
that portfolios combining municipal bonds and stocks generated higher after-tax
returns with lower levels of risk than similar portfolios combining stocks and
Treasury or corporate bonds.
We encourage you to talk to your financial adviser about Nuveen's range of
equity and balanced funds, including the Nuveen European Value Fund. This new
equity mutual fund offers a portfolio of quality European company stocks for
investors seeking long-term growth potential and international diversification.
The fund is just one of an ever-expanding range of Nuveen products and services
designed to help investors achieve diversification while building a
tax-efficient, risk-sensitive investment portfolio. If you'd like to learn more
about the Nuveen European Value Fund or any of our other investments, contact
your financial adviser or call Nuveen Investor Services at (800) 257-8787 for a
prospectus. Please read the information carefully before you invest.
When seeking quality investment solutions that withstand the test of time, we
hope that you continue to think of Nuveen. Today, more than ever, you can count
on Nuveen for a wide range of investments that can help you build a
well-balanced portfolio designed to achieve your financial goals. We thank you
for your continued confidence in us and our family of investments.
Sincerely,
TIMOTHY R. SCHWERTFEGER
Chairman of the Board
July 15, 1998
Sidebar text: "Another major factor in bond performance over the last 12 months
was the continued strength of the U.S. economy, which helped boost the credit
quality of many municipal bonds."
Sidebar text: "Today, more than ever, you can count on Nuveen for a wide range
of investments that can help you build a well-balanced portfolio designed to
achieve your financial goals."
F-87
<PAGE> 194
Nuveen Connecticut Premium Income Municipal Fund
Portfolio Manager's Comments
PORTFOLIO MANAGER DAN SOLENDER DISCUSSES FUND PERFORMANCE, THE MUNICIPAL MARKET,
AND KEY INVESTMENT STRATEGIES FOR THE CONNECTICUT FUND.
CONNECTICUT STATE UPDATE
The high credit ratings assigned to Connecticut's long-term general obligation
debt by Moody's and Standard & Poor's (Aa3 and AA-, respectively) recognize the
state's diverse economic base and solid financial position. Connecticut has
recovered from most of its recessionary employment loss, with small businesses
fueling growth in the services, wholesale, and retail trade industries.
The strong economy continues to generate higher-than-anticipated general fund
revenues, enabling the state to reduce its general fund deficit to its lowest
level in 10 years. The recovery is also helping to improve financial performance
at the local level, with cities and towns showing improved general fund
balances. In line with national municipal trends, Connecticut's new issue volume
has risen 85% in the first five months of 1998. Much of this new supply has been
issued at the state level in the general obligation and housing categories. It
is anticipated that the ongoing strength of the national economy will continue
to propel Connecticut's tax receipts above budget expectations and maintain
state and local government's improved financial positions.
FUND PERFORMANCE
For the year ended May 31, 1998, the Nuveen Connecticut Premium Income Municipal
Fund provided an outstanding total return on net asset value of 12.39%, which
is equivalent to a taxable return of 15.49% for investors in the combined 34.1%
federal and state income tax bracket. The total return significantly
outperformed the unleveraged Lehman Brothers Municipal Bond Index's annual
return of 9.38% - a difference of more than 300 basis points.
Much of this outperformance can be attributed to the fund's longer
leverage-adjusted duration of 10.26 years, compared with the index's 7.11 years.
In a year that saw municipal bond yields as measured by the Bond Buyer 40 fall
more than 50 basis points, longer duration proved to be beneficial to
performance. Duration measures a bond fund's price volatility, or reaction to
interest rate movements. The longer the duration, the more sensitive the fund to
changes in interest rates. During a period of falling interest rates and market
rallies, such as that of the past year, longer duration enables a fund to
participate more fully in market gains, but can make the fund more vulnerable to
potential price declines when rates rise. In addition, the fund's leveraged
structure added significantly to these strong total returns.
As a result of good call protection, the fund was able to maintain its dividend
as interest rates dropped during the year. In addition, we were able to increase
the dividend during the year because of the accumulation of income from bonds
purchased over the past several years when interest rates were higher. Since
that increase in August 1997, the fund has provided shareholders with 10
consecutive months of steady income. As of May 31, 1998, the fund offered a
competitive current market yield of 5.15%, which translates to 7.81% on a
taxable-equivalent basis for investors in the combined 34.1% federal and state
income tax bracket.
KEY STRATEGIES
In Connecticut, supply is typically dominated by two key issuers: the state
housing authority and the state's general obligation bonds. Over the past year,
we took advantage of opportunities to purchase smaller new issues in the health
care and education sectors in order to help diversify the fund and boost its
income level. As of May 31, 1998, health care and education bonds accounted for
almost 40% of the fund's allocations. In addition, a number of pre-refundings,
especially in the health care and education sectors, enhanced the portfolio's
credit quality and contributed to the fund's price appreciation. In a
pre-refunding, a bond is essentially repaid early and becomes secured by U.S.
government or agency securities until it can be called by the issuer. As a
result, its credit quality typically improves, generally leading to price
appreciation.
OUTLOOK FOR THE FUTURE
Looking ahead, we expect the U.S. economy to remain in its current growth mode,
although progress should come at a more modest pace. The Asian financial crisis
will continue to impact U.S. growth, and we expect to see a slowdown in
corporate earnings, a strengthening dollar, especially versus Asian currencies,
and the continuation of benign inflation despite tight labor markets. This
should create less impetus for the Federal Reserve, which currently remains in a
neutral position, to tighten interest rates in the second half of 1998. We view
the economic slowdown and the current direction of the dollar as positive
indicators for the fixed-income markets, including municipal bonds, and much of
our outlook is contingent upon the further development of these factors.
Given the fund's current allocation, we are looking to improve the fund's
structure through added diversification, as changes in the market make
additional sectors more attractive. We may also extend the duration slightly as
opportunities allow. The Connecticut fund currently provides good call
protection, and that should continue to provide support for the dividend in
coming months.
F-88
<PAGE> 195
Nuveen Connecticut Premium Income Municipal Fund
Performance Overview
As of May 31, 1998
NTC
PORTFOLIO STATISTICS
==================================================
Inception Date 5/93
- --------------------------------------------------
Share Price 15 1/2
- --------------------------------------------------
Net Asset Value Per Share $14.49
- --------------------------------------------------
Current Market Yield 5.15%
- --------------------------------------------------
Taxable-Equivalent Yield (Federal Only)(1) 7.46%
- --------------------------------------------------
Taxable-Equivalent Yield
(Federal and State)(1) 7.81%
- --------------------------------------------------
Fund Net Assets ($000) $113,384
- --------------------------------------------------
Average Weighted Maturity (Years) 19.82
- --------------------------------------------------
Leverage-Adjusted Duration (Years) 10.26
- --------------------------------------------------
ANNUALIZED TOTAL RETURN
==================================================
ON SHARE PRICE ON NAV
- --------------------------------------------------
1-Year 15.61% 12.39%
- --------------------------------------------------
3-Year 13.06% 9.06%
- --------------------------------------------------
5-Year 6.15% 6.40%
- --------------------------------------------------
Since Inception 6.15% 6.26%
- --------------------------------------------------
TAXABLE-EQUIVALENT TOTAL RETURN(2)
==================================================
ON SHARE PRICE ON NAV
- --------------------------------------------------
1-Year 18.60% 15.49%
- --------------------------------------------------
3-Year 16.07% 12.11%
- --------------------------------------------------
5-Year 8.96% 9.30%
- --------------------------------------------------
Since Inception 8.96% 9.16%
- --------------------------------------------------
TOP 5 SECTORS
==================================================
Health Care 20%
- --------------------------------------------------
Education and Civic Organizations 19%
- --------------------------------------------------
Utilities 12%
- --------------------------------------------------
Tax Obligation (General) 9%
- --------------------------------------------------
Transportation 8%
- --------------------------------------------------
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%. The rate shown for federal and state highlights the added
value of owning shares that are also exempt from state taxes. It is based on a
combined federal and state income tax rate of 34.1%.
2 Taxable-equivalent total return is based on the annualized total return and a
combined federal and state income tax rate of 34.1%. It represents the return
on a taxable investment necessary to equal the return of the Nuveen fund on an
after-tax basis.
Bar Chart:
1997-1998 Monthly Tax-Free Dividends Per Share
June 97 0.065
July 97 0.065
August 97 0.0665
September 97 0.0665
October 97 0.0665
November 97 0.0665
December 97 0.0665
January 98 0.0665
February 98 0.0665
March 98 0.0665
April 98 0.0665
May 98 0.0665
F-89
<PAGE> 196
Nuveen Massachusetts Premium Income Municipal Fund
Portfolio Manager's Comments
PORTFOLIO MANAGER STEVE PETERSON DISCUSSES FUND PERFORMANCE, THE MUNICIPAL
MARKET, AND KEY INVESTMENT STRATEGIES FOR THE MASSACHUSETTS FUND.
ON JULY 1, 1998, NUVEEN MADE SEVERAL CHANGES IN THE MANAGEMENT OF ITS FUNDS TO
MAKE MORE EFFICIENT USE OF STAFF RESOURCES AND PORTFOLIO MANAGER EXPERTISE. AS A
RESULT, TOM FUTRELL ASSUMED MANAGEMENT RESPONSIBILITIES FOR THIS FUND. TOM IS A
15-YEAR VETERAN OF NUVEEN AND AN EXPERIENCED INVESTMENT PROFES SIONAL WHO HAS
MANAGED A RANGE OF OTHER MUNICIPAL BOND FUNDS.
MASSACHUSETTS STATE UPDATE
The high credit ratings assigned to the state's long-term general obligation
debt by Moody's and Standard & Poor's (Aa3 and AA-, respectively) recognize the
commonwealth's rebounding economy and healthy financial position. Growth has
largely been driven by employment gains in health care, construction, research,
and computer and business services. In addition, the combination of
better-than-expected tax collections and under-budget expenditures has enabled
the commonwealth and many of its municipalities to strengthen cash and reserve
positions. In line with national municipal trends, new issue volume in
Massachusetts through May 1998 rose 233% over the same period last year and was
characterized by diversity across sectors. Well-known for its large debt burden,
Massachusetts is currently financing the Central Artery/Third Tunnel project in
Boston with a combination of state general obligation bonds, federal highway
grant anticipation notes, and revenues from both the Massachusetts Turnpike and
Port Authorities.
FUND PERFORMANCE
For the year ended May 31, 1998, the total return on net asset value for the
Nuveen Massachusetts Premium Income Municipal Fund was 11.91%, equivalent to a
taxable return of 15.90% for investors in the combined 39.3% federal and state
income tax bracket. The total return outperformed the unleveraged Lehman
Brothers Municipal Bond Index's annual return of 9.38% by more than 250 basis
points.
Much of this outperformance can be attributed to the fund's longer
leverage-adjusted duration of 8.91 years, compared with the index's 7.11 years.
In a year that saw municipal bond yields, as measured by the Bond Buyer 40, fall
more than 50 basis points, longer duration proved to be beneficial to
performance. Duration measures a bond fund's price volatility, or reaction to
interest rate movements. The longer the duration, the more sensitive the fund to
changes in interest rates. During a period of falling interest rates and market
rallies, such as that of the past year, longer duration enables a fund to
participate more fully in market gains, but can make the fund more vulnerable to
potential price declines when rates rise. In addition, the fund's leveraged
structure added significantly to these strong total returns.
Despite the low interest rate environment of the past year, good call protection
helped to support the dividend of the fund and prevent income from being
impacted. The fund has now provided shareholders with 16 consecutive months of
steady income. As of May 31, 1998, the fund offered a competitive current market
yield of 5.13%, which translates to 8.45% on a taxable-equivalent basis for
investors in the combined 39.3% federal and state income tax bracket.
KEY STRATEGIES
Over the past year, we focused on a number of sectors, including housing bonds,
FHA-insured bonds, health care and utilities. We also found value in zero-coupon
bonds, which are issued at a significant discount to their par value and
generally increase in value incrementally rather than paying a traditional
coupon rate. In the health care sector, hospitals offered several attractive
opportunities, as industry consolidation resulted in the issuance of new debt as
well as debt restructuring. Through fairly active trading, we were able to
purchase bonds at lower prices and then sell them as prices appreciated,
replacing them with bonds offering better call protection and more attractive
coupons. The overall credit quality of the Massachusetts fund remains high due
to a number of pre-refundings, which also con tributed to the fund's price
appreciation. In a pre-refunding, a bond is essentially repaid early and becomes
secured by U.S. government or agency securities until it can be called by the
issuer. As a result, its credit quality typically improves, generally leading to
price appreciation.
OUTLOOK FOR THE FUTURE
Looking ahead, we expect the U.S. economy to remain in its current growth mode,
although progress should come at a more modest pace. The Asian financial crisis
will continue to impact U.S. growth, and we expect to see a slowdown in
corporate earnings, a strengthening dollar, especially versus Asian currencies,
and the continuation of benign inflation despite tight labor markets. This
should create less impetus for the Federal Reserve, which currently remains in a
neutral position, to tighten interest rates in the second half of 1998. We view
the economic slowdown and the current direction of the dollar as positive
indicators for the fixed-income markets, including municipal bonds, and much of
our outlook is contingent upon the further development of these factors.
The current call protection of the Massachusetts fund averages approximately
seven years. In the months ahead, we plan to extend this average by continuing
to buy bonds with better call protection. We will also take advantage of
opportunities to further upgrade portfolio quality by buying higher-quality
bonds since they remain a good value relative to lower-rated bonds.
F-90
<PAGE> 197
Nuveen Massachusetts Premium Income Municipal Fund
Performance Overview
As of May 31, 1998
NMT
PORTFOLIO STATISTICS
==================================================
Inception Date 3/93
- --------------------------------------------------
Share Price 16 1/2
- --------------------------------------------------
Net Asset Value Per Share $14.91
- --------------------------------------------------
Current Market Yield 5.13%
- --------------------------------------------------
Taxable-Equivalent Yield (Federal Only)(1) 7.43%
- --------------------------------------------------
Taxable-Equivalent Yield
(Federal and State)(1) 8.45%
- --------------------------------------------------
Fund Net Assets ($000) $102,936
- --------------------------------------------------
Average Weighted Maturity (Years) 20.02
- --------------------------------------------------
Leverage-Adjusted Duration (Years) 8.91
- --------------------------------------------------
ANNUALIZED TOTAL RETURN(2)
==================================================
ON SHARE PRICE ON NAV
- --------------------------------------------------
1-Year 18.08% 11.91%
- --------------------------------------------------
3-Year 13.55% 8.87%
- --------------------------------------------------
5-Year 7.58% 7.20%
- --------------------------------------------------
Since Inception 7.62% 6.95%
- --------------------------------------------------
TAXABLE-EQUIVALENT TOTAL RETURN(2)
==================================================
ON SHARE PRICE ON NAV
- --------------------------------------------------
1-Year 21.89% 15.90%
- --------------------------------------------------
3-Year 17.50% 12.85%
- --------------------------------------------------
5-Year 11.41% 11.08%
- --------------------------------------------------
Since Inception 11.30% 10.67%
- --------------------------------------------------
TOP 5 SECTORS
==================================================
U.S. Guaranteed 23%
- --------------------------------------------------
Health Care 20%
- --------------------------------------------------
Education and Civic Organizations 18%
- --------------------------------------------------
Housing (Multifamily) 9%
- --------------------------------------------------
Tax Obligation (General) 9%
- --------------------------------------------------
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%. The rate shown for federal and state highlights the added
value of owning shares that are also exempt from state taxes. It is based on a
combined federal and state income tax rate of 39.3%.
2 Taxable-equivalent total return is based on the annualized total return and a
combined federal and state income tax rate of 39.3%. It represents the return
on a taxable investment necessary to equal the return of the Nuveen fund on an
after-tax basis.
Bar Chart:
1997-1997 Monthly Tax-Free Dividends Per Share
June 97 0.0705
July 97 0.0705
August 97 0.0705
September 97 0.0705
October 97 0.0705
November 97 0.0705
December 97 0.0705
January 98 0.0705
February 98 0.0705
March 98 0.0705
April 98 0.0705
May 98 0.0705
F-91
<PAGE> 198
Nuveen Missouri Premium Income Municipal Fund
Portfolio Manager's Comments
PORTFOLIO MANAGER JOHN GAMBLA DISCUSSES FUND PERFORMANCE, THE MUNICIPAL MARKET,
AND KEY INVESTMENT STRATEGIES FOR THE MISSOURI FUND FOR THE PERIOD COVERED BY
THIS REPORT.
ON JULY 1, 1998, NUVEEN MADE SEVERAL CHANGES IN THE MANAGEMENT OF ITS FUNDS TO
MAKE MORE EFFICIENT USE OF STAFF RESOURCES AND PORTFOLIO MANAGER EXPERTISE. AS A
RESULT, MIKE DAVERN ASSUMED MANAGEMENT RESPONSIBILITIES FOR THIS FUND. MIKE IS A
7-YEAR VETERAN OF NUVEEN WITH 16 YEARS OF EXPERIENCE AS AN INVESTMENT
PROFESSIONAL. HE HAS MANAGED A RANGE OF OTHER STATE AND NATIONAL MUNICIPAL BOND
FUNDS.
MISSOURI STATE UPDATE
Missouri confirmed its AAA credit quality status as a municipal issuer with
another year of sound financial operations and economic growth. The state ended
fiscal year 1997 with a budget stabilization fund totaling approximately $370
million, or nearly 4% of general fund revenues. The general fund, fueled by
strong individual income tax and sales/use tax revenues, increased 18% to $1.7
billion. High levels of economic growth between 1995 and 1997 and increasing
personal incomes resulted in income tax revenues that surpassed the
constitutional state limit, and taxpayers were subsequently rewarded with a
refund totaling $695 million.
Missouri's economy remains diversified, with recent declines in manufacturing
employment replaced by job gains in the services sector. Lease revenue debt,
which constitutes nearly one-third of total bond issuance, is an important
component of financing state capital programs. Missouri debt should continue to
attract investor attention, as new issue volume - in line with national
municipal trends increased 94% during the first quarter of 1998.
FUND PERFORMANCE
For the year ended May 31, 1998, the total return on net asset value for the
Nuveen Missouri Premium Income Municipal Fund was 11.31%, which is equivalent
to a taxable return of 14.31% for investors in the combined 35.1% federal and
state income tax bracket. The total return outpaced the unleveraged Lehman
Brothers Municipal Bond Index's annual return of 9.38% by almost 200 basis
points.
Much of this outperformance can be attributed to the fund's longer
leverage-adjusted duration of 10.34 years, compared with the index's 7.11 years.
In a year that saw municipal bond yields as measured by the Bond Buyer 40 fall
more than 50 basis points, longer duration proved to be beneficial to
performance. Duration measures a bond fund's price volatility, or reaction to
interest rate movements. The longer the duration, the more sensitive the fund to
changes in interest rates. During a period of falling interest rates and market
rallies, such as that of the past year, longer duration enables a fund to
participate more fully in market gains, but can make the fund more vulnerable to
potential price declines when rates rise. In addition, the fund's leveraged
structure added significantly to these strong total returns.
Despite the low interest rate environment of the past year, good call protection
helped support the dividend of the fund and prevent income from being impacted.
In addition, the accumulation of income from higher-yielding bonds purchased
over the past several years allowed us to increase the dividend. Since that
increase in August 1997, the fund has provided shareholders with 10 consecutive
months of steady income. As of May 31, 1998, the fund offered a competitive
current market yield of 5.24%, which translates to 8.07% on a taxable-equivalent
basis for investors in the combined 35.1% federal and state income tax bracket.
KEY STRATEGIES
Over the past year, we focused on the purchase of insured bonds as well as bonds
with higher coupons. The majority of the bonds we added offer maturities in the
range of 15 to 20 years, which we felt offered the best values compared to their
historical levels of volatility.
OUTLOOK FOR THE FUTURE
Looking ahead, we expect the U.S. economy to remain in its current growth mode,
although progress should come at a more modest pace. The Asian financial crisis
will continue to impact U.S. growth, and we expect to see a slowdown in
corporate earnings, a strengthening dollar, especially versus Asian currencies,
and the continuation of benign inflation despite tight labor markets. This
should create less impetus for the Federal Reserve, which currently remains in a
neutral position, to tighten interest rates in the second half of 1998. We view
the economic slowdown and the current direction of the dollar as positive
indicators for the fixed-income markets, including municipal bonds, and much of
our outlook is contingent upon the further development of these factors.
Given the current environment of low interest rates and tight credit spreads,
our primary focus in the months ahead will be on preserving shareholder capital.
We plan to achieve this by upgrading portfolio quality and taking on additional
risk only when strong price appreciation potential or competitive yields
compensate the fund for doing so. This approach should help us reduce
above-market interest rate exposure where appropriate without eroding the income
levels of the fund.
F-92
<PAGE> 199
Nuveen Missouri Premium Income Municipal Fund
Performance Overview
As of May 31, 1998
NOM
PORTFOLIO STATISTICS
==================================================
Inception Date 5/93
- --------------------------------------------------
Share Price 14 3/16
- --------------------------------------------------
Net Asset Value Per Share $14.44
- --------------------------------------------------
Current Market Yield 5.24%
- --------------------------------------------------
Taxable-Equivalent Yield (Federal Only)(1) 7.59%
- --------------------------------------------------
Taxable-Equivalent Yield
(Federal and State)(1) 8.07%
- --------------------------------------------------
Fund Net Assets ($000) $46,935
- --------------------------------------------------
Average Weighted Maturity (Years) 17.06
- --------------------------------------------------
Leverage-Adjusted Duration (Years) 10.34
- --------------------------------------------------
ANNUALIZED TOTAL RETURN
==================================================
ON SHARE PRICE ON NAV
- --------------------------------------------------
1-Year 14.53% 11.31%
- --------------------------------------------------
3-Year 11.69% 8.10%
- --------------------------------------------------
5-Year 4.12% 6.11%
- --------------------------------------------------
Since Inception 4.29% 5.88%
- --------------------------------------------------
TAXABLE-EQUIVALENT TOTAL RETURN(2)
==================================================
ON SHARE PRICE ON NAV
- --------------------------------------------------
1-Year 17.68% 14.31%
- --------------------------------------------------
3-Year 14.85% 11.06%
- --------------------------------------------------
5-Year 7.06% 8.97%
- --------------------------------------------------
Since Inception 7.24% 8.73%
- --------------------------------------------------
TOP 5 SECTORS
==================================================
Tax Obligation (General) 18%
- --------------------------------------------------
Tax Obligation (Limited) 17%
- --------------------------------------------------
Housing (Multifamily) 14%
- --------------------------------------------------
Water and Sewer 11%
- --------------------------------------------------
U.S. Guaranteed 10%
- --------------------------------------------------
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%. The rate shown for federal and state highlights the added
value of owning shares that are also exempt from state taxes. It is based on a
combined federal and state income tax rate of 35.1%.
2 Taxable-equivalent total return is based on the annualized total return and a
combined federal and state income tax rate of 35.1%. 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 $0.0151
per share.
1997-1998 Monthly Tax-Free Dividends Per Share(3)
June 97 0.061
July 97 0.061
August 97 0.062
September 97 0.062
October 97 0.062
November 97 0.062
December 97 0.062
January 98 0.062
February 98 0.062
March 98 0.062
April 98 0.062
May 98 0.062
F-93
<PAGE> 200
Nuveen Washington Premium Income Municipal Fund
Portfolio Manager's Comments
PORTFOLIO MANAGER DAN SOLENDER DISCUSSES FUND PERFORMANCE, THE MUNICIPAL MARKET,
AND KEY INVESTMENT STRATEGIES FOR THE WASHINGTON FUND FOR THE PERIOD COVERED BY
THIS REPORT.
ON JULY 1, 1998, NUVEEN MADE SEVERAL CHANGES IN THE MANAGEMENT OF ITS FUNDS TO
MAKE MORE EFFICIENT USE OF STAFF RESOURCES AND PORTFOLIO MANAGER EXPERTISE. AS A
RESULT, MIKE DAVERN ASSUMED MANAGEMENT RESPONSIBILITIES FOR THIS FUND. MIKE IS A
7-YEAR VETERAN OF NUVEEN WITH 16 YEARS OF EXPERIENCE AS AN INVESTMENT
PROFESSIONAL. HE HAS MANAGED A RANGE OF OTHER STATE AND NATIONAL MUNICIPAL BOND
FUNDS.
WASHINGTON STATE UPDATE
The state of Washington continues to benefit from a growing and increasingly
diversified economic base. Employment rose 4.1% in 1997, and the unemployment
rate as of April 1998 was 4.2%, slightly below the national rate. Boeing plays
an important but declining role in the state's economy, supplanted by Microsoft
and other high-tech companies. With the recent addition of $75 million, the
state's "rainy day" fund reserves now total almost $380 million. One of the few
clouds on the horizon is the potentially dampening effect that the state's ties
with Asian trading partners could have on economic growth going forward. In
response to the state's broadening economic base and continued solid financial
performance, Washington's general obligation debt rating was upgraded during the
year. As municipalities throughout the state also benefited from the
strengthening economy, Standard & Poor's upgraded 10 issuers, with no
downgrades, reflecting similar situations across the country. Contrary to the
national trend of heavy supply, bond issuance in the state dropped 13% for the
first four months of 1998 compared with the same period in 1997, with most of
the new supply issued by school districts. It is anticipated that Washington's
future bond supply should be healthy, given the state's heavy infrastructure
needs due to high population growth. Recently, the state treasurer announced a
new program that could double the annual number of certificate of participation
bonds. The program is intended to help local municipalities borrow for equipment
and real estate acquisitions at the state's lower interest rates.
FUND PERFORMANCE
For the year ended May 31, 1998, the Nuveen Washington Premium Income Municipal
Fund provided an outstanding total return on net asset value of 12.64%, which
is equivalent to a taxable return of 15.11% for investors in the 31% federal
income tax bracket. The total return significantly outperformed the unleveraged
Lehman Brothers Municipal Bond Index's annual return of 9.38% - a difference of
more than 300 basis points.
Much of this outperformance can be attributed to the fund's longer
leverage-adjusted duration of 9.42 years, compared with the index's 7.11 years.
In a year that saw municipal bond yields as measured by the Bond Buyer 40 fall
more than 50 basis points, longer duration proved to be beneficial to
performance. Duration measures a bond fund's price volatility, or reaction to
interest rate movements. The longer the duration, the more sensitive the fund to
changes in interest rates. During a period of falling interest rates and market
rallies, such as that of the past year, longer duration enables a fund to
participate more fully in market gains, but can make the fund more vulnerable to
potential price declines when rates rise. In addition, the fund's leveraged
structure added significantly to these strong total returns.
Despite the low interest rate environment of the past year, good call protection
helped support the dividend of the fund and prevent income from being impacted.
The fund has now provided shareholders with 19 consecutive months of steady
income. As of May 31, 1998, the fund offered a competitive current market yield
of 5.55%, which translates to 8.04% on a taxable-equivalent basis for investors
in the 31% federal income tax bracket.
KEY STRATEGIES
Given the duration, diversification, attractive coupons, and excellent level of
call protection, the fund was strategically positioned for the market
environment of the past year. So, we kept trading to a minimum and made changes
only when they would add further to performance. Washington's credit quality is
relatively high, with most of the market rated AAA or AA, so the majority of
these changes involved the purchase of insured bonds. This included insured
health care bonds, which provided the higher yields found in the health care
sector as well as AAA ratings. The state's low-cost sources of power also made
public power bonds attractive, and we continue to maintain substantial holdings
in the Washington Public Power Supply System.
OUTLOOK FOR THE FUTURE
Looking ahead, we expect the U.S. economy to remain in its current growth mode,
although progress should come at a more modest pace. The Asian financial crisis
will continue to impact U.S. growth, and we expect to see a slowdown in
corporate earnings, a strengthening dollar, especially versus Asian currencies,
and the continuation of benign inflation despite tight labor markets. This
should create less impetus for the Federal Reserve, which currently remains in a
neutral position, to tighten interest rates in the second half of 1998. We view
the economic slowdown and the current direction of the dollar as positive
indicators for the fixed-income markets, including municipal bonds, and much of
our outlook is contingent upon the further development of these factors.
Given the Washington fund's current strategic position, we do not anticipate
making substantial changes to the portfolio unless market conditions change. Our
efforts will be focused on maintaining the fund's duration while continuing to
diversify by sector and add lower coupon and discount bonds if priced
attractively.
F-94
<PAGE> 201
Nuveen Washington Premium Income Municipal Fund
Performance Overview
As of May 31, 1998
NPW
PORTFOLIO STATISTICS
==================================================
Inception Date 3/93
- --------------------------------------------------
Share Price 13 5/8
- --------------------------------------------------
Net Asset Value Per Share $15.06
- --------------------------------------------------
Current Market Yield 5.55%
- --------------------------------------------------
Taxable-Equivalent Yield(1) 8.04%
- --------------------------------------------------
Fund Net Assets ($000) $51,948
- --------------------------------------------------
Average Weighted Maturity (Years) 19.70
- --------------------------------------------------
Leverage-Adjusted Duration (Years) 9.42
- --------------------------------------------------
ANNUALIZED TOTAL RETURN
==================================================
ON SHARE PRICE ON NAV
- --------------------------------------------------
1-Year 15.26% 12.64%
- --------------------------------------------------
3-Year 11.83% 8.78%
- --------------------------------------------------
5-Year 3.12% 7.06%
- --------------------------------------------------
Since Inception 3.97% 6.83%
- --------------------------------------------------
TAXABLE-EQUIVALENT TOTAL RETURN(2)
==================================================
ON SHARE PRICE ON NAV
- --------------------------------------------------
1-Year 18.04% 15.11%
- --------------------------------------------------
3-Year 14.73% 11.30%
- --------------------------------------------------
5-Year 5.87% 9.61%
- --------------------------------------------------
Since Inception 6.63% 9.28%
- --------------------------------------------------
TOP 5 SECTORS
==================================================
Tax Obligation (General) 21%
- --------------------------------------------------
Utilities 15%
- --------------------------------------------------
Water and Sewer 13%
- --------------------------------------------------
U.S. Guaranteed 13%
- --------------------------------------------------
Health Care 10%
- --------------------------------------------------
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. It 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.
Bar Chart:
1997-1998 Monthly Tax-Free Dividends Per Share
June 97 0.063
July 97 0.063
August 97 0.063
September 97 0.063
October 97 0.063
November 97 0.063
December 97 0.063
January 98 0.063
February 98 0.063
March 98 0.063
April 98 0.063
May 98 0.063
F-95
<PAGE> 202
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS
NUVEEN CONNECTICUT PREMIUM INCOME MUNICIPAL FUND
NUVEEN MASSACHUSETTS PREMIUM INCOME MUNICIPAL FUND
NUVEEN MISSOURI PREMIUM INCOME MUNICIPAL FUND
NUVEEN WASHINGTON PREMIUM INCOME MUNICIPAL FUND
We have audited the accompanying statements of net assets, including the
portfolios of investments, of Nuveen Connecticut Premium Income Municipal Fund,
Nuveen Massachusetts Premium Income Municipal Fund, Nuveen Missouri Premium
Income Municipal Fund and Nuveen Washington Premium Income Municipal Fund, as of
May 31, 1998, and the related statements of operations, 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 the 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 May
31, 1998, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Nuveen
Connecticut Premium Income Municipal Fund, Nuveen Massachusetts Premium Income
Municipal Fund, Nuveen Missouri Premium Income Municipal Fund and Nuveen
Washington Premium Income Municipal Fund, as of May 31, 1998, the results of
their operations, changes in their net assets and financial highlights for the
periods indicated therein in conformity with generally accepted accounting
principles.
Chicago, Illinois
July 14, 1998
F-96
<PAGE> 203
PORTFOLIO OF INVESTMENTS
NUVEEN CONNECTICUT PREMIUM INCOME MUNICIPAL FUND (NTC)
May 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION AND CIVIC ORGANIZATIONS - 19.2%
Connecticut Higher Education Supplemental Loan Authority,
Revenue Bonds (Family Education Loan Program), 1996 Series A:
$ 1,580,000 5.800%, 11/15/14 (Alternative Minimum Tax) 11/06 at 102 Aaa $ 1,678,513
1,000,000 5.875%, 11/15/17 (Alternative Minimum Tax) 11/06 at 102 Aaa 1,032,720
4,450,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds, Quinnipiac
College Issue, Series D, 6.000% 7/01/23 7/03 at 102 BBB- 4,555,332
State of Connecticut Health and Educational Facilities
Authority, Revenue Bonds, Sacred Heart University Issue, Series
B:
2,600,000 5.700%, 7/01/16 7/03 at 102 BBB- 2,623,972
1,000,000 5.800%, 7/01/23 7/03 at 102 BBB- 1,006,280
2,000,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds, Trinity College
Issue, Series C, 5.875%, 7/01/26 7/06 at 102 Aaa 2,130,700
2,040,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds, The Loomis
Chaffee School Issue, Series C, 5.500%, 7/01/16 7/06 at 102 Aaa 2,106,892
2,920,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds, Connecticut College
Issue, Series C-1, 5.500%, 7/01/20 7/07 at 102 Aaa 3,030,376
3,810,000 The University of Connecticut, Student Fee Revenue Bonds, 1998 Series A,
4.750%, 11/15/27 11/07 at 101 Aaa 3,585,667
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - 19.6%
2,000,000 Connecticut Development Authority, Solid Waste Disposal Facilities Revenue Bonds, Pfizer Inc.
Project, 1994 Series, 7.000%, 7/01/25 (Alternative Minimum Tax) 7/05 at 102 Aaa 2,323,040
1,000,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds, Newington
Children's Hospital, Series A, 6.050%, 7/01/10 7/04 at 102 Aaa 1,091,920
2,725,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds, Saint Francis
Hospital and Medical Center Issue, Series B, 6.200%, 7/01/22 7/02 at 102 Aaa 2,946,870
2,000,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds, Hospital of
Saint Raphael Issue, Series H, 5.200% 7/01/08 No Opt. Call Aaa 2,120,100
1,500,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds, Lawrence and
Memorial Hospital Issue, Series D, 5.000%, 7/01/22 7/03 at 102 Aaa 1,456,980
2,200,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds, Day Kimball
Hospital Issue, Series A, 5.375%, 7/01/26 7/06 at 102 Aaa 2,226,378
4,160,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds, Kent School Issue,
Series B, 5.625%, 7/01/16 7/06 at 102 Aaa 4,350,403
1,000,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds,
The William W. Backus Hospital Issue, Series D, 5.750%, 7/01/27 7/07 at 102 Aaa 1,059,700
3,000,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds, Middlesex
Hospital Issue, Series H, Revenue Bonds, Middlesex Health Services Issue, Series I,
5.125%, 7/01/27 7/07 at 101 Aaa 2,948,640
1,500,000 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities
Financing Authority, Hospital Revenue Refunding Bonds, 1995 Series A, FHA Insured
Mortgage-Doctor Pila Hospital Project, 6.125%, 8/01/25 8/05 at 101 1/2 AAA 1,650,660
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 5.9%
3,000,000 Waterbury Housing Authority, Mortgage Revenue Refunding Bonds, Waterbury NSA II - Series 98C FHA/
Section 8, 5.450%, 7/01/23 1/02 at 100 Aaa 2,995,770
1,405,000 Waterbury Nonprofit Housing Corporation, Connecticut Taxable Mortgage Revenue Refunding Bonds,
FHA Insured Mortgage Loan-Fairmont Heights Section 8 Assisted Project, Series 1993A,
6.500%, 7/01/07 7/02 at 101 Aaa 1,508,001
</TABLE>
F-97
<PAGE> 204
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING/MULTIFAMILY (continued)
$ 1,930,000 Housing Authority of the City of Willimantic, Multi-Family Housing Revenue Bonds, Series 1995A,
GNMA Collateralized Mortgage Loan-Village Heights Apartments Project,
8.000%, 10/20/30 10/05 at 105 AAA $ 2,221,160
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 5.3%
3,175,000 Connecticut Housing Finance Authority, Housing Mortgage Finance Program Bonds, 1993 Series B,
6.200%, 5/15/12 5/03 at 102 Aa 3,380,073
2,490,000 Connecticut Housing FInance Authority, Housing Mortgage Finance Program Bonds, 1996 Subseries E-2,
6.150%, 11/15/27 (Alternative Minimum Tax) 11/06 at 102 AA 2,643,832
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM CARE - 6.3%
Connecticut Development Authority, Health Facility Refunding
Revenue Bonds, Alzheimer's Resource Center of Connecticut, Inc.
Project, 1994 Series A:
1,500,000 6.875%, 8/15/04 No Opt. Call N/R 1,603,695
1,000,000 7.000%, 8/15/09 8/04 at 102 N/R 1,083,820
2,000,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds, Nursing Home
Program Issue, Series 1994, AHF/Hartford, Inc. Project, 7.125%, 11/01/24 11/04 at 102 AA- 2,299,380
2,000,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds, Nursing Home
Program Issue, Series 1993, Mansfield Center for Nursing and
Rehabilitation Project, 5.875%, 11/01/12 11/03 at 102 Aaa 2,164,360
- ------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 9.1%
2,000,000 State of Connecticut, General Obligation Bonds, 1993 Series E,
6.000%, 3/15/12 No Opt. Call AA- 2,268,120
2,750,000 State of Connecticut, General Obligation Bonds, 1993 Series D,
5.100%, 8/01/11 8/03 at 101 1/2 AA- 2,816,138
1,650,000 State of Connecticut, General Fund Obligation Bonds, 1994 Series A, Issued By Connecticut
Development Authority, 6.375%, 10/15/14 10/04 at 102 AA- 1,843,644
3,500,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1998,
4.875%, 7/01/23 7/08 at 101 Aaa 3,403,575
- ------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 5.8%
1,800,000 State of Connecticut, Special Tax Obligation Bonds, Transportation Infrastructure Purposes,
1991 Series B, 6.500%, 10/01/10 No Opt. Call AA- 2,117,286
1,900,000 Capitol Region Education Council, Revenue Bonds, 6.700%, 10/15/10 10/05 at 102 BBB 2,063,267
2,250,000 City of Waterbury Connecticut, General Obligation Tax Revenue Intercept Refunding Bonds,
1993 Issue, 5.375%, 4/15/08 4/03 at 102 Aaa 2,354,400
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 7.4%
3,000,000 State of Connecticut, Airport Revenue RefundingBonds, Bradley International Airport, Series 1992,
7.650%, 10/01/12 10/04 at 100 Aaa 3,524,910
City of New Haven, Connecticut, Air Rights Parking Facility Revenue Bonds, Series 1991:
3,000,000 6.625%, 12/01/05 12/01 at 102 Aaa 3,289,800
1,500,000 6.500%, 12/01/15 12/01 at 102 Aaa 1,632,165
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 5.7%
2,405,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds, University of
Hartford Issue, Series C, 8.000%, 7/01/18 (Pre-refunded to 7/01/03) 7/03 at 100 Aaa 2,765,317
2,020,000 State of Connecticut Health and Educational Facilities Authority, Revenue Bonds, Trinity College Issue,
Series C, 6.000%, 7/01/22 (Pre-refunded to 7/01/02) 7/02 at 102 Aaa 2,200,062
1,250,000 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 1,447,062
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 11.7%
1,400,000 Connecticut Development Authority, Water Facilities Revenue Bonds, Bridgeport Hydraulic Company
Project, 1993 B Series, 5.500%, 6/01/28 6/03 at 102 Aaa 1,434,300
2,795,000 Connecticut Development Authority, Water Facilities Revenue Bonds, Bridgeport Hydraulic Company
Project, 1993 A Series, 5.600%, 6/01/28 (Alternative Minimum Tax) 6/03 at 102 Aaa 2,866,524
3,250,000 Connecticut Municipal Electric Energy Cooperative, Power Supply System Revenue Bonds, 1993 A Series,
5.000%, 1/01/18 1/04 at 102 Aaa 3,209,895
</TABLE>
F-98
<PAGE> 205
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES (continued)
$ 2,200,000 Connecticut Resources Recovery Authority, Bridgeport Resco Company, L.P. Project Bonds, Series A,
Adjustable Convertible Extendable Securities-Aces, 7.625%, 1/01/09 1/03 at 100 A $ 2,279,420
3,235,000 Connecticut Resources Recovery Authority, Resource Recovery Revenue Bonds, American Ref-Fuel,
Company of Southeastern Connecticut Project, 1989 Series A,
7.700%, 11/15/11 11/98 at 103 AA- 3,480,892
- ------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 2.8%
1,000,000 State of Connecticut, Clean Water Fund Subordinate Revenue Refunding Bonds, 1996 Series,
5.250%, 7/01/10 1/05 at 101 Aaa 1,044,530
2,000,000 South Central Connecticut Regional Water Authority, Water System Revenue Bonds, Eleventh Series,
5.750%, 8/01/12 8/03 at 102 Aaa 2,130,540
- ------------------------------------------------------------------------------------------------------------------------------------
$ 105,890,000 Total Investments - (cost $106,025,594) - 98.8% 111,997,081
=============
Other Assets Less Liabilities - 1.2% 1,386,991
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $ 113,384,072
====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent
auditors): Dates (month and year) and prices of the earliest optional call or
redemption. There may be other call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent auditors): Using the higher
of Standard & Poor's or Moody's rating.
N/R Investment is not rated.
See accompanying notes to financial statements.
F-99
<PAGE> 206
PORTFOLIO OF INVESTMENTS
NUVEEN MASSACHUSETTS PREMIUM INCOME MUNICIPAL FUND (NMT)
May 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION AND CIVIC ORGANIZATIONS - 17.8%
$ 870,000 Massachusetts Educational Financing Authority, Education Loan Revenue Bonds, Issue E, Series 1995,
6.150%, 7/01/10 (Alternative Minimum Tax) 7/04 at 102 Aaa $ 944,951
1,970,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, Boston College Issue,
Series K, 5.250%, 6/01/23 6/03 at 102 Aaa 1,974,570
1,175,000 Massachusetts Industrial Finance Agency, Revenue Bonds (Brooks School Issue), Series 1993,
5.950%, 7/01/23 7/03 at 102 A3 1,223,810
3,500,000 Massachusetts Industrial Finance Agency, Revenue Bonds, Phillips Academy Issue, Series 1993,
5.375%, 9/01/23 9/08 at 102 Aa1 3,554,705
2,645,000 Massachusetts Industrial Finance Agency, Revenue Bonds (Whitehead Institute for Biomedical
Research-1993 Issue), 5.125%, 7/01/26 7/03 at 102 Aa1 2,608,049
1,500,000 Massachusetts Industrial Finance Agency, Revenue Bonds (College of the Holy Cross-1996 Issue),
5.500%, 3/01/20 3/06 at 102 Aaa 1,547,865
1,765,000 The New England Education Loan Marketing Corporation, Student Loan Revenue Bonds, 1992
Subordinated Issue C, 6.750%, 9/01/02 (Alternative Minimum Tax) No Opt. Call A1 1,915,166
4,000,000 The New England Loan Marketing Corporation, Student Loan Revenue Bonds, 1992 Subordinated
Issue H, 6.900%, 11/01/09 (Alternative Minimum Tax) No Opt. Call A1 4,509,960
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - 19.7%
2,805,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, Series 1998A (Caregroup
Issue), 5.000%, 7/01/25 7/08 at 102 Aaa 2,715,913
3,000,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, Lahey Clinic Medical
Center Issue, Series B, 5.625%, 7/01/15 7/03 at 102 Aaa 3,106,980
1,000,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, Massachusetts General
Hospital Issue, Series G, 5.375%, 7/01/11 7/00 at 100 Aaa 1,040,250
4,000,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, New England Medical
Center Hospitals, Series 1993-G1, 5.375%, 7/01/24 7/04 at 102 Aaa 4,032,400
2,000,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds (Daughters of Charity
National Health System-The Carney Hospital), Series D, 6.100%, 7/01/14 7/04 at 102 AA+ 2,159,120
400,000 Massachusetts Health and Educational Facilities Authority, Revenue Refunding Bonds (Cardinal
Cushing General Hospital), Series 1989-A, 8.500%, 7/01/00 7/99 at 102 1/2N/R 415,472
Massachusetts Health and Educational Facilities Authority,
Revenue Refunding Bonds, Youville Issue (FHA Insured Project),
Series B:
2,580,000 6.125%, 2/15/15 2/04 at 102 Aa 2,718,236
1,000,000 6.000%, 2/15/25 2/04 at 102 Aa 1,039,320
3,000,000 Massachusetts Industrial Finance Agency, Revenue Bonds, Harvard Community Health Plan, Inc.,
Issue 1988 Series B (Refunding Bonds), 8.125%, 10/01/17 10/98 at 102 A- 3,098,880
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 9.2%
3,800,000 Massachusetts Housing FInance Agency, Housing Project Revenue Bonds,
6.300%, 10/01/13 4/03 at 102 A1 4,028,684
1,945,000 Massachusetts Housing Finance Agency, Rental Housing Mortgage Revenue Bonds, 1995 Series A
(FHA Insured Mortgage Loans), 7.350%, 1/01/35 (Alternative Minimum Tax) 1/05 at 102 Aaa 2,131,331
3,315,000 Massachusetts Housing Finance Agency, Rental Housing Mortgage Revenue Bonds, 1997 Series C,
5.625%, 7/01/40 (Alternative Minimum Tax) 7/07 at 101 Aaa 3,343,410
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 2.5%
2,450,000 Massachusetts Housing Finance Agency, Single Family Housing Revenue Bonds, Series 9,
8.100%, 12/01/21 (Alternative Minimum Tax) 12/98 at 102 Aa 2,524,407
</TABLE>
F-100
<PAGE> 207
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM CARE - 2.7%
$ 1,000,000 Massachusetts Health and Educational Facilities Authority, Revenue Refunding Bonds, Youville Hospital
Issue (FHA Insured Project), Series A, 6.250%, 2/15/41 2/07 at 102 Aa2 $ 1,070,030
1,125,000 Massachusetts Industrial Financial Agency, Revenue Bonds, Heights Crossing Limited Partnership
Issue (FHA Insured Project), Series 1995 6.000%, 2/01/15
(Alternative Minimum Tax) 2/06 at 102 AAA 1,176,964
500,000 Massachusetts Industrial Finance Agency, Revenue Bonds, Briscoe House Assisted Living Issue
(FHA Insured Project), 6.050%, 2/01/17 (Alternative Minimum Tax) 8/07 at 105 AAA 543,250
- ------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 8.7%
Town of Barnstable, Massachusetts, General Obligation Bonds:
1,020,000 5.750%, 9/15/10 9/04 at 102 Aa3 1,102,804
1,020,000 5.750%, 9/15/11 9/04 at 102 Aa3 1,099,886
965,000 5.750%, 9/15/12 9/04 at 102 Aa3 1,029,086
1,000,000 City of Chelsea, Massachusetts, General Obligation Bonds, School Project Loan, Act of 1948,
7.000%, 6/15/03 No Opt. Call Aaa 1,124,620
4,375,000 City of Lowell, Massachusetts, General Obligation Bonds, State Qualified
Bonds, 5.600%, 11/01/1 11/03 at 102 Aaa 4,638,813
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 6.6%
2,500,000 Massachusetts Industrial Finance Agency, Parking Facility Revenue Bonds (Avon Associates Project),
Series 1998A, 5.375%, 4/01/20 4/03 at 102 Aaa 2,520,425
4,000,000 Massachusetts Port Authority, Special Facilities Revenue Bonds (U.S. Air Project), Series 1996-A,
5.750%, 9/01/16 (Alternative Minimum Tax) 9/06 at 102 Aaa 4,234,800
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 22.3%
1,250,000 Massachusetts Health and Educational Facilities Authority, Revenue Refunding Bonds, Worcester
Polytechnic Institute Issue, Series E, 6.750%, 9/01/11
(Pre-refunded to 9/01/02) 9/02 at 102 Aaa 1,396,738
2,500,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, Malden Hospital Issue
(FHA Insured Project), Series A, 5.000%, 8/01/16 No Opt. Call AAA 2,519,175
Massachusetts Health and Educational Facilities Authority,
Revenue Bonds, New England Deaconess Hospital Issue, Series D:
3,310,000 6.625%, 4/01/12 (Pre-refunded to 4/01/02) 4/02 at 102 AAA 3,658,642
1,000,000 6.875%, 4/01/22 (Pre-refunded to 4/01/02) 4/02 at 102 AAA 1,113,740
2,500,000 Massachusetts Industrial Finance Agency, Revenue Refunding Bonds, College of the Holy Cross-1992
Issue II, 6.375%, 11/01/15 (Pre-refunded to 11/01/02) 11/02 at 102 A1*** 2,764,750
1,355,000 Massachusetts Industrial Finance Agency, Revenue Bonds, Merrimack College Issue, Series 1992,
7.125%, 7/01/12 (Pre-refunded to 7/01/02) 7/02 at 102 AAA 1,530,472
1,000,000 Massachusetts Port Authority, Revenue Bonds, Series 1982, 13.000%, 7/01/13 No Opt. Call Aaa 1,715,830
3,000,000 Massachusetts Water Resources Authority, General Revenue Bonds, 1991 Series A,
5.750%, 12/01/21 (Pre-refunded to 12/01/01) 12/01 at 100 Aaa 3,170,640
1,750,000 Puerto Rico Aqueduct and Sewer Authority, Revenue Bonds, Series 1988A, 7.875%, 7/01/17
(Pre-refunded to 7/01/98) 7/98 at 102 AAA 1,791,055
3,000,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series P, 7.000%, 7/01/21
(Pre-refunded to 7/01/01) 7/01 at 102 Aaa 3,313,410
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 5.6%
3,225,000 Massachusetts Industrial Finance Agency, Resource Recovery Revenue Bonds, Semass Project,
Series 1991B, 9.250%, 7/01/15 (Alternative Minimum Tax) 7/01 at 103 N/R 3,620,255
2,000,000 Massachusetts Municipal Wholesale Electric Company, A Public Corporation of The Commonwealth of
Massachusetts, Power Supply System Revenue Bonds, 6.000%, 7/01/18 7/02 at 100 Aaa 2,103,960
- ------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 2.8%
3,000,000 Massachusetts Water Resources Authority, General Revenue Refunding Bonds, 1993 Series B,
5.000%, 3/01/22 3/03 at 100 A 2,902,560
- ------------------------------------------------------------------------------------------------------------------------------------
$ 95,115,000 Total Investments - (cost $94,334,218) - 97.9% 100,775,384
=============
</TABLE>
F-101
<PAGE> 208
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEMPORARY INVESTMENTS IN SHORT-TERM MUNICIPAL SECURITIES - 0.3%
$ 300,000 Massachusetts Health and Educational Facilities Authority (Capital
============ Asset Program), Variable Rate Demand Bonds, 3.950%, 1/01/35+ VMIG-1 $ 300,000
Other Assets Less Liabilities - 1.8% 1,860,586
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $ 102,935,970
====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent auditors):
Dates (month and year) and prices of the earliest optional call or redemption.
There may be other call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent auditors): Using the
higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities which ensures the timely payment
of principal and interest. Securities are normally considered to be equivalent
to AAA rated securities.
N/R Investment is not rated.
+ 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.
F-102
<PAGE> 209
<TABLE>
PORTFOLIO OF INVESTMENTS
NUVEEN MISSOURI PREMIUM INCOME MUNICIPAL FUND (NOM)
May 31, 1998
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATIONAL AND CIVIC ORGANIZATIONS - 5.7%
$ 500,000 The Industrial Development Authority of the City of Kansas City, Missouri (Ewing Marion Kauffman
Foundation Project), Fixed Rate Revenue Bonds, Series 1997B,
5.700%, 4/01/27 4/07 at 100 AAA $ 526,545
1,775,000 Northwest Missouri State University, Housing System Revenue Bonds
Series 1998, 7.000%, 6/01/11 6/08 at 100 Aaa 2,129,343
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - 9.3%
1,000,000 Health and Educational Facilities Authority of the State of Missouri, Health Facilities Revenue Bonds
(BJC Health System), Series 1994A, 6.750%, 5/15/12 No Opt. Call AA 1,188,260
1,000,000 Health and Educational Facilities Authority of the State of Missouri, Health Facilities Refunding
Revenue Bonds (SSM Health Care), Series 1992AA, 6.250% 6/01/07 6/02 at 102 Aaa 1,089,460
1,000,000 Health and Educational Facilities Authority of the State of Missouri, Health Facilities Revenue Bonds
(Lake of the Ozarks General Hospital, Inc.), Series 1996, 6.500%, 2/15/21 2/06 at 102 BBB+ 1,088,410
1,000,000 Ray County, Missouri, Hospital Revenue Bonds (Ray County Memorial Hospital), Series 1997,
5.750%, 11/15/12 5/05 at 101 1/2N/R 1,008,230
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 14.0%
1,550,000 Missouri Housing Development Commission, Multifamily Housing Revenue Bonds (Brookstone Village
Apartments Project), 1996 Series A, 6.100%, 12/01/21 (Alternative
Minimum Tax) 12/06 at 102 Aaa 1,625,981
650,000 The Industrial Development Authority of the City of Kansas City Missouri, Multifamily Housing Revenue
Refunding Bonds (President Gardens Apartment Project), Series 1997A,
5.550%, 8/01/25 2/08 at 102 AAA 657,748
1,250,000 The Industrial Development Authority of St. Charles County, Missouri, Multifamily Housing Revenue
Bonds (Ashwood Apartments Project), Series 1998A 5.600% 4/01/30
(Alternative Minimum Tax) 4/08 at 102 Aaa 1,256,350
1,045,000 The Industrial Development Authority of the County of St. Louis, Missouri, Multifamily Housing Revenue
Refunding Bonds (GNMA Collateralized-South Summit Apartments Project), Series 1997A,
5.950%, 4/20/17 4/07 at 102 AAA 1,105,924
600,000 Multifamily Housing Revenue Refunding Bonds (GNMA Collateralized-South Summit Apartments
Project), Series 1997B, 6.000%, 10/20/15 (Alternative Minimum Tax) 4/07 at 102 AAA 631,842
1,250,000 The Industrial Development Authority of The City of University City, Missouri, Multifamily Housing
Revenue Refunding Bonds (GNMA Collateralized-Canterbury Gardens Project), Series 1995A,
5.900%, 12/20/20 12/05 at 102 AAA 1,298,975
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 9.3%
2,190,000 Missouri Housing Development Commission, Single Family Mortgage Revenue Bonds, Series 1991-A
(GNMA Mortgage-Backed Securities Program), 7.375%, 8/01/23 (Alternative
Minimum Tax) 2/01 at 102 AAA 2,316,056
1,835,000 Missouri Housing Development Commission, Single Family Mortgage Revenue Bonds (Homeownership
Loan Program), 1995 Series C, 7.250%, 9/01/26 (Alternative Minimum Tax) 3/06 at 105 AAA 2,065,036
- ------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 17.2%
2,020,000 Ritenour School District of St. Louis County, Missouri, General Obligation School Bonds, Series 1995,
7.375%, 2/01/12 No Opt. Call Aaa 2,519,546
1,500,000 Francis Howell School District, St. Charles County, Missouri, General Obligation Refunding Bonds,
Series 1994A, 7.800%, 3/01/08 No Opt. Call Aaa 1,890,480
1,000,000 School District of the City of St. Charles, Missouri, General Obligation Bonds (Missouri Direct Deposit
Program), Series 1996A, 5.625%, 3/01/14 3/06 at 100 AA 1,054,140
1,395,000 The Board of Education of the City of St. Louis (Missouri), General Obligation School Refunding Bonds,
Series 1993A, 8.500%, 4/01/07 No Opt. Call Aaa 1,805,800
625,000 Reorganized School District No. R-IV of Stone County, Missouri (Reeds Spring, Missouri), General
Obligation School Building Refunding and Improvement Bonds, Series 1995,
7.600%, 3/01/10 No Opt. Call Aaa 799,325
</TABLE>
F-103
<PAGE> 210
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX OBLIGATION/LIMITED - 16.5%
$ 1,000,000 Regional Convention and Sports Complex Authority, Convention and Sports Facility Project and
Refunding Bonds, Series A 1993 (State of Missouri Sponsor), 5.500%, 8/15/13 8/03 at 102 A1 $ 1,027,140
1,000,000 Fort Zumwalt School District Improvement Corporation, Leasehold Revenue Bonds, Fort Zumwalt, S.D.,
St. Charles County, Series 1997, 5.600%, 3/01/17 3/07 at 100 Aaa 1,043,480
1,000,000 Land Clearance For Redevelopment Authority of Kansas City, Missouri, Lease Revenue Bonds (Municipal
Auditorium and Muehlebach Hotel Redevelopment Projects), Series 1995A,
5.900%, 12/01/18 12/05 at 102 Aaa 1,072,810
1,000,000 Kansas City Municipal Assistance Corporation, Leasehold Revenue Capital Improvement Bonds (Kansas
City, Missouri, Lessee), Series 1996B, 5.700%, 1/15/13 1/06 at 101 Aaa 1,064,750
1,800,000 St. Louis Municipal Finance Corporation, City Justice Center, Leasehold Revenue Improvement Bonds,
Series 1996A (City of St. Louis, Missouri, Lessee), 5.750%, 2/15/11 2/06 at 102 Aaa 1,950,966
1,500,000 St. Louis Municipal Finance Corporation, Leasehold Revenue Refunding Bonds,
5.850%, 7/15/09 7/30 at 102 Aa3 1,593,105
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 6.0%
1,500,000 City of Kansas City, Missouri, General Improvement Airport Revenue Bonds, Series 1996A,
6.900%, 9/01/11 (Alternative Minimum Tax) 9/04 at 101 Aaa 1,692,480
1,000,000 The City of St. Louis, Missouri, Airport Revenue Bonds, Series 1997 (1997 Capital Improvement Program),
Lambert-St. Louis International Airport, 6.000%, 7/01/12
(Alternative Minimum Tax) No Opt. Call Aaa 1,117,440
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 9.5%
1,290,000 Health and Education Facilities Authority of the State of Missouri, Health Facilities Revenue Bonds
(SSM Health Care Obligated Group Projects), Series 1990B, 7.000%, 6/01/15 No. Opt. Call Aaa 1,394,516
1,500,000 Certificates of Receipt, Series 1993. St. Louis County, Missouri, GNMA Collateralized Mortgage Revenue
Bonds, Series 1989A, 5.650%, 7/01/20 (Alternative Minimum Tax) No Opt. Call AAA 1,643,220
1,275,000 St. Louis Municipal Finance Corporation, Leasehold Revenue Improvement and Refunding Bonds,
Series 1992 (City of St. Louis Missouri, Lessee), 6.250%, 2/15/12
(Pre-refunded to 2/15/05) 2/05 at 100 Aaa 1,424,405
- ------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 10.4%
1,225,000 State Environmental Improvement and Energy Resources Authority (State of Missouri), Water Pollution
Control Revenue Bonds (State Revolving Fund Program-City of Kansas City Project), Series 1995B,
7.750%, 1/01/08 1/05 at 102 Aa1 1,482,127
1,000,000 State Environmental Improvement and Energy Resources Authority (State of Missouri), Water Pollution
Control Revenue Bonds (State Revolving Fund Program-City of Branson Project), Series 1995A,
6.050%, 7/01/16 7/04 at 102 Aaa 1,090,800
1,000,000 State Environmental Improvement and Energy Resources Authority (State of Missouri), Water Pollution
Control Revenue Bonds (State Revolving Fund Program-Multiple Participant Series), Series 1996D,
5.875%, 1/01/15 1/06 at 101 Aa1 1,065,430
350,000 State Environmental Improvement and Energy Resources Authority (State of Missouri),Water Pollution
Control Revenue Bonds (State Revolving Fund Program-City of Kansas City Project), Series 1997C,
6.750%, 1/01/12 No Opt. Call Aa1 421,046
750,000 The City of St. Louis, Missouri, Water Revenue Refunding and Improvement Bonds, Series 1994,
6.000%, 7/01/14 7/04 at 102 Aaa 819,900
- ------------------------------------------------------------------------------------------------------------------------------------
$ 41,375,000 Total Investments - (costs $42,958,628) - 97.9% 45,961,066
=============
</TABLE>
F-104
<PAGE> 211
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEMPORARY INVESTMENTS IN SHORT-TERM MUNICIPAL SECURITIES - 0.6%
$ 300,000 The Industrial Development Authority of the City of Independence, Missouri, Variable Rate Demand
=============
Industrial Development Revenue Bonds (The Groves and Graceland College Nursing Arts Center
Projects), Series 1997A, 4.000%, 11/01/27+ A-1+ $ 300,000
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.5% 674,254
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $ 46,935,320
====================================================================================================================
</TABLE>
* Optional Call Provisions: (not covered by the report of independent
auditors): Dates (month and year) and prices of the earliest optional call or
redemption. There may be other call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent auditors): Using the
higher of Standard & Poor's or Moody's rating.
N/R Investment is not rated.
+ 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.
F-105
<PAGE> 212
PORTFOLIO OF INVESTMENTS
NUVEEN WASHINGTON PREMIUM INCOME MUNICIPAL FUND (NPW)
May 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATIONAL AND CIVIC ORGANIZATIONS - 5.1%
$ 1,400,000 Washington State University, Housing and Dining System Revenue and Refunding Bonds,
Series 1994, 6.375%, 10/01/18 10/04 at 101 Aaa $ 1,545,684
1,000,000 University of Washington, Housing and Dining System Revenue Refunding Bonds, Junior Lien
Series 1996, 5.125%, 12/01/15 12/06 at 102 Aaa 1,007,680
65,000 Western Washington University, Housing and Dining System Revenue Bonds, Series 1992,
6.375%, 10/01/22 10/02 at 101 Aaa 70,153
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - 9.9%
2,000,000 Washington Health Care Facilities Authority, Highline Community Hospital,
Series 1998, 5.000%, 8/15/21 8/08 at 102 AA 1,915,100
2,000,000 Washington Health Care Authority, Revenue Bonds, Series 1992 (The Children's Hospital and Medical
Center, Seattle), 6.125%, 10/01/13 10/02 at 102 Aaa 2,167,900
1,000,000 Washington Health Care Facilities Authority, Revenue Bonds, Series 1993A (The Heart Institute of
Spokane), 5.800%, 8/15/18 8/04 at 102 AA- 1,038,240
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 6.0%
970,000 Washington State Housing Finance Commission, Multifamily Mortgage Revenue Bonds (GNMA
Mortgage Backed Securities Program), Series 1989A, 7.700%, 7/01/32
(Alternative Minimum Tax) 1/00 at 103 AAA 1,018,558
2,000,000 Housing Authority of the County of King Washington, Housing Revenue Bonds, 1995 (Woodridge Park
Project), 6.350%, 5/01/25 (Alternative Minimum Tax) 5/05 at 100 AA+ 2,087,320
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 4.4%
1,610,000 Washington State Housing Finance Commission, Single-Family Mortgage Revenue Bonds (Mortgage
Backed Securities Program), Series 1992D-1, 6.150%, 1/01/26
(Alternative Minimum Tax) No Opt. Call AAA 1,751,294
500,000 Washington State Housing Finance Commission, Single Family Program Bonds, 1997 Series 2A,
6.050%, 12/01/16 6/07 at 102 Aaa 524,585
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM CARE- 3.5%
1,640,000 Housing Authority of Skagit County, Low-Income Housing Assistance Revenue Bonds, 1993
(GNMA Collateralized Mortgage Loan-Sea Mar Project), 7.000%, 6/20/35 11/04 at 104 AAA 1,839,768
- ------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 20.7%
2,000,000 State of Washington, General Obligation Bonds, Series 1994B,
6.000%, 5/01/19 5/04 at 100 Aa1 2,108,660
1,655,000 Everett, Limited Tax General Obligation Bonds, 5.125%, 9/01/17 9/07 at 100 Aaa 1,660,313
1,000,000 Federal Way School District No. 210, King County, Washington, Unlimited Tax General Obligation and
Refunding Bonds, 1993, 5.750%, 12/01/12 No Opt. Call Aaa 1,108,410
1,360,000 Tahoma School District No. 409, King County, Washington, Unlimited Tax General Obligation
Improvement and Refunding Bonds, 1997, 6.000%, 12/01/10 No Opt. Call Aaa 1,544,402
1,000,000 Peninsula School District No. 401, Pierce County, Washington, Unlimited Tax General Obligation
Refunding Bonds, 1993, 5.500%, 12/01/09 No Opt. Call Aaa 1,082,980
1,000,000 The City of Renton, Washington, Limited Tax General Obligation Bonds, General Purpose/Public
Improvement Bonds, 1997B, 5.750%, 12/01/17 6/07 at 100 Aaa 1,061,290
1,500,000 Mukilteo School District No. 6, Snohomish County, Washington, Unlimited Tax General Obligation and
Refunding Bonds, 1993, 5.700%, 12/01/12 No Opt. Call Aaa 1,656,465
500,000 Edmonds School District No. 15, Snohomish County, Washington, Unlimited Tax General Obligation
Bonds, Series 1994, 6.500%, 12/01/08 No Opt. Call AA- 579,800
- ------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 3.6%
Seattle Indian Services Commission, Special Obligation Bonds, 1994:
1,000,000 6.000%, 11/01/16 11/04 at 100 Aa1 1,061,070
750,000 6.150%, 11/01/24 11/04 at 100 Aa1 810,945
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 4.7%
1,300,000 Port of Seattle, Washington, Revenue Bonds, Series 1996A, 5.500%, 9/01/21 9/06 at 101 Aaa 1,339,806
1,000,000 Port of Vancouver, Clark County, Washington, Limited Tax General Obligation Bonds, 1994 Series B,
6.000%, 12/01/04 (Alternative Minimum Tax) No Opt. Call Aaa 1,099,750
</TABLE>
F-106
<PAGE> 213
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GUARANTEED - 12.8%
$ 1,250,000 Washington Health Care Facilities Authority, Revenue Bonds Refunding Series 1992 (Franciscan
Health System/Saint Clare Hospital, Tacoma), 6.625%, 7/01/20
(Pre-refunded to 7/01/02) 7/02 at 102 Aaa $ 1,388,075
2,400,000 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 2,651,712
1,000,000 Port of Seattle, Washington, Revenue Bonds, Series 1990A, 6.000%, 12/01/14
(Pre-refunded to 12/01/00) 12/00 at 100 AA-*** 1,048,400
1,435,000 Western Washington University, Housing and Dining System Revenue Bonds, 6.375%, 10/01/22
(Pre-refunded to 10/01/02) 10/02 at 101 Aaa 1,576,391
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 14.3%
1,000,000 Washington Public Power Supply System, Nuclear Project No. 1, Refunding Revenue Bonds, Series 1993A,
5.700%, 7/01/17 7/03 at 102 Aaa 1,034,010
1,000,000 Washington Public Power Supply System, Nuclear Project No. 3, Refunding Revenue Bonds, Series 1993B,
7.000%, 7/01/09 No Opt. Call Aa1 1,187,880
1,100,000 Public Utility District No. 1 of Klickitat County, Washington, Electric Revenue Bonds, 1995,
5.650%, 10/01/15 10/05 at 101 Aaa 1,155,220
1,000,000 Lewis County Public Utility District, Cowlitz Falls Hydroelectric Project, Revenue Refunding Bonds,
Series 1993, 5.500%, 10/01/22 10/03 at 102 Aa1 1,018,640
500,000 The City of Seattle, Washington, Municipal Light and Power Revenue Bonds,
1992A, 5.750%, 8/01/12 8/02 at 102 AA 531,015
1,000,000 City of Seattle, Washington, Municipal Light and Power Revenue Bonds,
5.625%, 10/01/21 10/06 at 102 Aaa 1,046,620
1,385,000 Public Utility District No. 1 of Snohomish County, Washington, Generation System Revenue Bonds,
Series 1993B, 5.750%, 1/01/09 (Alternative Minimum Tax) 1/04 at 102 A1 1,466,438
- ------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 13.2%
1,050,000 City of Bellevue, King County, Washington, Water and Sewer Revenue Refunding Bonds, 1994,
5.875%, 7/01/09 7/04 at 100 Aa 1,128,708
1,035,000 Covington Water District, Water Revenue Bonds, Refunding Series 1995,
6.050%, 3/01/20 3/05 at 100 Aaa 1,102,844
800,000 Kitsap County, Washington, Sewer Revenue Bonds, 1996, 5.750%, 7/01/16 7/06 at 100 Aaa 844,376
900,000 City of Richland, Washington, Water and Sewer Improvement Revenue Bonds,
1993, 5.625%, 4/01/12 4/03 at 100 Aaa 945,441
1,200,000 Sammamish Plateau Water and Sewer District, King County, Washington, Water and Sewer Revenue
Refunding Bonds, 1996, 5.500%, 12/01/16 12/06 at 100 Aaa 1,234,452
500,000 The City of Seattle, Washington, Water System and Refunding Revenue Bonds,
1993, 5.250%, 12/01/23 6/03 at 101 AA 500,870
1,000,000 Yakima-Tieton Irrigation District, Yakima County, Washington, Refunding Revenue Bonds, 1992,
6.125%, 6/01/13 6/03 at 102 Aaa 1,090,470
- ------------------------------------------------------------------------------------------------------------------------------------
$ 47,805,000 Total Investments - (cost $47,643,718) - 98.2% 51,031,735
=============
Temporary Investments in Short-Term Municipal Securities - 0.4%
$ 200,000 Washington Health Care Facilities Authority, Variable Rate Demand Revenue Bonds (Sisters of
=============
Providence), Series 1985B, 3.950%, 10/01/05+ VMIG-1 200,000
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.4% 716,360
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $ 51,948,095
====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent
auditors): Dates (month and year) and prices of the earliest optional call or
redemption. There may be other call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent auditors): Using the
higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities which ensures the timely payment
of principal and interest. Securities are normally considered to be equivalent
to AAA rated securities.
+ The security has a maturity of more than one year, but has variable rate
and demand features which qualify it as a short-term security. The rate
disclosed is that currently in effect. This rate changes periodically based on
market conditions or a specified market index.
See accompanying notes to financial statements.
F-107
<PAGE> 214
STATEMENT OF NET ASSETS
May 31, 1998
<TABLE>
<CAPTION>
CONNECTICUT MASSACHUSETTS MISSOURI WASHINGTON
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments in municipal securities, at
market value (note 1) $111,997,081 $100,775,384 $45,961,066 $51,031,735
Temporary investments in short-term municipal securities,
at amortized cost, which approximates market value (note 1) -- 300,000 300,000 200,000
Cash -- 230,610 22,063 57,938
Receivables:
Interest 1,969,949 1,852,756 842,644 883,115
Investments sold -- 200,000 -- --
Other assets 13,877 12,307 4,418 2,918
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 113,980,907 103,371,057 47,130,191 52,175,706
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Cash overdraft 133,034 -- -- --
Accrued expenses:
Management fees (note 6) 62,157 56,478 25,741 28,462
Other 47,720 45,592 30,971 47,606
Preferred share dividends payable 9,441 6,988 5,326 5,380
Common share dividends payable 344,483 326,029 132,833 146,163
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 596,835 435,087 194,871 227,611
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets (note 7) $113,384,072 $102,935,970 $46,935,320 $51,948,095
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred shares, at liquidation value $ 38,300,000 $ 34,000,000 $16,000,000 $17,000,000
====================================================================================================================================
Preferred shares outstanding 1,532 1,360 640 680
====================================================================================================================================
Common shares outstanding 5,180,192 4,624,524 2,142,460 2,320,051
====================================================================================================================================
Net asset value per Common share outstanding (net assets less Preferred shares
at liquidation value, divided by Common shares
outstanding) $ 14.49 $ 14.91 $ 14.44 $ 15.06
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-108
<PAGE> 215
STATEMENT OF OPERATIONS
Year Ended May 31, 1998
<TABLE>
<CAPTION>
CONNECTICUT MASSACHUSETTS MISSOURI WASHINGTON
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1) $6,139,952 $5,781,968 $2,581,960 $2,832,407
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees (note 6) 726,805 661,353 301,470 333,129
Preferred shares - auction fees 95,750 85,001 40,000 42,501
Preferred shares - dividend disbursing agent fees 9,629 9,548 9,629 9,548
Shareholders' servicing agent fees and expenses 17,063 8,584 7,125 2,997
Custodian's fees and expenses 38,206 37,528 32,810 32,080
Trustees' fees and expenses (note 6) 1,991 1,893 1,363 1,408
Professional fees 17,228 16,910 16,732 16,554
Shareholders' reports - printing and mailing expenses 31,228 28,835 20,183 7,333
Stock exchange listing fees 16,188 16,183 1,979 2,121
Investor relations expense 9,701 8,222 4,190 3,945
Other expenses 16,793 16,523 12,353 12,446
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 980,582 890,580 447,834 464,062
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 5,159,370 4,891,388 2,134,126 2,368,345
- ------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investment transactions (notes 1 and 4) 422,013 671,439 380,799 94,941
Net change in unrealized appreciation or
depreciation of investments 4,143,106 3,102,632 1,267,040 2,195,317
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain from investments 4,565,119 3,774,071 1,647,839 2,290,258
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $9,724,489 $8,665,459 $3,781,965 $4,658,603
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-109
<PAGE> 216
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
CONNECTICUT MASSACHUSETTS
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
5/31/98 5/31/97 5/31/98 5/31/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income $ 5,159,370 $ 5,134,299 $ 4,891,388 $ 4,887,537
Net realized gain (loss) from investment transactions
(notes 1 and 4) 422,013 (580,033) 671,439 (139,469)
Net change in unrealized appreciation or
depreciation of investments 4,143,106 3,607,938 3,102,632 2,550,049
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 9,724,489 8,162,204 8,665,459 7,298,117
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1)
From undistributed net investment income:
Common shareholders (4,108,452) (3,909,724) (3,905,877) (3,840,666)
Preferred shareholders (1,169,485) (1,050,779) (1,096,311) (1,017,157)
- -----------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (5,277,937) (4,960,503) (5,002,188) (4,857,823)
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 2)
Net proceeds from Common shares issued to shareholders due
to reinvestment of distributions 413,844 394,287 266,611 262,693
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from capital share transactions 413,844 394,287 266,611 262,693
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 4,860,396 3,595,988 3,929,882 2,702,987
Net assets at beginning of year 108,523,676 104,927,688 99,006,088 96,303,101
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $113,384,072 $108,523,676 $102,935,970 $99,006,088
===================================================================================================================================
Balance of undistributed net investment income
at end of year $ 284,103 $ 402,670 $ 214,228 $ 325,028
===================================================================================================================================
</TABLE>
F-110
<PAGE> 217
<TABLE>
<CAPTION>
MISSOURI WASHINGTON
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
5/31/98 5/31/97 5/31/98 5/31/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income $ 2,134,126 $ 2,125,190 $ 2,368,345 $ 2,371,693
Net realized gain (loss) from investment transactions
(notes 1 and 4) 380,799 135,827 94,941 22,234
Net change in unrealized appreciation or
depreciation of investments 1,267,040 1,026,731 2,195,317 1,324,756
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 3,781,965 3,287,748 4,658,603 3,718,683
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1)
From undistributed net investment income:
Common shareholders (1,629,870) (1,553,262) (1,753,958) (1,742,358)
Preferred shareholders (526,508) (524,137) (596,423) (602,507)
- -----------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (2,156,378) (2,077,399) (2,350,381) (2,344,865)
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 2)
Net proceeds from Common shares issued to shareholders due
to reinvestment of distributions 85,411 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from capital share transactions 85,411 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 1,710,998 1,210,349 2,308,222 1,373,818
Net assets at beginning of year 45,224,322 44,013,973 49,639,873 48,266,055
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $46,935,320 $45,224,322 $51,948,095 $49,639,873
===================================================================================================================================
Balance of undistributed net investment income
at end of year $ 156,882 $ 179,134 $ 105,628 $ 87,664
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-111
<PAGE> 218
NOTES TO FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The state Funds (the "Funds") covered in this report and their corresponding
stock exchange symbols are Nuveen Connecticut Premium Income Municipal Fund
(NTC), Nuveen Massachusetts Premium Income Municipal Fund (NMT), Nuveen Missouri
Premium Income Municipal Fund (NOM) and Nuveen Washington Premium Income
Municipal Fund (NPW). Connecticut and Massachusetts are traded on the New York
Stock Exchange while Missouri and Washington are traded on the American Stock
Exchange.
Each Fund invests primarily in a diversified portfolio of municipal obligations
issued by state and local government authorities within a single state. 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 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 May
31, 1998, there were no such outstanding purchase commitments in any of the
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.
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 and designated state income
taxes, if any, 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 May 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.
F-112
<PAGE> 219
Preferred Shares
The Funds have issued and outstanding $25,000 stated value Preferred shares.
Each Fund's Preferred shares are issued in one Series. The dividend rate on each
Series may change every seven days, as set by the auction agent. The number of
shares outstanding for each Fund is as follows:
<TABLE>
<CAPTION>
CONNECTICUT MASSACHUSETTS MISSOURI WASHINGTON
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of Shares:
Series Th 1,532 1,360 640 680
==========================================================================================================
</TABLE>
Derivative Financial Instruments
The Funds may invest in transactions in certain derivative financial instruments
including futures, forward, swap, 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 May 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.
2. FUND SHARES
Transactions in Common shares were as follows:
<TABLE>
<CAPTION>
CONNECTICUT MASSACHUSETTS
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
5/31/98 5/31/97 5/31/98 5/31/97
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued to shareholders
due to reinvestment of
distributions 27,446 25,362 17,254 18,609
==========================================================================================================
<CAPTION>
MISSOURI WASHINGTON
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
5/31/98 5/31/97 5/31/98 5/31/97
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders
due to reinvestment of
distributions 5,923 -- -- --
==========================================================================================================
</TABLE>
3. DISTRIBUTIONS TO COMMON SHAREHOLDERS
The Funds declared Common share dividend distributions from their tax-exempt net
investment income which were paid on July 1, 1998, to shareholders of record on
June 15, 1998, as follows:
<TABLE>
<CAPTION>
CONNECTICUT MASSACHUSETTS MISSOURI WASHINGTON
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dividend per share $.0665 $.0705 $.0620 $.0630
==========================================================================================================
</TABLE>
4. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the year ended May 31, 1998,
were as follows:
<TABLE>
<CAPTION>
CONNECTICUT MASSACHUSETTS MISSOURI WASHINGTON
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases:
Investments in municipal securities $16,347,950 $16,775,239 $12,062,820 $4,928,148
Temporary municipal investments 5,600,000 8,300,000 4,800,000 4,600,000
Sales and Maturities:
Investments in municipal securities 14,670,110 16,722,320 11,650,583 4,939,330
Temporary municipal investments 6,300,000 8,200,000 7,800,000 4,400,000
==========================================================================================================
</TABLE>
F-113
<PAGE> 220
At May 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 May 31, 1998, the Funds had unused capital loss carryforwards available for
federal income tax purposes to be applied against future capital gains, if any.
If not applied, the carryforwards will expire as follows:
<TABLE>
<CAPTION>
CONNECTICUT MASSACHUSETTS MISSOURI WASHINGTON
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expiration year:
2003 $ 895,482 $ 615,511 $ 949,075 $469,931
2004 1,105,901 945,779 708,417 70,082
2005 847,914 195,761 -- --
- ----------------------------------------------------------------------------------------------------------
Total $2,849,297 $1,757,051 $1,657,492 $540,013
==========================================================================================================
</TABLE>
5. UNREALIZED APPRECIATION (DEPRECIATION)
Gross unrealized appreciation and gross unrealized depreciation of investments
at May 31, 1998, were as follows:
<TABLE>
<CAPTION>
CONNECTICUT MASSACHUSETTS MISSOURI WASHINGTON
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross unrealized:
appreciation $6,012,681 $6,441,166 $3,002,438 $3,394,435
depreciation (41,194) -- -- (6,418)
- ---------------------------------------------------------------------------------------------------------
Net unrealized appreciation $5,971,487 $6,441,166 $3,002,438 $3,388,017
=========================================================================================================
</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 as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C>
For the first $125 million .6500 of 1%
For the next $125 million .6375 of 1
For the next $250 million .6250 of 1
For the next $500 million .6125 of 1
For the next $1 billion .6000 of 1
For net assets over $2 billion .5875 of 1
===========================================================================================================
</TABLE>
The fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Funds pay no
compensation directly to those of its 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 May 31, 1998, net assets consisted of:
<TABLE>
<CAPTION>
CONNECTICUT MASSACHUSETTS MISSOURI WASHINGTON
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred shares, $25,000 stated value per share,
at liquidation value $ 38,300,000 $ 34,000,000 $16,000,000 $17,000,000
Common shares, $.01 par value per share 51,802 46,245 21,425 23,201
Paid-in surplus 71,625,977 63,991,382 29,412,067 31,971,262
Balance of undistributed net investment income 284,103 214,228 156,882 105,628
Accumulated net realized gain (loss)
from investment transactions (2,849,297) (1,757,051) (1,657,492) (540,013)
Net unrealized appreciation of investments 5,971,487 6,441,166 3,002,438 3,388,017
- ----------------------------------------------------------------------------------------------------------
Net assets $113,384,072 $102,935,970 $46,935,320 $51,948,095
==========================================================================================================
Authorized shares:
Common Unlimited Unlimited Unlimited Unlimited
Preferred Unlimited Unlimited Unlimited Unlimited
==========================================================================================================
</TABLE>
F-114
<PAGE> 221
Financial Highlights
Selected data for a Common share outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
Investment Operations Less Distributions
-------------------------------------------------------------------------------------------
Net Net Net
Realized/ Investment Investment Capital Capital
Beginning Net Unrealized Income Income Gain Gain
Net Asset Investment Investment To Common To Preferred To Common To Preferred
Value Income Gain (Loss) Total Shareholders Shareholders+ Shareholders Shareholders+ Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Connecticut
Year Ended 5/31:
1998 $ 13.63 $ 1.00 $ .89 $ 1.89 $ (.80) $ (.23) $-- $-- $ (1.03)
1997 12.99 1.00 .60 1.60 (.76) (.20) -- -- (.96)
1996 13.20 .98 (.21) .77 (.73) (.25) -- -- (.98)
1995 12.45 .98 .74 1.72 (.74) (.23) -- -- (.97)
1994 13.96 .77 (1.40) (.63) (.61) (.13) -- -- (.74)
<CAPTION>
Massachusetts
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended 5/31:
1998 14.11 1.06 .83 1.89 (.85) (.24) -- -- (1.09)
1997 13.58 1.06 .53 1.59 (.84) (.22) -- -- (1.06)
1996 13.76 1.05 (.19) .86 (.80) (.24) -- -- (1.04)
1995 12.90 1.04 .84 1.88 (.78) (.24) -- -- (1.02)
1994 14.08 .87 (1.01) (.14) (.74) (.15) -- -- (.89)
<CAPTION>
Missouri
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended 5/31:
1998 13.68 .99 .78 1.77 (.76) (.25) -- -- (1.01)
1997 13.11 1.00 .55 1.55 (.73) (.25) -- -- (.98)
1996 13.37 .96 (.30) .66 (.67) (.25) -- -- (.92)
1995 12.35 .95 1.02 1.97 (.69) (.26) -- -- (.95)
1994 13.90 .76 (1.40) (.64) (.59) (.14) -- -- (.73)
<CAPTION>
Washington
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended 5/31:
1998 14.07 1.02 .99 2.01 (.76) (.26) -- -- (1.02)
1997 13.48 1.02 .58 1.60 (.75) (.26) -- -- (1.01)
1996 13.71 1.02 (.23) .79 (.74) (.28) -- -- (1.02)
1995 12.97 1.01 .77 1.78 (.77) (.27) -- -- (1.04)
1994 14.09 .91 (.93) (.02) (.76) (.16) (.01) -- (.93)
</TABLE>
F-115
<PAGE> 222
<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>
Connecticut
Year Ended 5/31:
1998 $-- $14.49 $15.5000 15.61% 12.39%
1997 -- 13.63 14.1250 9.58 11.01
1996 -- 12.99 13.6250 14.06 3.97
1995 -- 13.20 12.6250 2.22 12.74
1994 (.14) 12.45 13.1250 (8.73) (6.74)
<CAPTION>
Massachusetts
<S> <C> <C> <C> <C> <C>
Year Ended 5/31:
1998 -- 14.91 16.5000 18.08 11.91
1997 -- 14.11 14.7500 13.76 10.28
1996 -- 13.58 13.7500 8.99 4.55
1995 -- 13.76 13.3750 14.12 13.58
1994 (.15) 12.90 12.5000 (13.64) (3.38)
<CAPTION>
Missouri
<S> <C> <C> <C> <C> <C>
Year Ended 5/31:
1998 -- 14.44 14.1875 14.53 11.31
1997 -- 13.68 13.0625 10.53 10.09
1996 -- 13.11 12.5000 10.07 3.09
1995 -- 13.37 12.0000 6.13 14.74
1994 (.18) 12.35 12.0000 (17.26) (7.16)
<CAPTION>
Washington
<S> <C> <C> <C> <C> <C>
Year Ended 5/31:
1998 -- 15.06 13.6250 15.26 12.64
1997 -- 14.07 12.5000 12.94 10.16
1996 -- 13.48 11.7500 7.44 3.75
1995 -- 13.71 11.6250 .41 12.36
1994 (.17) 12.97 12.3750 (16.88) (2.73)
</TABLE>
F-116
<PAGE> 223
<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>
Connecticut
Year Ended 5/31:
1998 $ 113,384 .88% 4.61% 13%
1997 108,524 .89 4.79 18
1996 104,928 .89 4.71 15
1995 105,851 .92 4.99 18
1994 101,595 .95 3.95 9
Massachusetts
Year Ended 5/31:
1998 102,936 .88 4.81 17
1997 99,006 .88 4.99 22
1996 96,303 .88 4.95 18
1995 97,071 .94 5.20 29
1994 93,078 .97 4.26 33
Missouri
Year Ended 5/31:
1998 46,935 .97 4.60 25
1997 45,224 .99 4.74 36
1996 44,014 1.01 4.57 34
1995 44,566 1.08 4.86 34
1994 42,343 1.05 3.92 39
Washington
Year Ended 5/31:
1998 51,948 .91 4.62 10
1997 49,640 .94 4.83 11
1996 48,266 .94 4.81 20
1995 48,812 1.04 5.04 16
1994 47,095 1.08 4.42 29
</TABLE>
* Annualized.
** Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gain 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 gain 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.
F-117
<PAGE> 224
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
Alabama
Arizona
California
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Missouri
New Jersey
New Mexico
New York
North Carolina
Ohio
Pennsylvania
South Carolina
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, experienced, professional
security selection and surveillance and daily liquidity at that day's net asset
value for quick access to your assets.
F-118
<PAGE> 225
Fund Information
BOARD OF 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 May 31, 1998. Any future
repurchases will be reported to shareholders in the next
annual or semiannual report.
F-119
<PAGE> 226
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 quality investments designed for individuals seeking to build and
sustain wealth. In fact, more than 1.3 million investors have trusted Nuveen to
help them pursue their financial goals.
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
investments and services to help meet your unique circumstances and financial
planning needs. Our equity, balanced, and tax-free income funds, along with our
defined portfolios and private asset management, can help you build a better,
well-diversified portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you. Or call us at (800) 257-8787 for more
information, including a prospectus where applicable. Please read that
information carefully before investing.
LOGO:
1898 - 1998
NUVEEN
OUR SECOND CENTURY
helping investors sustain the wealth of a lifetime.(tm)
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL60606-1286
www.nuveen.com
FAN-3-5-98
F-120
<PAGE> 227
ANNEX A
RATINGS OF INVESTMENTS
Standard & Poor's Corporation--A brief description of the applicable
Standard & Poor's Corporation ("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.
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', 'CC' 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.
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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.
CC The rating 'CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied 'CCC' debt rating.
C The rating 'C' typically is applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC--' debt rating. The 'C'
rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.
CI The rating 'CI' is reserved for income bonds on which no interest is
being paid.
D Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The
'D' rating also will be used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.
PLUS (+) OR MINUS (--): The ratings from 'AA' to 'CCC' may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
PROVISIONAL RATINGS: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project financed by the debt being rated and indicates that payment of debt
service requirements is largely or entirely dependent upon the successful and
timely completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise judgment with respect to such likelihood and risk.
L The letter 'L' indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit
collateral is federally insured and interest is adequately
collateralized.* In the case of certificates of deposit the letter 'L'
indicates that the deposit, combined with other deposits being held in
the same right and capacity, will be honored for principal and accrued
pre-default interest up to the federal insurance limits within 30 days
after closing of the insured institution or, in the event that the
deposit is assumed by a successor insured institution, upon maturity.
- ------------------
* Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement or closing documentation
confirming investments and cash flow.
NR Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
A-2
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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:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
A note rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of such
information or based on other circumstances.
COMMERCIAL PAPER
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign +
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designation.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell, or
hold a security inasmuch as it does not comment as to market price or
suitability for a particular investor. The ratings are based on current
information
A-3
<PAGE> 230
furnished to S&P by the issuer or obtained by S&P from other sources it
considers reliable. S&P does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended, or withdrawn as a result of changes in or unavailability
of such information or based on other circumstances.
MOODY'S INVESTORS SERVICE, INC.--A brief description of the applicable
Moody's Investors Service, Inc. ("Moody's") rating symbols and their meanings
(as published by Moody's) follows:
MUNICIPAL BONDS
AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
BAA Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
CON(...) Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes
probable credit stature upon completion of construction or elimination
of basis of condition.
A-4
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NOTE: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
SHORT-TERM LOANS
MIG 1/VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity
support or demonstrated broadbased access to the market for
refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is
likely to be less well established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is
specific risk.
S.G. This designation denotes speculative quality. Debt instruments
in this category lack margins of protection.
COMMERCIAL PAPER
Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
-- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
A-5
<PAGE> 232
ANNEX B
NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, 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 $50,000 per share,
having such designation or designations as to series as is set forth in Section
1 of APPENDIX A hereto and such number of shares per such series as is set forth
in Section 2 of APPENDIX A hereto.
SECOND: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the shares
of each series of MuniPreferred described in Section 1 of APPENDIX A hereto are
as follows (each such series being referred to herein as a series of
MuniPreferred, and shares of all such series being referred to herein
individually as a share of MuniPreferred and collectively as shares of
MuniPreferred):
DEFINITIONS
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN SECTION 3 OF APPENDIX A
HERETO, as used in Parts I and II of this Statement, the following terms shall
have the following meanings (with terms defined in the singular having
comparable meanings when used in the plural and vice versa), unless the context
otherwise requires:
(a) "'AA' COMPOSITE COMMERCIAL PAPER RATE," on any date for
any Rate Period of shares of a series of MuniPreferred, shall mean (i) (A) in
the case of any Minimum Rate Period or any Special Rate Period of fewer than 49
Rate Period Days, the interest equivalent of the 30-day rate; PROVIDED, HOWEVER,
that if such Rate Period is a Minimum Rate Period and the "AA" Composite
Commercial Paper Rate is being used to determine the Applicable Rate for shares
of such series when all of the Outstanding shares of such series are subject to
Submitted Hold Orders, then the interest equivalent of the seven-day rate, and
(B) in the case of any Special Rate Period of (1) 49 or more but fewer than 70
Rate Period Days, the interest equivalent of the 60-day rate; (2) 70 or more but
fewer than 85 Rate Period Days, the arithmetic average of the interest
equivalent of the 60-day and 90-day rates; (3) 85 or more but fewer than 99 Rate
Period Days, the interest equivalent of the 90-day rate; (4) 99 or more but
fewer than 120-Rate Period Days, the arithmetic average of the interest
equivalent of the 90-day and 120-day rates; (5) 120 or more but fewer than 141
Rate Period Days, the interest equivalent of the 120-day rate; (6) 141 or more
but fewer than 162 Rate Period Days, the arithmetic average of the 120-day and
180-day rates; and (7) 162 or more but fewer than 183 Rate Period Days, the
interest equivalent of the 180-day rate, in each case on commercial paper placed
on behalf of issuers whose corporate bonds are rated "AA" by S&P or the
equivalent of such rating by S&P or another rating agency, as made available on
a discount basis or otherwise by the Federal Reserve Bank of New York for the
Business Day next preceding such date; or (ii) in the event that the Federal
Reserve Bank of New York does not make available any such rate, then the
arithmetic average of such rates, as quoted on a discount basis or otherwise, by
the Commercial Paper Dealers to the Auction Agent for the close of business on
the Business Day next preceding such date. If any Commercial Paper Dealer does
not quote a rate required to determine the "AA" Composite Commercial Paper Rate,
the "AA" Composite Commercial Paper Rate shall be determined on the basis of the
quotation or quotations furnished by the remaining Commercial Paper Dealer or
Commercial Paper Dealers and any Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers selected by the Fund to provide such rate or
rates not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers, as the case may be, or, if the Fund does not select any such Substitute
Commercial Paper Dealer or Substitute Commercial Paper Dealers, by the remaining
Commercial Paper Dealer or Commercial Paper Dealers. For purposes of this
definition, the "interest equivalent" of a rate stated on a discount basis (a
"discount rate") for commercial paper of a given days' maturity shall be equal
to the quotient (rounded upwards to the next higher one-thousandth (.001) of 1%)
of (A) the discount rate divided by (B) the difference between (x) 1.00 and (y)
a fraction the numerator of which shall be the product of the discount rate
times the number of days in which such commercial paper matures and the
denominator of which shall be 360.
B-1
<PAGE> 233
(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 (BAN's) that are rated by S&P.
(f) "APPLICABLE RATE" shall have the meaning specified in
subparagraph (e) (i) of Section 2 of Part I of this Statement.
(g) "ARTICLES" shall have the meaning specified on the first
page of this Statement.
(h) "AUCTION" shall mean each periodic implementation of the
Auction Procedures.
(i) "AUCTION AGENCY AGREEMENT" shall mean the agreement
between the Fund and the Auction Agent which provides, among other things, that
the Auction Agent will follow the Auction Procedures for purposes of determining
the Applicable Rate for shares of a series of MuniPreferred so long as the
Applicable Rate for shares of such series is to be based on the results of an
Auction.
(j) "AUCTION AGENT" shall mean the entity appointed as such by
a resolution of the Board of Directors in accordance with Section 6 of Part II
of this Statement.
(k) "AUCTION DATE," with respect to any Rate Period, shall
mean the Business Day next preceding the first day of such Rate Period.
(l) "AUCTION PROCEDURES" shall mean the procedures for
conducting Auctions set forth in Part II of this Statement.
(m) "AVAILABLE MUNIPREFERRED" shall have the meaning specified
in paragraph (a) of Section 3 of Part II of this Statement.
(n) "BENCHMARK RATE" shall have the meaning specified in
Section 12 of APPENDIX A hereto.
(o) "BENEFICIAL OWNER," with respect to shares of a series of
MuniPreferred, means a customer of a Broker-Dealer who is listed on the records
of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of
shares of such series.
(p) "BID" AND "BIDS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(q) "BIDDER" AND "BIDDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement; PROVIDED,
HOWEVER, that neither the Fund nor any affiliate thereof shall be permitted to
be a Bidder in an Auction, except that any Broker-Dealer that is an affiliate of
the Fund may be a Bidder in an Auction, but only if the Orders placed by such
Broker-Dealer are not for its own account.
B-2
<PAGE> 234
(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.
(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) "DIVIDEND COVERAGE AMOUNT," as of any Valuation Date,
shall mean, with respect to each share of MuniPreferred, (i) the aggregate
amount of dividends that will accumulate on such share of MuniPreferred to (but
not including) the first Dividend Payment Date for such share that follows such
Valuation Date, less (ii) the combined value of Deposit Securities irrevocably
deposited for the payment of dividends on such share of MuniPreferred.
(dd) "DIVIDEND COVERAGE ASSETS," as of any Valuation Date,
shall mean, with respect to each share of MuniPreferred, Deposit Securities with
maturity or tender dates not later than the day preceding the first Dividend
Payment Date for such share that follows such Valuation Date and having a value
not less than the Dividend Coverage Amount with respect to such share.
B-3
<PAGE> 235
(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 II of Part I
of this Statement; PROVIDED, HOWEVER, that the foregoing clause (B) shall not
apply to the Fund's failure to pay the Redemption Price in respect of shares of
MuniPreferred when the related Notice of Redemption provides that redemption of
such shares is subject to one or more conditions precedent and any such
condition precedent shall not have been satisfied at the time or times and in
the manner specified in such Notice of Redemption.
(ii) "FEDERAL TAX RATE INCREASE" shall have the meaning
specified in the definition of "Moody's Volatility Factor."
(jj) "FUND" shall mean the entity named on the first page of
this Statement, which is the issuer of the shares of MuniPreferred.
(kk) "GROSS-UP PAYMENT" shall have the meaning specified in
Section 4 of APPENDIX A hereto.
(ll) "HOLDER," with respect to shares of a series of
MuniPreferred, shall mean the registered holder of such shares as the same
appears on the stock books of the Fund.
(mm) "HOLD ORDER" and "HOLD ORDERS" shall have the respective
meanings specified in paragraph (a) of Section 1 of Part II of this Statement.
(nn) "INDEPENDENT ACCOUNTANT" shall mean a nationally
recognized accountant, or firm of accountants, that is with respect to the Fund
an independent public accountant or firm of independent public accountants under
the Securities Act of 1933, as amended from time to time,
(oo) "INITIAL RATE PERIOD," with respect to shares of a series
of MuniPreferred, shall have the meaning specified with respect to shares of
such series in Section 5 of APPENDIX A hereto.
(pp) "INTEREST EQUIVALENT" means a yield on a 360-day basis of
a discount basis security which is equal to the yield on an equivalent
interest-bearing security.
(qq) "ISSUE TYPE CATEGORY," if defined in Section 4 of
APPENDIX A hereto, shall have the meaning specified in that section.
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<PAGE> 236
(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 $50,000 times that number.
(uu) "MARKET VALUE" of any asset of the Fund shall mean the
market value thereof determined by the pricing service designated from time to
time by the Board of Directors. Market Value of any asset shall include any
interest accrued thereon. The pricing service values portfolio securities at the
mean between the quoted bid and asked price or the yield equivalent when
quotations are readily available. Securities for which quotations are not
readily available are valued at fair value as determined by the pricing service
using methods which include consideration of: yields or prices of municipal
bonds of comparable quality, type of issue, coupon, maturity and rating;
indications as to value from dealers; and general market conditions. The pricing
service may employ electronic data processing techniques or a matrix system, or
both, to determine valuations.
(vv) "MAXIMUM POTENTIAL GROSS-UP PAYMENT LIABILITY," as of any
Valuation Date, shall mean the aggregate amount of Gross-up Payments that would
be due if the Fund were to make Taxable Allocations, with respect to any taxable
year, estimated based upon dividends paid and the amount of undistributed
realized net capital gains and other taxable income earned by the Fund, as of
the end of the calendar month immediately preceding such Valuation Date, and
assuming such Gross-up Payments are fully taxable.
(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
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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) "MINIMUM LIQUIDITY LEVEL" shall have the meaning
specified in Section 8 of Part I of this Statement.
(yy) "MINIMUM RATE PERIOD" shall mean any Rate Period
consisting of 7 Rate Period Days.
(zz) "MOODY'S" shall mean Moody's Investors Service, Inc., a
Delaware corporation, and its successors.
(aaa) "MOODY'S DISCOUNT FACTOR" shall have the meaning
specified in Section 4 of APPENDIX A hereto.
(bbb) "MOODY'S ELIGIBLE ASSET" shall have the meaning
specified in Section 4 of APPENDIX A hereto.
(ccc) "MOODY'S EXPOSURE PERIOD" shall mean the period
commencing on a given Valuation Date and ending 56 days thereafter.
(ddd) "MOODY'S VOLATILITY FACTOR" shall mean, as of any
Valuation Date, (i) in the case of any Minimum Rate Period, any Special Rate
Period of 28 Rate Period Days or fewer, or any Special Rate Period of 57 Rate
Period Days or more, a multiplicative factor equal to 275%, except as otherwise
provided in the last sentence of this definition; (ii) in the case of any
Special Rate Period of more than 28 but fewer than 36 Rate Period Days, a
multiplicative factor equal to 203%; (iii) in the case of any Special Rate
Period of more than 35 but fewer than 43 Rate Period Days, a multiplicative
factor equal to 217%; (iv) in the case of any Special Rate Period of more than
42 but fewer than 50 Rate Period Days, a multiplicative factor equal to 226%;
and (v) in the case of any Special Rate Period of more than 49 but fewer than 57
Rate Period Days, a multiplicative factor equal to 235%. If, as a result of the
enactment of changes to the Code, the greater of the maximum marginal Federal
individual income tax rate applicable to ordinary income and the maximum
marginal Federal corporate income tax rate applicable to ordinary income will
increase, such increase being rounded up to the next five percentage points (the
"Federal Tax Rate Increase"), until the effective date of such increase, the
Moody's Volatility Factor in the case of any Rate Period described in (i) above
in this definition instead shall be determined by reference to the following
table:
<TABLE>
<CAPTION>
FEDERAL TAX RATE INCREASE VOLATILITY FACTOR
------------------------- -----------------
<S> <C>
5% 295%
10% 317%
15% 341%
20% 369%
25% 400%
30% 436%
35% 477%
40% 525%
</TABLE>
(eee) "MUNIPREFERRED" shall have the meaning set forth on the
first page of this Statement.
(fff) "MUNIPREFERRED BASIC MAINTENANCE AMOUNT," as of any
Valuation Date, shall mean the dollar amount equal to the sum of (i) (A) the
product of the number of shares of MuniPreferred outstanding on such date
multiplied by $50,000 (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
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<PAGE> 238
have accumulated at the respective Applicable Rates (whether or not earned or
declared) to (but not including) the first respective Dividend Payment Dates for
shares of MuniPreferred outstanding that follow such Valuation Date (plus the
aggregate amount of dividends, whether or not earned or declared, that will have
accumulated in respect of other outstanding shares of Preferred Stock to, but
not including, the first respective dividend payment dates for such other shares
that follow such Valuation Date); (C) the aggregate amount of dividends that
would accumulate on shares of each series of MuniPreferred outstanding from such
first respective Dividend Payment Date therefor through the 56th day after such
Valuation Date, at the Maximum Rate (calculated as if such Valuation Date were
the Auction Date for the Rate Period commencing on such Dividend Payment Date)
for a Minimum Rate Period of shares of such series to commence on such Dividend
Payment Date, assuming, solely for purposes of the foregoing, that if on such
Valuation Date the Fund shall have delivered a Notice of Special Rate Period to
the Auction Agent pursuant to Section 4 (d)(i) of this Part I with respect to
shares of such series, such Maximum Rate shall be the higher of (a) the Maximum
Rate for the Special Rate Period of shares of such series to commence on such
Dividend Payment Date and (b) the Maximum Rate for a Minimum Rate Period of
shares of such series to commence on such Dividend Payment Date, multiplied by
the Volatility Factor applicable to a Minimum Rate Period, or, in the event the
Fund shall have delivered a Notice of Special Rate Period to the Auction Agent
pursuant to Section 4(d)(i) of this Part I with respect to shares of such series
designating a Special Rate Period consisting of 56 Rate Period Days or more, the
Volatility Factor applicable to a Special Rate Period of that length (plus the
aggregate amount of dividends that would accumulate at the maximum dividend rate
or rates on any other shares of Preferred Stock outstanding from such respective
dividend payment dates through the 56th day after such Valuation Date, as
established by or pursuant to the respective statements establishing and fixing
the rights and preferences of such other shares of Preferred Stock) (except that
(1) if such Valuation Date occurs at a time when a Failure to Deposit (or, in
the case of shares of Preferred Stock other than MuniPreferred, a failure
similar to a Failure to Deposit) has occurred that has not been cured, the
dividend for purposes of calculation would accumulate at the current dividend
rate then applicable to the shares in respect of which such failure has occurred
and (2) for those days during the period described in this subparagraph (C) in
respect of which the Applicable Rate in effect immediately prior to such
Dividend Payment Date will remain in effect (or, in the case of shares of
Preferred Stock other than MuniPreferred, in respect of which the dividend rate
or rates in effect immediately prior to such respective dividend payment dates
will remain in effect), the dividend for purposes of calculation would
accumulate at such Applicable Rate (or other rate or rates, as the case may be)
in respect of those days); (D) the amount of anticipated expenses of the Fund
for the 90 days subsequent to such Valuation Date; (E) the amount of the Fund's
Maximum Potential Gross-up Payment Liability in respect of shares of
MuniPreferred (and similar amounts payable in respect of other shares of
Preferred Stock pursuant to provisions similar to those contained in Section 3
of Part I of this Statement) as of such Valuation Date; and (F) any current
liabilities as of such Valuation Date to the extent not reflected in any of
(i)(A) through (i)(E) (including, without limitation, any payables for Municipal
Obligations purchased as of such Valuation Date and any liabilities incurred for
the purpose of clearing securities transactions) less (ii) the value (i.e., for
purposes of current Moody's guidelines, the face value of cash, short-term
Municipal Obligations rated MIG-1, VMIG-1 or P-1, and short-term securities that
are the direct obligation of the U.S. government, provided in each case that
such securities mature on or prior to the date upon which any of (i)(A) through
(i)(F) become payable, otherwise the Moody's Discounted Value) of any of the
Fund's assets irrevocably deposited by the Fund for the payment of any of (i)(A)
through (i)(F).
(ggg) "MUNIPREFERRED BASIC MAINTENANCE CURE DATE," with
respect to the failure by the Fund to satisfy the MuniPreferred Basic
Maintenance Amount (as required by paragraph (a) of Section 7 of Part I of this
Statement) as of a given Valuation Date, shall mean the seventh Business Day
following such Valuation Date.
(hhh) "MUNIPREFERRED BASIC MAINTENANCE REPORT" shall mean a
report signed by the President, Treasurer or any Senior Vice President or Vice
President of the Fund which sets forth, as of the related Valuation Date, the
assets of the Fund, the Market Value and the Discounted Value thereof (seriatim
and in aggregate), and the MuniPreferred Basic Maintenance Amount.
(iii) "MUNICIPAL OBLIGATIONS" shall mean "Municipal
Obligations" as defined in the Fund's registration statement on Form N-2 on file
with the Securities and Exchange Commission, as such registration statement may
be amended from time to time (the "Registration Statement").
B-7
<PAGE> 239
(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.
(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.
B-8
<PAGE> 240
(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 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).
B-9
<PAGE> 241
(kkkk) "S&P VOLATILITY FACTOR" shall mean, as of any Valuation
Date, a multiplicative factor equal to (i) 305% in the case of any Minimum Rate
Period or any Special Rate Period of 28 Rate Period Days or fewer, (ii) 268% in
the case of any Special Rate Period of more than 28 Rate Period Days but fewer
than 183 Rate Period Days; and (iii) 204% in the case of any Special Rate Period
of more than 182 Rate Period Days.
(llll) "SECONDARY MARKET INSURANCE," if defined in Section 4
of APPENDIX A hereto, shall have the meaning specified in that section.
(mmmm) "SECURITIES DEPOSITORY" shall mean The Depository Trust
Company and its successors and assigns or any other securities depository
selected by the Fund which agrees to follow the procedures required to be
followed by such securities depository in connection with shares of
MuniPreferred.
(nnnn) "SELL ORDER" AND "SELL ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 1 of Part II of this
Statement.
(oooo) "SPECIAL RATE PERIOD," with respect to shares of a
series of MuniPreferred, shall have the meaning specified in paragraph (a) of
Section 4 of Part I of this Statement.
(pppp) "SPECIAL REDEMPTION PROVISIONS" shall have the meaning
specified in subparagraph (a) (i) of Section 11 of Part I of this Statement.
(qqqq) "SUBMISSION DEADLINE" shall mean 1:30 P.M., New York
City time, on any Auction Date or such other time on any Auction Date by which
Broker-Dealers are required to submit Orders to the Auction Agent as specified
by the Auction Agent from time to time.
(rrrr) "SUBMITTED BID" and "SUBMITTED BIDS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of this
Statement.
(ssss) "SUBMITTED HOLD ORDER" and "SUBMITTED HOLD ORDERS"
shall have the respective meanings specified in paragraph (a) of Section 3 of
Part II of this Statement.
(tttt) "SUBMITTED ORDER" and "SUBMITTED ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of this
Statement.
(uuuu) "SUBMITTED SELL ORDER" and "SUBMITTED SELL ORDERS"
shall have the respective meanings specified in paragraph (a) of Section 3 of
Part II of this Statement.
(vvvv) "SUBSEQUENT RATE PERIOD," with respect to shares of a
series of MuniPreferred, shall mean the period from and including the first day
following the 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.
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<PAGE> 242
(yyyy) "SUFFICIENT CLEARING BIDS" shall have the meaning
specified in paragraph (a) of Section 3 of Part II of this Statement.
(zzzz) "TAXABLE ALLOCATION" shall have the meaning specified
in Section 3 of Part I of this Statement.
(aaaaa) "TAXABLE INCOME" shall have the meaning specified in
Section 12 of APPENDIX A hereto.
(bbbbb) "TAXABLE EQUIVALENT OF THE SHORT-TERM MUNICIPAL BOND
RATE," on any date for any Minimum Rate Period or Special Rate Period of 28 Rate
Period Days or fewer, shall mean 90% of the quotient of (A) the per annum rate
expressed on an interest equivalent basis equal to the Kenny S&P 30 day High
Grade Index or any successor index (the "Kenny Index") (PROVIDED, HOWEVER, that
any such successor index must be approved by Moody's (if Moody's is then rating
the shares of MuniPreferred) and S&P (if S&P is then rating the shares of
MuniPreferred)), made available for the Business Day immediately preceding such
date but in any event not later than 8:30 A.M., New York City time, on such date
by Kenny S&P Evaluation Services or any successor thereto, based upon 30-day
yield evaluations at par of short-term bonds the interest on which is excludable
for regular Federal income tax purposes under the Code of "high grade" component
issuers selected by Kenny S&P Evaluation Services or any such successor from
time to time in its discretion, which component issuers shall include, without
limitation, issuers of general obligation bonds, but shall exclude any bonds the
interest on which constitutes an item of tax preference under Section 57(a)(5)
of the Code, or successor provisions, for purposes of the "alternative minimum
tax," divided by (B) 1.00 minus the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income (in each case
expressed as a decimal), whichever is greater; PROVIDED, HOWEVER, that if the
Kenny Index is not made so available by 8:30 A.M., New York City time, on such
date by Kenny S&P Evaluation Services or any successor, the Taxable Equivalent
of the Short-Term Municipal Bond Rate shall mean the quotient of (A) the per
annum rate expressed on an interest equivalent basis equal to the most recent
Kenny Index so made available for any preceding Business Day, divided by (B)
1.00 minus the maximum marginal regular Federal individual income tax rate
applicable to ordinary income or the maximum marginal regular Federal corporate
income tax rate applicable to ordinary income (in each case expressed as a
decimal), whichever is greater.
(ccccc) "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
B-11
<PAGE> 243
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 and the Minimum Liquidity Level, each Business Day.
(iiiii) "VOLATILITY FACTOR" shall mean, as of any Valuation
Date, the greater of the Moody's Volatility Factor and the S&P Volatility
Factor.
(jjjjj) "VOTING PERIOD" shall have the meaning specified in
paragraph (b) of Section 5 of Part I of this Statement.
(kkkkk) "WINNING BID RATE" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
Any additional definitions specifically set forth in Section 8 of
APPENDIX A hereto shall be incorporated herein and made part hereof by reference
thereto.
PART I
1. NUMBER OF AUTHORIZED SHARES
The number of authorized shares constituting a series of MuniPreferred
shall be as set forth with respect to such series in Section 2 of APPENDIX A
hereto.
2. DIVIDENDS
(a) RANKING. The shares of a series of MuniPreferred shall
rank on a parity with each other, with shares of any other series of
MuniPreferred and with shares of any other series of Preferred Stock as to the
payment of dividends by the Fund.
(b) CUMULATIVE CASH DIVIDENDS. The Holders of shares of
MuniPreferred of any series shall be entitled to receive, when, as and if
declared by the Board of Directors, out of funds legally available therefor,
cumulative cash dividends at the Applicable Rate for shares of such series,
determined as set forth in paragraph (e) of this Section 2, and no more (except
to the extent set forth in Section 3 of this Part 1), payable on the Dividend
Payment Dates with respect to shares of such series determined pursuant to
paragraph (d) of this Section 2. Holders of shares of MuniPreferred shall not be
entitled to any dividend, whether payable in cash, property or stock, in excess
of full cumulative dividends, as herein provided, on shares of MuniPreferred. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on shares of MuniPreferred which may be in
arrears, and, except to the extent set forth in subparagraph (e)(i) of this
Section 2, no additional sum of money shall be payable in respect of any such
arrearage.
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(c) DIVIDENDS CUMULATIVE FROM DATE OF ORIGINAL ISSUE.
Dividends on shares of MuniPreferred of any series shall accumulate at the
Applicable Rate for shares of such series from the Date of Original Issue
thereof.
(d) DIVIDEND PAYMENT DATES AND ADJUSTMENT THEREOF. The
Dividend Payment Dates with respect to shares of a series of MuniPreferred shall
be as set forth with respect to shares of such series in Section 9 of APPENDIX A
hereto; PROVIDED, HOWEVER, that:
(i) (A) in the case of a series of MuniPreferred
designated as "Series F MuniPreferred" or "Series M MuniPreferred" in
Section 1 of APPENDIX A hereto, if the Monday or Tuesday, as the case
may be, on which dividends would otherwise be payable on shares of such
series is not a Business Day, then such dividends shall be payable on
such shares on the first Business Day that falls after such Monday or
Tuesday, as the case may be, and (B) in the case of a series of
MuniPreferred designated as "Series T MuniPreferred," "Series W
MuniPreferred" or "Series TH MuniPreferred" in Section 1 of APPENDIX A
hereto, if the Wednesday, Thursday or Friday, as the case may be, on
which dividends would otherwise be payable on shares of such series is
not a Business Day, then such dividends shall be payable on such shares
on the first Business Day that falls prior to such Wednesday, Thursday
or Friday, as the case may be; and
(ii) notwithstanding Section 9 of APPENDIX A hereto,
the Fund in its discretion may establish the Dividend Payment Dates in
respect of any Special Rate Period of shares of a series of
MuniPreferred consisting of more than 28 Rate Period Days; PROVIDED,
HOWEVER, that such dates shall be set forth in the Notice of Special
Rate Period relating to such Special Rate Period, as delivered to the
Auction Agent, which Notice of Special Rate Period shall be filed with
the Secretary of the Fund; and FURTHER PROVIDED that (1) any such
Dividend Payment Date shall be a Business Day and (2) the last Dividend
Payment Date in respect of such Special Rate Period shall be the
Business Day immediately following the last day thereof, as such last
day is determined in accordance with paragraph (b) of Section 4 of this
Part I.
(e) DIVIDEND RATES AND CALCULATION OF DIVIDENDS. (i) Dividend
Rates. The dividend rate on shares of MuniPreferred of any series during the
period from and after the Date of Original Issue of shares of such series to and
including the last day of the Initial Rate Period of shares of such series shall
be equal to the rate per annum set forth with respect to 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
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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;
(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
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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
$50,000.
(f) CURING A FAILURE TO DEPOSIT. A Failure to Deposit with
respect to shares of a series of MuniPreferred shall have been cured (if such
Failure to Deposit is not solely due to the willful failure of the Fund to make
the required payment to the Auction Agent) with respect to any Rate Period of
shares of such series if, within the respective time periods described in
subparagraph (e)(i) of this Section 2, the Fund shall have paid to the Auction
Agent (A) all accumulated and unpaid dividends on shares of such series and (B)
without duplication, the Redemption Price for shares, if any, of such series for
which Notice of Redemption has been mailed by the Fund pursuant to paragraph (c)
of Section 11 of Part I of this Statement; PROVIDED, HOWEVER, that the foregoing
clause (B) shall not apply to the Fund's failure to pay the Redemption Price in
respect of shares of MuniPreferred when the related Redemption Notice provides
that redemption of such shares is subject to one or more conditions precedent
and any such condition precedent shall not have been satisfied at the time or
times and in the manner specified in such Notice of Redemption.
(g) DIVIDEND PAYMENTS BY FUND TO AUCTION AGENT. The Fund shall
pay to the Auction Agent, not later than 12:00 Noon, New York City time, on the
Business Day next preceding each Dividend Payment Date for shares of a series of
MuniPreferred, an aggregate amount of funds available on the next Business Day
in The 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 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
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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 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 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
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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 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
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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
separately as one class): (a) authorize, create or issue any class or series of
stock ranking prior to or on a parity with shares of MuniPreferred with respect
to the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Fund, or increase the authorized
amount of any series of MuniPreferred (except that, notwithstanding the
foregoing, but subject to the provisions of paragraph (c) of Section 10 of this
Part 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, classes or series of Preferred Stock ranking on a parity
with shares of MuniPreferred with respect to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Fund; PROVIDED, HOWEVER, that if Moody's or S&P is not then
rating the shares of MuniPreferred, the aggregate liquidation preference of all
Preferred Stock of the Fund outstanding after any such issuance, exclusive of
accumulated and unpaid dividends, may not exceed the amount set forth in Section
10 of APPENDIX A hereto) or (b) amend, alter or repeal the provisions of the
Articles, including this Statement, whether by merger, consolidation or
otherwise, so as to affect any preference, right or power of such shares of
MuniPreferred or the Holders thereof; PROVIDED, HOWEVER, that (i) none of the
actions permitted by the exception to (a) above will be deemed to affect such
preferences, rights or powers and (ii) the authorization, creation and issuance
of classes or series of stock ranking junior to shares of MuniPreferred with
respect to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund, will be
deemed to affect such preferences, rights or powers only if Moody's or S&P is
then rating shares of MuniPreferred and such issuance would, at the time
thereof, cause the Fund not to satisfy the 1940 Act MuniPreferred Asset Coverage
or the MuniPreferred Basic Maintenance Amount. So long as any shares of
MuniPreferred are outstanding, the Fund shall not, without the affirmative vote
or consent of the Holders of at least 662/3% of the shares of MuniPreferred
outstanding at the time, in person or by proxy, either in writing or at a
meeting (voting separately as one class), file a voluntary application for
relief under Federal bankruptcy law or any similar application under state law
for so long as the Fund is solvent and does not foresee becoming insolvent. To
the extent that shares of MuniPreferred constitute a series of stock under
Minnesota law and to the extent the Holders of such shares are empowered under
the Minnesota Business Corporation Act to vote as a class on the actions set
forth above in this subparagraph (c)(i), the Fund shall not approve any such
action without the affirmative vote or consent of the Holders of at least a
majority of the shares of MuniPreferred of such series outstanding at the time,
in person or by proxy, either in writing or at a meeting (voting separately as a
class).
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(ii) 1940 Act Matters. Unless a higher percentage is
provided for in the Articles, the affirmative vote of the holders of a
majority of the outstanding shares of Preferred Stock, including
MuniPreferred, voting as a separate class, shall be required to approve
any plan of reorganization (as such term is used in the 1940 Act)
adversely affecting such shares or any action requiring a vote of
security holders of the Fund under Section 13(a) of the 1940 Act. In
the event a vote of Holders of MuniPreferred is required pursuant to
the provisions of Section 13(a) of the 1940 Act, the Fund shall, not
later than ten Business Days prior to the date on which such vote is to
be taken, notify Moody's (if Moody's is then rating the shares of
MuniPreferred) and S&P (if S&P is then rating the shares of
MuniPreferred) that such vote is to be taken and the nature of the
action with respect to which such vote is to be taken. The Fund shall,
not later than ten Business Days after the date on which such vote is
taken, notify Moody's (if Moody's is then rating the shares of
MuniPreferred) of the results of such vote.
(d) BOARD MAY TAKE CERTAIN ACTIONS WITHOUT SHAREHOLDER
APPROVAL. The Board of Directors, without the vote or consent of the
shareholders of the Fund, may from time to time amend, alter or repeal any or
all of the definitions of the terms listed below, or any provision of this
Statement viewed by Moody's or S&P as a predicate for any such definition, and
any such amendment, alteration or repeal will not be deemed to affect the
preferences, rights or powers of shares of MuniPreferred or the Holders thereof,
PROVIDED, HOWEVER, that the Board of Directors receives written confirmation
from Moody's (such confirmation being required to be obtained only in the event
Moody's is rating the shares of MuniPreferred and in no event being required to
be obtained in the case of the definitions of (x) Deposit Securities, Discounted
Value, Receivables for Municipal Obligations Sold, Issue Type Category and Other
Issues as such terms apply to S&P Eligible Assets, (y) Dividend Coverage Amount,
Dividend Coverage Assets, Minimum Liquidity Level, S&P Discount Factor, S&P
Eligible Asset, S&P Exposure Period and S&P Volatility Factor and (z) Valuation
Date as such term applies to the definitions of Dividend Coverage Amount,
Dividend Coverage Assets and Minimum Liquidity Level) and S&P (such confirmation
being required to be obtained only in the event S&P is rating the shares of
MuniPreferred and in no event being required to be obtained in the case of the
definitions of (x) Discounted Value, Receivables for Municipal Obligations Sold,
Issue Type Category and Other Issues as such terms apply to Moody's Eligible
Assets, and (y) Moody's Discount Factor, Moody's Eligible Asset, Moody's
Exposure Period and Moody's Volatility Factor) that any such amendment,
alteration or repeal would not impair the ratings then assigned by Moody's or
S&P, as the case may be, to shares of MuniPreferred:
<TABLE>
<S> <C>
Deposit Securities Moody's Exposure Period
Discounted Value Moody's Volatility Factor
Dividend Coverage Amount 1940 Act Cure Date
Dividend Coverage Assets 1940 Act MuniPreferred Asset Coverage
Issue Type Category Other Issues
Market Value Quarterly Valuation Date
Maximum Potential Gross-up Payment Liability Receivables for Municipal Obligations Sold
Minimum Liquidity Level S&P Discount Factor
MuniPreferred Basic Maintenance Amount S&P Eligible Asset
MuniPreferred Basic Maintenance Cure Date S&P Exposure Period
MuniPreferred Basic Maintenance Report S&P Volatility Factor
Moody's Discount Factor Valuation Date
Moody's Eligible Asset Volatility Factor
</TABLE>
(e) VOTING RIGHTS SET FORTH HEREIN ARE SOLE VOTING RIGHTS.
Unless otherwise required by law, the Holders of shares of MuniPreferred shall
not have any relative rights or preferences or other special rights other than
those specifically set forth herein.
(f) NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING. The Holders of
shares of MuniPreferred shall have no preemptive rights or rights to cumulative
voting.
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(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 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
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<PAGE> 253
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 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. Minimum Liquidity Level
So long as S&P is rating the shares of MuniPreferred, the Fund shall
have, as of each Valuation Date, Dividend Coverage Assets, with respect to each
then outstanding share of MuniPreferred, having a value not less than the
Dividend Coverage Amount with respect to such share (the "Minimum Liquidity
Level"). If, as of each Valuation Date, the Fund does not have the required
Dividend Coverage Assets, the Fund shall, as soon as practicable, adjust its
portfolio in order to meet the Minimum Liquidity Level, but only if S&P is then
rating the shares of MuniPreferred.
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<PAGE> 254
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 (d) of Section 12 of this
Part I, (A) the Fund shall not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or in options, warrants or rights to subscribe for or purchase,
Common Stock or other stock, if any, ranking junior to the shares of
MuniPreferred as to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up) in respect of the Common Stock or any
other stock of the Fund ranking junior to or on a parity with the shares of
MuniPreferred as to the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up, or call for redemption, redeem, purchase
or otherwise acquire for consideration any shares of Common Stock or any other
such junior stock (except by conversion into or exchange for stock of the Fund
ranking junior to the shares of MuniPreferred as to the payment of dividends and
the distribution of assets upon dissolution, liquidation or winding up), or any
such parity stock (except by conversion into or exchange for stock of the Fund
ranking junior to or on a parity with MuniPreferred as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up), unless (i) full cumulative dividends on shares of each series of
MuniPreferred through its most recently ended Dividend Period shall have been
paid or shall have been declared and sufficient funds for the payment thereof
deposited with the Auction Agent and (ii) the Fund has redeemed the full number
of shares of MuniPreferred required to be redeemed by any provision for
mandatory redemption pertaining thereto, and (B) the Fund shall not declare, pay
or set apart for payment any dividend or other distribution (other than a
dividend or distribution paid in shares of, or in options, warrants or rights to
subscribe for or purchase, Common Stock or other stock, if any, ranking junior
to shares of MuniPreferred as to the payment of dividends and the distribution
of assets upon dissolution, liquidation or winding up) in respect of Common
Stock or any other stock of the Fund ranking junior to shares of MuniPreferred
as to the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up, or call for redemption, redeem, purchase or otherwise
acquire for consideration any shares of Common Stock or any other such junior
stock (except by conversion into or exchange for stock of the Fund ranking
junior to shares of MuniPreferred as to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up), unless
immediately after such transaction the Discounted Value of Moody's Eligible
Assets (if Moody's is then rating the shares of MuniPreferred) and S&P Eligible
Assets (if S&P is then rating the shares of MuniPreferred) would each at least
equal the MuniPreferred Basic Maintenance Amount.
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10. Rating Agency Restrictions
For so long as any shares of MuniPreferred are outstanding and Moody's
or S&P, or both, are rating such shares, the Fund will not, unless it has
received written confirmation from Moody's or S&P, or both, as appropriate, that
any such action would not impair the ratings then assigned by such rating agency
to such shares, engage in any one or more of the following transactions:
(a) buy or sell futures or write put or call options;
(b) borrow money, except that the Fund may, without obtaining
the written confirmation described above, borrow money for the purpose of
clearing securities transactions if (i) the MuniPreferred Basic Maintenance
Amount would continue to be satisfied after giving effect to such borrowing and
(ii) such borrowing (A) is privately arranged with a bank or other person and is
evidenced by a promissory note or other evidence of indebtedness that is not
intended to be publicly distributed or (B) is for "temporary purposes," is
evidenced by a promissory note or other evidence of indebtedness and is in an
amount not exceeding 5 per centum of the value of the total assets of the Fund
at the time of the borrowing; for purposes of the foregoing, "temporary purpose"
means that the borrowing is to be repaid within sixty days and is not to be
extended or renewed;
(c) issue any class or series of stock ranking prior to or on
a parity with shares of MuniPreferred with respect to the payment of dividends
or the distribution of assets upon dissolution, liquidation or winding up of the
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 $50,000 plus an amount equal to accumulated but
unpaid dividends thereon (whether or not earned or declared) to (but not
including) the date fixed for redemption; PROVIDED, HOWEVER, that (1) shares of
a series of MuniPreferred may not be redeemed in part if after such partial
redemption fewer than 250 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").
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<PAGE> 256
(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 $50,000 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 $50,000 per share plus accumulated but unpaid
dividends thereon (whether or not earned or declared) to (but not including) the
date fixed by the Board of Directors for redemption, certain of the shares of
MuniPreferred, if the Fund fails to have either Moody's Eligible Assets with a
Discounted Value or S&P Eligible Assets with a Discounted Value greater than or
equal to the MuniPreferred Basic Maintenance Amount or fails to maintain the
1940 Act MuniPreferred Asset Coverage, in accordance with the requirements of
the rating agency or agencies then rating the shares of MuniPreferred, and such
failure is not cured on or before the MuniPreferred Basic Maintenance Cure Date
or the 1940 Act Cure Date, as the case may be. The number of shares of
MuniPreferred to be redeemed shall be equal to the lesser of (i) the minimum
number of shares of MuniPreferred, together with all shares of other Preferred
Stock subject to redemption or retirement, the redemption of which, if deemed to
have occurred immediately prior to the opening of business on the Cure Date,
would have resulted in the Fund's having both Moody's Eligible Assets with a
Discounted Value and S&P Eligible Assets with a Discounted Value greater than or
equal to the MuniPreferred Basic Maintenance Amount or maintaining the 1940 Act
MuniPreferred Asset Coverage, as the case may be, on such Cure Date (PROVIDED,
HOWEVER, that if there is no such minimum number of shares of MuniPreferred and
shares of other Preferred Stock the redemption or retirement of which would have
had such result, all shares of MuniPreferred and Preferred Stock then
outstanding shall be redeemed), and (ii) the maximum number of shares of
MuniPreferred, together with all shares of other Preferred Stock subject to
redemption or retirement, that can be redeemed out of funds expected to be
legally available therefor. In determining the shares of MuniPreferred required
to be redeemed in accordance with the foregoing, the Fund shall allocate the
number required to be redeemed to satisfy the MuniPreferred Basic Maintenance
Amount or the 1940 Act MuniPreferred Asset Coverage, as the case may be, pro
rata among shares of MuniPreferred and other Preferred Stock
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(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.
(e) ABSENCE OF FUNDS AVAILABLE FOR REDEMPTION. To the extent
that any redemption for which Notice of Redemption has been mailed is not made
by reason of the absence of legally available funds therefor, such redemption
shall be made as soon as practicable to the extent such funds become available.
Failure to redeem shares of MuniPreferred shall be deemed to exist at any time
after the date specified for redemption in a Notice of Redemption when the Fund
shall have failed, for any reason whatsoever, to deposit in trust with the
Auction Agent the Redemption Price with respect to any shares for which such
Notice of Redemption has been mailed; PROVIDED, HOWEVER, that the foregoing
shall not apply in the case of the Fund's failure to deposit in trust with the
Auction Agent the Redemption Price with respect to any shares where (1) the
Notice of Redemption relating to such redemption provided that such redemption
was subject to one or more conditions precedent and (2) any such condition
precedent shall not have been satisfied at the time or times and in the manner
specified in such Notice of Redemption. Notwithstanding the fact that the Fund
may not have redeemed shares of MuniPreferred for which a Notice of Redemption
has been mailed, dividends may be declared and paid on shares of MuniPreferred
and shall include those shares of MuniPreferred for which a Notice of Redemption
has been mailed.
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(f) AUCTION AGENT AS TRUSTEE OF REDEMPTION PAYMENTS BY FUND.
All moneys paid to the Auction Agent for payment of the Redemption Price of
shares of MuniPreferred called for redemption shall be held in trust by the
Auction Agent for the benefit of Holders of shares so to be redeemed.
(g) SHARES FOR WHICH NOTICE OF REDEMPTION HAS BEEN GIVEN ARE
NO LONGER OUTSTANDING. Provided a Notice of Redemption has been mailed pursuant
to paragraph (c) of this Section 11, upon the deposit with the Auction Agent (on
the Business Day next preceding the date fixed for redemption thereby, in funds
available on the next Business Day in The City of New York, New York) of funds
sufficient to redeem the shares of MuniPreferred that are the subject of such
notice, dividends on such shares shall cease to accumulate and such shares shall
no longer be deemed to be outstanding for any purpose, and all rights of the
Holders of the shares so called for redemption shall cease and terminate, except
the right of such Holders to receive the Redemption Price, but without any
interest or other additional amount, except as provided in subparagraph (e)(i)
of Section 2 of this Part I and in Section 3 of this Part 1. 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
(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.
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(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 add additional series of MuniPreferred (and terms relating
thereto) to the series of MuniPreferred theretofore described thereon, and each
such additional series shall be governed by the terms of this Statement as if
such series had been described on APPENDIX A hereto on the date hereof.
(b) APPENDIX A INCORPORATED BY REFERENCE. APPENDIX A hereto is
incorporated in and made a part of this Statement by reference thereto.
(c) NO FRACTIONAL SHARES. No fractional shares of
MuniPreferred shall be issued.
(d) STATUS OF SHARES OF 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.
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(f) HEADINGS NOT DETERMINATIVE. The headings contained in this
Statement are for convenience of reference only and shall not affect the meaning
or interpretation of this Statement.
(g) NOTICES. All notices or communications, unless otherwise
specified in the By-Laws of the Fund or this Statement, shall be sufficiently
given if in writing and delivered in person or mailed by first-class mail,
postage prepaid.
PART II
1. ORDERS. (a) Prior to the Submission Deadline on each Auction Date
for shares of a series of MuniPreferred:
(i) each Beneficial Owner of shares of such series
may submit to its Broker-Dealer by telephone or otherwise information
as to:
(A) the number of Outstanding shares, if
any, of such series held by such Beneficial Owner which such
Beneficial Owner desires to continue to hold without regard to
the Applicable Rate for shares of such series for the next
succeeding Rate Period of such shares;
(B) the number of Outstanding shares, if
any, of such series held by such Beneficial Owner which such
Beneficial Owner offers to sell if the Applicable Rate for
shares of such series for the next succeeding Rate Period of
shares of such series shall be less than the rate per annum
specified by such Beneficial Owner; and/or
(C) the number of Outstanding shares, if
any, of such series held by such Beneficial Owner which such
Beneficial Owner offers to sell without regard to the
Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series;
and
(ii) one or more Broker-Dealers, using lists of
Potential Beneficial Owners, shall in good faith for the purpose of
conducting a competitive Auction in a commercially reasonable manner,
contact Potential Beneficial Owners (by telephone or otherwise),
including Persons that are not Beneficial Owners, on such lists to
determine the number of shares, if any, of such series which each such
Potential Beneficial Owner offers to purchase if the Applicable Rate
for shares of such series for the next succeeding Rate Period of shares
of such series shall not be less than the rate per annum specified by
such Potential Beneficial Owner.
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;
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(B) such number or a lesser number of
Outstanding shares of such series to be determined as set
forth in clause (iv) of paragraph (a) of Section 4 of this
Part II if the Applicable Rate for shares of such series
determined on such Auction Date shall be equal to the rate
specified therein; or
(C) the number of Outstanding shares of such
series specified in such Bid if the rate specified therein
shall be higher than the Maximum Rate for shares of such
series, or such number or a lesser number of Outstanding
shares of such series to be determined as set forth in clause
(iii) of paragraph (b) of Section 4 of this Part II if the
rate specified therein shall be higher than the Maximum Rate
for shares of such series and Sufficient Clearing Bids for
shares of such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an
Existing Holder of shares of a series of MuniPreferred subject to an
Auction on any Auction Date shall constitute an irrevocable offer to
sell:
(A) the number of Outstanding shares of such
series specified in such Sell Order, or
(B) such number or a lesser number of
Outstanding shares of such series as set forth in clause (iii)
of paragraph (b) of Section 4 of this Part II if Sufficient
Clearing Bids for shares of such series do not exist;
PROVIDED, HOWEVER, that a Broker-Dealer that is an Existing Holder with
respect to shares of a series of MuniPreferred shall not be liable to
any Person for failing to sell such shares pursuant to a Sell Order
described in the proviso to paragraph (c) of Section 2 of this Part II
if such shares were transferred by the Beneficial Owner thereof without
compliance by such Beneficial Owner or its transferee Broker-Dealer (or
other transferee Person, if permitted by the Fund) with the provisions
of Section 7 of this Part II.
(iii) A Bid by a Potential Beneficial Holder or a
Potential Holder of shares of a series of MuniPreferred subject to an
Auction on any Auction Date shall constitute an irrevocable offer to
purchase:
(A) the number of Outstanding shares of such
series specified in such Bid if the Applicable Rate for shares
of such series determined on such Auction Date shall be higher
than the rate specified therein; or
(B) such number or a lesser number of
Outstanding shares of such series as set forth in clause (v)
of paragraph (a) of Section 4 of this Part II if the
Applicable Rate for shares of such series determined on such
Auction Date shall be equal to the rate specified therein.
(c) No Order for any number of shares of MuniPreferred other
than whole shares shall be valid.
2. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT. (a) Each
Broker-Dealer shall submit in writing to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders for shares of MuniPreferred
of a series subject to an Auction on such Auction Date obtained by such
Broker-Dealer, designating itself (unless otherwise permitted by the Fund) as an
Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
shares subject to Orders submitted to it by Potential Beneficial Owners, and
shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which
shall be the Broker-Dealer unless otherwise permitted by the Fund);
(ii) the aggregate number of shares of such series
that are the subject of such Order;
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(iii) to the extent that such Bidder is an Existing
Holder of shares of such series:
(A) the number of shares, if any, of such
series subject to any Hold Order of such Existing Holder,
(B) the number of shares, if any, of such
series subject to any Bid of such Existing Holder and the rate
specified in such Bid; and
(C) the number of shares, if any, of such
series subject to any Sell Order of such Existing Holder; and
(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> 263
(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
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;
B-33
<PAGE> 265
(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.
(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
B-34
<PAGE> 266
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.
5. NOTIFICATION OF ALLOCATIONS. Whenever the Fund intends to include
any net capital gains or other income taxable for Federal income tax purposes in
any dividend on shares of MuniPreferred, the Fund shall, in the case of a
Minimum Rate Period or a Special Rate Period of 28 Rate Period Days or fewer,
and may, in the case of any other Special Rate Period, notify the Auction Agent
of the amount to be so included not later than the Dividend Payment Date next
preceding the Auction Date on which the Applicable Rate for such dividend is to
be established. Whenever the Auction Agent receives such notice from the Fund,
it will be required in turn to notify each Broker-Dealer, who, on or prior to
such Auction Date, in accordance with its Broker-Dealer Agreement, will be
required to notify its Beneficial Owners and Potential Beneficial Owners of
shares of MuniPreferred believed by it to be interested in submitting an Order
in the Auction to be held on such Auction Date.
6. AUCTION AGENT. For so long as any shares of MuniPreferred are
outstanding, the Auction Agent, duly appointed by the Fund to so act, shall be
in each case a commercial bank, trust company or other financial institution
independent of the Fund and its affiliates (which however, may engage or have
engaged in business transactions with the Fund or its affiliates) and at no time
shall the Fund or any of its affiliates act as the Auction Agent in connection
with the Auction Procedures. If the Auction Agent resigns or for any reason its
appointment is terminated during any period that any shares of MuniPreferred are
outstanding, the Board of Directors shall use its best efforts promptly
thereafter to appoint another qualified commercial bank, trust company or
financial institution to act as the Auction Agent.
7. TRANSFER OF SHARES OF MUNIPREFERRED. Unless otherwise permitted by
the Fund, a Beneficial Owner or an Existing Holder may sell, transfer or
otherwise dispose of shares of MuniPreferred only in whole shares and only
pursuant to a Bid or Sell Order placed with the Auction Agent in accordance with
the procedures described in this Part 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
B-35
<PAGE> 267
MuniPreferred in such a manner as to comply with the requirements of Minnesota
Statute Section 302A.429, Subd. 2, and Section 8-204 of the Uniform Commercial
Code as in effect in the State of Minnesota, or any successor provisions.
IN WITNESS WHEREOF, NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, 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 June 1, 1993.
NUVEEN PREMIUM INCOME MUNICIPAL
FUND 4, INC.
By /s/ James J. Wesolowski
---------------------------------
James J. Wesolowski
Vice President and Secretary
ATTEST:
/s/ Scott Craven Jones
- ------------------------------------------
Scott Craven Jones
Assistant Secretary
B-36
<PAGE> 268
NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, INC.
APPENDIX A
SERIES T: A series of 1,000 shares of Preferred Stock, par value $.01
per share, liquidation preference $50,000 per share, is hereby designated
"Municipal Auction Rate Cumulative Preferred Stock, Series T." Each share of
Series T MuniPreferred shall be issued on June 1, 1993; have an Applicable Rate
for its Initial Rate Period equal to 2.625% per annum; have an initial Dividend
Payment Date of June 16, 1993; 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 TH: A series of 1,000 shares of Preferred Stock, par value $0.1
per share, liquidation preference $50,000 per share, is hereby designated
"Municipal Auction Rate Cumulative Preferred Stock, Series TH." Each share of
Series TH MuniPreferred shall be issued on June 1, 1993; have an Applicable Rate
for its Initial Rate Period equal to 2.625% per annum; have an initial Dividend
Payment Date of June 11, 1993; 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 TH MuniPreferred shall
constitute a separate series of Preferred Stock of the Fund, and each share of
Series TH MuniPreferred shall be identical except as provided in Section II of
Part I of this Statement.
SERIES F: A series of 900 shares of Preferred Stock, par value $.01 per
share, liquidation preference $50,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Stock, Series F." Each share of Series F
MuniPreferred shall be issued on June 1, 1993; have an Applicable Rate for its
Initial Rate Period equal to 2.625% per annum; have an initial Dividend Payment
Date of June 14, 1993; 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 Il 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 II of Part I of
this Statement.
The number of authorized shares constituting Series T MuniPreferred is
1,000, Series TH MuniPreferred is 1,000 and Series F MuniPreferred is 900.
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.
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
A-1
<PAGE> 269
Allocation and each Gross-up Payment (except to the extent such Gross-up Payment
is designated as an exempt-interest dividend under Section 852(b)(5) of the Code
or successor provisions) would be taxable in the hands of each Holder of shares
of MuniPreferred at the maximum marginal regular Federal individual income tax
rate applicable to ordinary income or net capital gains, as applicable, or the
maximum marginal regular Federal corporate income tax rate applicable to
ordinary income or net capital gains, as applicable, whichever is greater, in
effect at the time such Gross-up Payment is made.
"MOODY'S DISCOUNT FACTOR" shall mean, for purposes of determining the
Discounted Value of any Moody's Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest Exposure Period set forth
opposite such rating that is the same length as or is longer than the Moody's
Exposure Period, in accordance with the table set forth below:
<TABLE>
<CAPTION>
RATING CATEGORY
---------------------------------------------------------------------------------
EXPOSURE PERIOD Aaa* Aa* A* Baa* OTHER** (V) MIG-1*** SP-1+***
- --------------- ---- ---- ----- ----- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks..................... 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but greater
than 7 weeks............... 154 164 173 205 235 137 149
9 weeks or less but greater 158 169 179 209 242 138 150
than eight weeks...........
</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.
Notwithstanding the foregoing, (i) the Moody's Discount Factor for
short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated at least MIG-1, VMIG-1 or P-1 by Moody's and mature or
have a demand feature at par exercisable in 30 days or less or 125% as long as
such Municipal Obligations are rated at least A-1+/AA or SP-1+/AA by S&P and
mature or have a demand feature at par exercisable in 30 days or less and (ii)
no Moody's Discount Factor will be applied to cash or to Receivables for
Municipal Obligations Sold.
"MOODY'S ELIGIBLE ASSET" shall mean cash, Receivables for Municipal
Obligations Sold or a Municipal Obligation that (i) pays interest in cash, (ii)
is publicly rated Baa or higher by Moody's or, if not rated by Moody's but rated
by S&P, is rated at least BBB by S&P (PROVIDED, HOWEVER, that for purposes of
determining the Moody's Discount Factor applicable to any such S&P-rated
Municipal Obligation, such Municipal Obligation (excluding any short-term
Municipal Obligation) shall be deemed to have a Moody's rating which is one full
rating category lower than its S&P rating), (iii) does not have its Moody's
rating suspended by Moody's, and (iv) is part of an issue of Municipal
Obligations of at least $10,000,000. Municipal Obligations issued by any one
issuer and rated BBB by S&P may comprise no more than 4% of total Moody's
Eligible Assets; such BBB-rated Municipal Obligations, if any, together with any
Municipal Obligations issued by the same issuer and rated Baa by Moody's or A by
S&P, may comprise no more than 6% of total Moody's Eligible Assets; such BBB,
Baa and A-rated Municipal Obligations, if any, together with any Municipal
Obligations issued by the same issuer and rated A by Moody's or AA by S&P, may
comprise no more than 10% of total Moody's Eligible Assets; and such BBB, Baa, A
and AA-rated Municipal Obligations, if any, together with any Municipal
Obligations issued by the same issuer and rated Aa by Moody's or AAA by S&P, may
comprise no more than 20% of total Moody's Eligible Assets. For purposes of the
foregoing sentence, any Municipal Obligation backed by the guaranty, letter of
credit or insurance issued by a third party shall be deemed to be issued by such
third party if the issuance of such third party credit is the sole determinant
of the rating on such Municipal Obligation. Municipal Obligations issued by
issuers located within a single state or territory and rated BBB by S&P may
comprise no more than 12% of total Moody's Eligible Assets; such BBB-rated
Municipal Obligations, if any, together with any Municipal Obligations issued by
issuers located within the same state or territory and rated Baa by Moody's or A
by S&P, may comprise no more than 20% of total Moody's Eligible Assets; such
BBB, Baa and A-rated Municipal Obligations, if any, together with any Municipal
Obligations issued by issuers located within the same state or territory and
rated A by Moody's or AA by S&P, may comprise no more than 40% of total Moody's
Eligible Assets; and such BBB, Baa, A and AA-rated Municipal Obligations, if
any, together with any Municipal Obligations issued by issuers
A-2
<PAGE> 270
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., United States Trust Company of
New York or the Auction Agent and (d) Liens by virtue of any repurchase
agreement; or (ii) deposited irrevocably for the payment of any liabilities for
purposes of determining the MuniPreferred Basic Maintenance Amount.
"RATE MULTIPLE," for shares of a series of MuniPreferred on any Auction
Date for shares of such series, shall mean the percentage, determined as set
forth below, based on the prevailing rating of shares of such series in effect
at the close of business on the Business Day next preceding such Auction Date:
<TABLE>
<CAPTION>
PREVAILING RATING PERCENTAGE
- ----------------- ----------
<S> <C>
"aa3"/AA- or higher................................ 110%
"a3"/A-............................................ 125%
"baa3"/BBB-........................................ 150%
"ba3"/BB-..................................... 200%
Below "ba3"/BB-............................... 250%
</TABLE>
PROVIDED, HOWEVER, that in the event the Fund has notified the Auction Agent of
its intent to allocate income taxable for Federal income tax purposes to shares
of such series prior to the Auction establishing the Applicable Rate for shares
of such series, the applicable percentage in the foregoing table shall be
divided by the quantity 1 minus the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income, whichever is
greater.
For purposes of this definition, the "prevailing rating" of shares of a
series of MuniPreferred shall be (i) "aa3"/AA- or higher if such shares have a
rating of "aa3" or better by Moody's and AA- or better by S&P or the equivalent
of such ratings by such agencies or a substitute rating agency or substitute
rating agencies selected as provided below, (ii) if not "aa3"/AA- or higher then
"a3"/A- if such shares have a rating of "a3" or better by Moody's and A- or
better by S&P or the equivalent of such ratings by such agencies or a substitute
rating agency or substitute rating agencies selected as provided below, (iii) if
not "aa3"/AA- or higher or "a3"/A-, then "baa3"/BBB- if such shares have a
rating of "baa3" or better by Moody's and BBB- or better by S&P or the
equivalent of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected as provided below, (iv) if not "aa3"/AA- or
higher, "a3"/A- or "baa3"/BBB-, then "ba3"/BB- if such shares have a rating
of "ba3" or better by Moody's and BB-or better by S&P or the equivalent of
such ratings by such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, and (v) if not "aa3"/AA- or higher,
"a3"/A-, "baa3"/BBB-, or "ba3"/BB-, then Below "ba3"/BB-; PROVIDED,
HOWEVER, that if such shares are rated by only one rating agency, the prevailing
rating will be determined without reference to the rating of any other rating
agency. The Fund shall take all reasonable action necessary to enable either S&P
or Moody's to provide a rating for shares of MuniPreferred. If neither S&P nor
Moody's shall make such a rating available, the party set forth in Section 7 of
A-3
<PAGE> 271
APPENDIX A or its successor shall select at least one nationally recognized
statistical rating organization (as that term is used in the rules and
regulations of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended from time to time) to act as a substitute
rating agency in respect of shares of the series of MuniPreferred set forth
opposite such party's name in Section 7 of APPENDIX A and the Fund shall take
all reasonable action to enable such rating agency to provide a rating for such
shares.
"S&P DISCOUNT FACTOR" shall mean, for purposes of determining the
Discounted Value of any S&P Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest Exposure Period set forth
opposite such rating that is the same length as or is longer than the S&P
Exposure Period, in accordance with the table set forth below:
<TABLE>
<CAPTION>
RATING CATEGORY
------------------------------------------
EXPOSURE PERIOD AAA* AA* A* BBB*
- --------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
40 Business Days.................. 190% 195% 210% 250%
22 Business Days.................. 170 175 190 230
10 Business Days.................. 155 160 175 215
7 Business Days................... 150 155 170 210
3 Business Days................... 130 135 150 190
</TABLE>
- ------------------
* S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated A-1+ or SP-1+ by S&P and mature or have a demand feature
exercisable within 30 days or less, or 125% if such Municipal Obligations are
not rated by S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's; PROVIDED,
HOWEVER, that any such Moody's-rated short-term Municipal Obligations which have
demand features exercisable within 30 days or less must be backed by a letter of
credit, liquidity facility or guarantee from a bank or other financial
institution with a short-term rating of at least A-1+ from S&P; and FURTHER
PROVIDED that such Moody's-rated short-term Municipal Obligations may comprise
no more than 50% of short-term Municipal Obligations that qualify as S&P
Eligible Assets and (ii) no S&P Discount Factor will be applied to cash or to
Receivables for Municipal Obligations Sold. For purposes of the foregoing,
Anticipation Notes rated SP-l+ or, if not rated by S&P, rated MIG-1 or VMIG-1 by
Moody's, which do not mature or have a demand feature at par exercisable in 30
days and which do not have a long-term rating, shall be considered to be
short-term Municipal Obligations.
"S&P ELIGIBLE ASSET" shall mean cash (excluding any cash irrevocably
deposited by the Fund for the payment of any liabilities within the meaning of
MuniPreferred Basic Maintenance Amount), Receivables for Municipal Obligations
Sold or a Municipal Obligation owned by the Fund that (i) is interest bearing
and pays interest at least semi-annually; (ii) is payable with respect to
principal and interest in U.S. Dollars; (iii) is publicly rated BBB or higher by
S&P or, if not rated by S&P but rated by Moody's, is rated at least A by Moody's
(PROVIDED, HOWEVER, that such Moody's-rated Municipal Obligations will be
included in S&P Eligible Assets only to the extent the Market Value of such
Municipal Obligations does not exceed 50% of the aggregate Market Value of S&P
Eligible Assets; and FURTHER PROVIDED that, for purposes of determining the S&P
Discount Factor applicable to any such Moody's-rated Municipal Obligation, such
Municipal Obligation will be deemed to have an S&P rating which is one full
rating category lower than its Moody's rating); (iv) is not part of a private
placement of Municipal Obligations; and (v) is part of an issue of Municipal
Obligations with an original issue size of at least $20 million or, if of an
issue with an original issue size below $20 million (but in no event below $ 10
million), is issued by an issuer with a total of at least $50 million of
securities outstanding. Solely for purposes of this definition, the term
"Municipal Obligation" means any obligation the interest on which is exempt from
regular Federal income taxation and which is issued by any of the fifty United
States, the District of Columbia or any of the territories of the United States,
their subdivisions, counties, cities, towns, villages, school districts and
agencies (including authorities and special districts created by the states),
and federally sponsored agencies such as local housing authorities
Notwithstanding the foregoing limitations:
(1) Municipal Obligations 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
A-4
<PAGE> 272
for every 1% by which the Market Value of such Municipal Obligations exceeds 5%
of the aggregate Market Value of S&P Eligible Assets;
(2) Municipal Obligations guaranteed or insured by any one
bond insurer shall be considered S&P Eligible Assets only to the extent the
Market Value of such Municipal Obligations does not exceed 25% of the aggregate
Market Value of S&P Eligible Assets; and
(3) Long-term Municipal Obligations 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.
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 June 16, 1993.
The Initial Rate Period for shares of Series TH MuniPreferred shall be
the period from and including the Date of Original Issue thereof to but
excluding June 11, 1993.
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 June 14, 1993.
AUGUST 31, 1993.
<TABLE>
<CAPTION>
PARTY: SERIES OF MUNIPREFERRED:
------ ------------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................. Series T
Smith Barney, Harris Upham & Co.
Incorporated.................................. Series TH
Shearson Lehman Brothers Inc................... Series F
</TABLE>
Not applicable.
Except as otherwise provided in paragraph (d) of Section 2 of Part I of
this Statement, dividends shall be payable on shares of:
Series T MuniPreferred on Wednesday, June 16, 1993, and on each
Wednesday thereafter,
Series TH MuniPreferred on Friday, June 11, 1993, and on each Friday
thereafter; and
Series F MuniPreferred on Monday, June 14, 1993, and each Monday
thereafter.
$145,000,000.
Not applicable.
A-5
<PAGE> 273
For purpose of subparagraph (b)(iii) of Section 3 of Part II of this
Statement, the Applicable Rate for shares of such series for the next succeeding
Rate Period of shares of such series shall be equal to the lesser of the Kenny
Index (if such Rate Period consists of fewer than 183 Rate Period Days) or the
product of (A)(I) the "AA" Composite Commercial Paper Rate on such Auction Date
for such Rate Period, if such Rate Period consists of fewer than 183 Rate Period
Days; (II) the Treasury Bill Rate on such Auction Date for such Rate Period, if
such Rate Period consists of more than 182 but fewer than 365 Rate Period Days;
or (III) the Treasury Note Rate on such Auction Date for such Rate Period, if
such Rate Period is more than 364 Rate Period Days (the rate described in the
foregoing clause (A)(I), (II) or (III), as applicable, being referred to herein
as the "Benchmark Rate") and (B) 1 minus the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income,
whichever is greater; PROVIDED, HOWEVER, that if the Fund has notified the
Auction Agent of its intent to allocate to shares of such series in such Rate
Period any net capital gains or other income taxable for Federal income tax
purposes ("Taxable Income"), the Applicable Rate for shares of such series for
such Rate Period will be (i) if the Taxable Yield Rate (as defined below) is
greater than the Benchmark Rate, then the Benchmark Rate, or (ii) if the Taxable
Yield Rate is less than or equal to the Benchmark Rate, then the rate equal to
the sum of (x) the lesser of the Kenny Index (if such Rate Period consists of
fewer than 183 Rate Period Days) or the product of the Benchmark Rate multiplied
by the factor set forth in the preceding clause (B) and (y) the product of the
maximum marginal regular Federal individual income tax rate applicable to
ordinary income or the maximum marginal regular Federal corporate income tax
applicable to ordinary income, 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
$50,000.
A-6
<PAGE> 274
PART C: OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Article EIGHTH of the Registrant's Articles of Incorporation provide as follows:
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 proceedings, if authorized by the Board of Directors in
the specific case, upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay that amount of the advance which
exceeds the amount which it is ultimately determined that he is entitled to
receive from the Corporation by reason of indemnification as authorized herein;
provided, however, that prior to making any such advance at least one of the
following conditions shall have been met: (1) the indemnitee shall provide a
security for his undertaking, (2) the Corporation shall be insured against
losses arising by reason of any lawful advances, or (3) a majority of a quorum
of the disinterested, non-party directors of the Corporation, or an independent
legal counsel in a written opinion, shall determine, based on a review of
readily available facts, that there is reason to believe that the indemnitee
ultimately will be found entitled to indemnification.
Nothing in these Articles of Incorporation or in the By-Laws shall be deemed to
protect or provide indemnification to any director or officer of the Corporation
against any liability to the Corporation or to its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office ("disabling conduct"), and the Corporation shall not indemnify any of its
officers or directors against any liability to the Corporation or to its
security holders unless a determination shall have been made in the manner
provided hereafter that such liability has not arisen from such officer's or
director's disabling conduct. A determination that an officer or director is
entitled to indemnification shall have been properly made if it is based upon
(1) a final decision on the merits by a court or other body before whom the
proceeding was brought that the indemnitee was not liable by reason of disabling
conduct or, (2) in the absence of such 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 an Investment Trust
Errors and Omission policy in the aggregate amount of $20,000,000 (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 involved 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 Registrant
or where he or she shall have had reasonable cause to believe this conduct was
unlawful).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to the officers, directors or controlling persons of the
Registrant pursuant to the Declaration of Trust of the Registrant or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by an officer or trustee or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such officer, trustee 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 of 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.
ITEM 16. EXHIBITS
1(a). Articles of Incorporation dated January 12, 1993.+++
1(b). Statement dated June 1, 1993 (Series T, TH, and F).+++
1(c). Articles of Correction filed June 3, 1993.+++
1(d). Articles of Correction filed December 21, 1993.+++
1(e). Articles of Amendment filed January 5, 1994.+++
C-1
<PAGE> 275
1(f). Certified Resolutions dated June 16, 1994.+++
1(g). Statement dated September 8, 1994 (Series M, T2, W and F2).+++
2(a). Bylaws of Registrant.+++
2(b). Amendment to Bylaws dated October 19, 1993.+++
2(c). Amendment to Bylaws dated February 2, 1994.+++
2(d). Amendment to Bylaws dated November 19, 1997.+++
2(e). Amendment to Bylaws dated October 30, 1998.+++
3. Not applicable.
4. Form of Agreement and Plan of Reorganization for Nuveen
Washington Premium Income Municipal Fund into Nuveen Premium
Income Municipal Fund 4, Inc.+
5. Specimen certificates of Shares of Acquiring Fund.+++
6. Investment Management Agreement between Registrant and Nuveen
Advisory Corp.+++
7. Not applicable.
8. Deferred Compensation Plan for Non-Employee Directors dated
January 1, 1999.+++
9(a). Exchange Traded Fund Custody Agreement between Registrant and
United States Trust Company of New York dated February 19,
1993.+++
9(b). Fund Accounting Agreement between Registrant and United States
Trust Company of New York dated February 19, 1993.+++
9(c). Shareholder Transfer Agency Agreement between Registrant and
United States Trust Company of New York dated February 19,
1993.+++
10. Not applicable.
11. Opinion of Vedder, Price, Kaufman & Kammholz.+++
12. Form of Tax Opinion of Vedder, Price, Kaufman & Kammholz
relating to the Reorganization.+++
13. Not Applicable.
14. Consent of Ernst & Young LLP, Independent Public
Accountants.+++ 15. Not applicable.
16(a). Power of Attorney of Robert P. Bremner.++
16(b). Power of Attorney of Lawrence H. Brown.++
16(c). Power of Attorney of Anne E. Impellizzeri.++
16(d). Power of Attorney of Peter R. Sawers.++
16(e). Power of Attorney of William J. Schneider.++
16(f). Power of Attorney of Timothy R. Schwertfeger.++
16(g). Power of Attorney of Judith M. Stockdale.++
17(a). Form of proxy cards for Nuveen Premium Income Municipal Fund
4, Inc.++
17(b). Form of proxy cards for Nuveen Washington Premium Municipal
Fund, Inc.++
- --------------------
+ Filed herewith as Appendix A to the Reorganization Statement of Additional
Information contained herein.
++ Filed herewith.
C-2
<PAGE> 276
+++ To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(1) The undersigned registrant agrees that prior to any public
re-offering of the securities registered through the use of a prospectus which
is a part of this registration statement by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c) of the Securities Act, the
re-offering prospectus will contain the information called for by the applicable
registration form for re-offerings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
C-3
<PAGE> 277
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the registrant certifies that it has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Chicago and State of Illinois, on the 4th day of
May 1999.
NUVEEN PREMIUM INCOME MUNICIPAL
FUND 4, INC.
By /s/ Gifford R. Zimmerman
----------------------------
Gifford R. Zimmerman
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated, on May 4th, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
Principal Financial Accounting Officer:
/s/ Stephen D. Foy
- ---------------------------------------
Stephen D. Foy Vice President and Controller (Principal Financial and
Accounting Officer)
Principal Executive Officer:
Timothy R. Schwertfeger Chairman of the Board and Trustee (Principal
Executive Officer)
Robert P. Bremner Trustee
Lawrence H. Brown Trustee
Anne E. Impellizzeri Trustee
Peter R. Sawers Trustee
William J. Schneider Trustee
Judith M. Stockdale Trustee
</TABLE>
By: /s/ Gifford R. Zimmerman
------------------------
Gifford R. Zimmerman
Attorney-in-Fact
Original powers of attorney authorizing Alan G. Berkshire and Gifford R.
Zimmerman, among others, to execute this registration statement, and amendments
thereto, for each of the trustees of registrant on whose behalf this
registration statement is filed, have been executed and filed as an exhibit.
<PAGE> 278
EXHIBIT INDEX
16(a). Power of Attorney of Robert P. Bremner.
16(b). Power of Attorney of Lawrence H. Brown.
16(c). Power of Attorney of Anne E. Impellizzeri.
16(d). Power of Attorney of Peter R. Sawers.
16(e). Power of Attorney of William J. Schneider.
16(f). Power of Attorney of Timothy R. Schwertfeger.
16(g). Power of Attorney of Judith M. Stockdale.
17(a). Form of proxy card for Nuveen Premium Income Municipal Fund
4, Inc.
17(b). Form of proxy card for Nuveen Washington Premium Municipal
Fund, Inc.
<PAGE> 1
Exhibit 16(a)
NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the
above-referenced trusts, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, ALAN G. BERKSHIRE, and GIFFORD R. ZIMMERMAN, and
each of them (with full power to each of them to act alone) his true and lawful
attorney-in-fact and agent, for him on his behalf and in his name, place and
stead, in any and all capacities, to sign, execute and affix his seal thereto
and file one or more Registration Statements on Form N-14 under the Securities
Act of l933, as amended, and the Investment Company Act of l940, as amended,
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 reorganization, 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 he 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 trustee of the above-referenced organization
has hereunto set his hand this 2nd day of February, 1999.
/s/ Robert P. Bremner
Robert P. Bremner
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 2nd day of February, 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 his 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 Notary Public
My Commission Expires: 10/27/01
<PAGE> 1
Exhibit 16(b)
NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the
above-referenced trusts, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, ALAN G. BERKSHIRE, and GIFFORD R. ZIMMERMAN, and
each of them (with full power to each of them to act alone) his true and lawful
attorney-in-fact and agent, for him on his behalf and in his name, place and
stead, in any and all capacities, to sign, execute and affix his seal thereto
and file one or more Registration Statements on Form N-14 under the Securities
Act of l933, as amended, and the Investment Company Act of l940, as amended,
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 reorganization, 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 he 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 trustee of the above-referenced organization
has hereunto set his hand this 2nd day of February, 1999.
/s/ Lawrence H. Brown
Lawrence H. Brown
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 2nd day of February, 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 his 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 Notary Public
My Commission Expires: 10/27/01
<PAGE> 1
Exhibit 16(c)
NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the
above-referenced trusts, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, ALAN G. BERKSHIRE, and GIFFORD R. ZIMMERMAN, and
each of them (with full power to each of them to act alone) her 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, execute and affix her seal thereto
and file one or more Registration Statements on Form N-14 under the Securities
Act of l933, as amended, and the Investment Company Act of l940, as amended,
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 reorganization, 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 trustee of the above-referenced organization
has hereunto set her hand this 2nd day of February, 1999.
/s/ Anne E. Impellizzeri
Anne E. Impellizzeri
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 2nd day of February, 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 Notary Public
My Commission Expires: 10/27/01
<PAGE> 1
Exhibit 16(d)
NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the
above-referenced trusts, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, ALAN G. BERKSHIRE, and GIFFORD R. ZIMMERMAN, and
each of them (with full power to each of them to act alone) his true and lawful
attorney-in-fact and agent, for him on his behalf and in his name, place and
stead, in any and all capacities, to sign, execute and affix his seal thereto
and file one or more Registration Statements on Form N-14 under the Securities
Act of l933, as amended, and the Investment Company Act of l940, as amended,
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 reorganization, 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 he 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 trustee of the above-referenced organization
has hereunto set his hand this 2nd day of February, 1999.
/s/ Peter R. Sawers
Peter R. Sawers
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 2nd day of February, 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 his 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 Notary Public
My Commission Expires: 10/27/01
<PAGE> 1
Exhibit 16(e)
NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the
above-referenced trusts, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, ALAN G. BERKSHIRE, and GIFFORD R. ZIMMERMAN, and
each of them (with full power to each of them to act alone) his true and lawful
attorney-in-fact and agent, for him on his behalf and in his name, place and
stead, in any and all capacities, to sign, execute and affix his seal thereto
and file one or more Registration Statements on Form N-14 under the Securities
Act of l933, as amended, and the Investment Company Act of l940, as amended,
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 reorganization, 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 he 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 trustee of the above-referenced organization
has hereunto set his hand this 2nd day of February, 1999.
/s/ William J. Schneider
William J. Schneider
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 2nd day of February, 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 his 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 Notary Public
My Commission Expires: 10/27/01
<PAGE> 1
Exhibit 16(f)
NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the
above-referenced trusts, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, ALAN G. BERKSHIRE, and GIFFORD R. ZIMMERMAN, and
each of them (with full power to each of them to act alone) his true and lawful
attorney-in-fact and agent, for him on his behalf and in his name, place and
stead, in any and all capacities, to sign, execute and affix his seal thereto
and file one or more Registration Statements on Form N-14 under the Securities
Act of l933, as amended, and the Investment Company Act of l940, as amended,
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 reorganization, 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 he 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 trustee of the above-referenced organization
has hereunto set his hand this 2nd day of February, 1999.
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 2nd day of February, 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 his 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 Notary Public
My Commission Expires: 10/27/01
<PAGE> 1
Exhibit 16(g)
NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the
above-referenced trusts, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, ALAN G. BERKSHIRE, and GIFFORD R. ZIMMERMAN, and
each of them (with full power to each of them to act alone) her 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, execute and affix his seal thereto
and file one or more Registration Statements on Form N-14 under the Securities
Act of l933, as amended, and the Investment Company Act of l940, as amended,
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 reorganization, 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 trustee of the above-referenced organization
has hereunto set her hand this 2nd day of February, 1999.
/s/ Judith M. Stockdale
Judith M. Stockdale
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 2nd day of February, 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 Notary Public
My Commission Expires: 10/27/01
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EXHIBIT 17(a)
[NUVEEN LOGO]
NUVEEN
JOHN NUVEEN & CO., INC.
333 WEST WACKER DRIVE Nuveen Premium Income Municipal Fund 4, Inc.
CHICAGO, IL 60606-1286 Annual Meeting of Shareholders
COMMON STOCK
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS, JULY 28, 1999
The annual meeting of shareholders will be held Wednesday, July 28,
1999, at 10:30 a.m. Central Time, in the Grand Ballroom of the
Inter-Continental Hotel, 505 North Michigan Avenue, Chicago,
Illinois. At this meeting, you will be asked to vote on the proposals
described in the attached proxy statement. The undersigned hereby
appoints Timothy R. Schwertfeger, Alan F. Berkshire, Larry W. Martin
and Gifford R. Zimmerman, and each of them, with full power of
substitution, proxies for the undersigned to represent and vote the
shares of the undersigned at the annual Meeting of Shareholders of
Nuveen Premium Income Municipal Fund 4, Inc. to be held on July 28,
1999, or any adjournment or adjournments thereof.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY AGREED THAT THESE PROPOSALS
ARE IN THE BEST INTERESTS OF SHAREHOLDERS AND URGES YOU TO VOTE IN
FAVOR OF THE PROPOSALS.
You are encouraged to specify your choices by marking the
appropriate boxes. If you do not mark any boxes, your proxy
will be voted "FOR" all of the proposals. Please mark, sign,
date and return this proxy card promptly using the enclosed
envelope if you are not voting by telephone or over the
internet. To vote by telephone, please call (800) 690-6903.
To vote over the Internet, go to www.proxyvote.com.
In either case you will be asked to enter the control
number on the right hand side of this proxy card.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X [CONTROL NUMBER]
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NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, INC.
WHETHER OR NOT YOU PLAN TO JOIN US AT THE MEETING, PLEASE
COMPLETE, DATE AND SIGN YOUR PROXY CARD AND RETURN IT IN
THE ENCLOSED ENVELOPE SO THAT YOUR VOTE WILL BE COUNTED. AS
AN ALTERNATIVE, PLEASE CONSIDER VOTING BY TELEPHONE
(800-690-6903) OR OVER THE INTERNET (www.proxyvote.com).
SEE THE ENCLOSED INSERT FOR FURTHER INSTRUCTIONS ON VOTING
BY PHONE OR OVER THE INTERNET.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
Proposal 1. Not applicable for Common Stock Shareholders.
Proposal 2. Approval of and amendment to the Fund's FOR AGAINST ABSTAIN
Statement Establishing and Fixing the
Rights and Preferences of Municipal
Auction Rate Cumulative Preferred Stock
as described in the proxy statement. / / / / / /
Proposal 3. ELECTION OF NOMINEES TO THE BOARD To withhold authority to vote for an
(01) Robert P. Bremmer, individual nominee mark the box "For All
(02) Lawrence H. Brown, Except" and write the nominee's number
(03) Anne E. Impellizzeri, FOR WITHHOLD FOR ALL on the line below.
(04) Peter R. Sawers ALL ALL EXCEPT
(07) Judith M. Stockdale
/ / / / / / -----------------------------------
Proposal 4. Ratification of the selection of Ernst FOR AGAINST ABSTAIN
& Young LLP as independent auditors for
the current fiscal year. / / / / / /
In their discretion, the proxies are authorized to vote upon such other business as may properly come before the special meeting.
The shares to which this proxy relates will be voted as specified. If no specification is made, such shares will be voted "FOR"
the election of nominees to the Board and "FOR" the proposals set forth on this proxy.
Please be sure to sign and date this proxy if you are not voting by phone or over the internet.
If the undersigned is a broker-dealer, it hereby instructs the proxies, pursuant to Rule 452 of the New York Stock Exchange, to vote
any uninstructed shares of Municipal Auction Rate Cumulative Preferred Stock Series M, T, T2, W, [W2], TH and F in the same
proportion as votes cast by holders of Municipal Auction Rate Cumulative Preferred Stock Series M, T, T2, W, [W2], TH, and F, who
have responded to this proxy solicitation.
NOTE: Please sign your name exactly as it appears on this proxy. If shares are held jointly, each holder must sign the proxy. If you
are signing on behalf of an estate, trust or corporation, please state your title or capacity.
- ------------------------------------------------- -------------------------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date Signature [Joint Owners] Date
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[NUVEEN LOGO]
NUVEEN
JOHN NUVEEN & CO., INC.
333 WEST WACKER DRIVE Nuveen Premium Income Municipal Fund 4, Inc.
CHICAGO, IL 60606-1286 Annual Meeting of Shareholders
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS, JULY 28, 1999
The annual meeting of shareholders will be held Wednesday, July 28,
1999, at 10:30 a.m. Central Time, in the Grand Ballroom of the
Inter-Continental Hotel, 505 North Michigan Avenue, Chicago,
Illinois. At this meeting, you will be asked to vote on the proposals
described in the attached proxy statement. The undersigned hereby
appoints Timothy R. Schwertfeger, Alan F. Berkshire, Larry W. Martin
and Gifford R. Zimmerman, and each of them, with full power of
substitution, proxies for the undersigned to represent and vote the
shares of the undersigned at the annual Meeting of Shareholders of
Nuveen Premium Income Municipal Fund 4, Inc. to be held on July 28,
1999, or any adjournment or adjournments thereof.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY AGREED THAT THESE PROPOSALS
ARE IN THE BEST INTERESTS OF SHAREHOLDERS AND URGES YOU TO VOTE IN
FAVOR OF THE PROPOSALS.
You are encouraged to specify your choices by marking the
appropriate boxes. If you do not mark any boxes, your proxy
will be voted "FOR" all of the proposals. Please mark, sign,
date and return this proxy card promptly using the enclosed
envelope if you are not voting by telephone or over the
internet. To vote by telephone, please call (800) 690-6903.
To vote over the Internet, go to www.proxyvote.com.
In either case you will be asked to enter the control
number on the right hand side of this proxy card.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X [CONTROL NUMBER]
- ------------------------------------------------------------------------------------------------------------------------------------
NUVEEN PREMIUM INCOME MUNICIPAL FUND 4, INC.
Preferred Stock: Series M, T, T2, W, W2, TH, F and F2
WHETHER OR NOT YOU PLAN TO JOIN US AT THE MEETING, PLEASE
COMPLETE, DATE AND SIGN YOUR PROXY CARD AND RETURN IT IN
THE ENCLOSED ENVELOPE SO THAT YOUR VOTE WILL BE COUNTED. AS
AN ALTERNATIVE, PLEASE CONSIDER VOTING BY TELEPHONE
(800-690-6903) OR OVER THE INTERNET (www.proxyvote.com).
SEE THE ENCLOSED INSERT FOR FURTHER INSTRUCTIONS ON VOTING
BY PHONE OR OVER THE INTERNET.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
Proposal 1. Approval of an Agreement and Plan of For Against Abstain
Reorganization and liquidation between
Nuveen Premium Income Municipal Fund 4,
Inc. (the "Fund") and Nuveen Washington / / / / / /
Premium Income Municipal Fund.
Proposal 2. Approval of and amendment to the Fund's For Against Abstain
Statement Establishing and Fixing the
Rights and Preferences of Municipal
Auction Rate Cumulative Preferred Stock
as described in the proxy statement. / / / / / /
Proposal 3. ELECTION OF NOMINEES TO THE BOARD To withhold authority to vote for an
(01) Robert P. Bremmer For Withheld For All individual nominee mark the box "For All
(02) Lawrence H. Brown All All Except Except" and write the nominee's number
(03) Anne E. Impellizzeri on the line below.
(04) Peter R. Sawers
(05) William J. Schneider (Preferred Only) / / / / / /
(06) Timothy R. Schwertfeger (Preferred Only) -----------------------------------
(07) Judith M. Stockdale
Proposal 4. Ratification of the selection of Ernst For Against Abstain
& Young LLP as independent auditors for
the current fiscal year. / / / / / /
In their discretion, the proxies are authorized to vote upon such other business as may properly come before the special meeting.
The shares to which this proxy relates will be voted as specified. If no specification is made, such shares will be voted "FOR"
the election of nominees to the Board and "FOR" the proposals set forth on this proxy.
Please be sure to sign and date this proxy if you are not voting by phone or over the internet.
If the undersigned is a broker-dealer, it hereby instructs the proxies, pursuant to Rule 452 of the New York Stock Exchange, to vote
any uninstructed shares of Municipal Auction Rate Cumulative Preferred Stock Series M, T, T2, W, [W2], TH and F in the same
proportion as votes cast by holders of Municipal Auction Rate Cumulative Preferred Stock Series M, T, T2, W, [W2], TH, and F, who
have responded to this proxy solicitation.
NOTE: Please sign your name exactly as it appears on this proxy. If shares are held jointly, each holder must sign the proxy. If you
are signing on behalf of an estate, trust or corporation, please state your title or capacity.
- ------------------------------------------------- -------------------------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date Signature [Joint Owners] Date
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EXHIBIT 17(b)
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NUVEEN NUVEEN
Nuveen Washington Premium Income Municipal Fund
Special Meeting of Shareholders
COMMON SHARES
JOHN NUVEEN & CO., INC. PROXY SOLICITED BY THE BOARD OF TRUSTEES FOR THE
333 WEST WACKER DRIVE SPECIAL MEETING OF SHAREHOLDERS, JULY 28,1999
CHICAGO, IL 60606-1286
A special meeting of shareholders will be held Wednesday,
July 28, 1999 at 10:30 a.m. Central Time, in the Grand
Ballroom of the Inter-Continental Hotel, 505 North Michigan
Avenue, Chicago, Illinois. At this meeting, you will be
asked to vote on the proposal described in the attached
proxy statement. The undersigned hereby appoints Timothy
R. Schwertfeger, Alan G. Berkshire, Larry W. Martin and
Gifford R. Zimmerman, and each of them, with full power
of substitution, proxies for the undersigned to represent
and vote the shares of the undersigned at the Special
Meeting of Shareholders of Nuveen Washington Premium
Income Municipal Fund to be held on July 28, 1999,
or any adjournment or adjournments thereof.
THE BOARD OF TRUSTEES HAS UNANIMOUSLY AGREED THAT THIS
PROPOSAL IS IN THE BEST INTEREST OF SHAREHOLDERS AND
URGES YOU TO VOTE IN FAVOR OF THE PROPOSAL.
You are encouraged to specify your choices by marketing the appropriate boxes.
If you do not mark any boxes, your proxy will be voted for "FOR" the
proposal. Please mark, sign, date and return this proxy card promptly using the
enclosed envelope if you are not voting by telephone or over the internet.
To vote by telephone, please call (800) 690-6903. To vote over the Internet,
go to www.proxyvote.com. In either case you will be asked to enter the control
number on the right hand side of this proxy card.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X [CONTROL NUMBER]
- ------------------------------------------------------------------------------------------------------------------------------------
NUVEEN WASHINGTON PREMIUM INCOME MUNICIPAL FUND, INC.
WHETHER OR NOT YOU PLAN TO JOIN US AT THE MEETING, PLEASE
COMPLETE, DATE AND SIGN YOUR PROXY CARD AND RETURN IT IN
THE ENCLOSED ENVELOPE SO THAT YOUR VOTE WILL BE COUNTED.
AS AN ALTERNATIVE, PLEASE CONSIDER VOTING BY TELEPHONE
(800-690-6903) OR OVER THE INTERNET (www.proxyvote.com).
SEE THE ENCLOSED INSERT FOR FURTHER INSTRUCTIONS ON
VOTING BY PHONE OR OVER THE INTERNET.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
Proposal 1. Approval of an Agreement and Plan of For Against Abstain
Reorganization and Liquidation between
Nuveen Premium Income Municipal Fund 4, / / / / / /
Inc. and Nuveen Washington Premium Income
Municipal Fund.
In their discretion, the proxies are authorized to vote upon such other business as may properly come before the special meeting.
The shares to which this proxy relates will be voted as specified. If no specification is made, such shares will be voted "FOR"
the proposal set forth on this proxy.
PLEASE BE SURE TO SIGN AND DATE THIS PROXY IF YOU ARE NOT VOTING BY PHONE OR OVER THE INTERNET.
NOTE: Please sign your name exactly as it appears on this proxy. If shares are held jointly, each
holder must sign the proxy. If you are signing on behalf of an estate, trust or corporation, please
state your title or capacity.
- ------------------------------------------- ---------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
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EXHIBIT 17(b)
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NUVEEN NUVEEN
Nuveen Washington Premium Income Municipal Fund
Special Meeting of Shareholders
MUNICIPAL AUCTION RATE
CUMULATIVE PREFERRED SHARES
JOHN NUVEEN & CO., INC. PROXY SOLICITED BY THE BOARD OF TRUSTEES FOR THE
333 WEST WACKER DRIVE SPECIAL MEETING OF SHAREHOLDERS, JULY 28,1999
CHICAGO, IL 60606-1286
A special meeting of shareholders will be held Wednesday,
July 28, 1999 at 10:30 a.m. Central Time, in the Grand
Ballroom of the Inter-Continental Hotel, 505 North Michigan
Avenue, Chicago, Illinois. At this meeting, you will be
asked to vote on the proposal described in the attached
proxy statement. The undersigned hereby appoints Timothy
R. Schwertfeger, Alan G. Berkshire, Larry W. Martin and
Gifford R. Zimmerman, and each of them, with full power
of substitution, proxies for the undersigned to represent
and vote the shares of the undersigned at the Special
Meeting of Shareholders of Nuveen Washington Premium
Income Municipal Fund to be held on July 28, 1999, or
any adjournment or adjournments thereof.
THE BOARD OF TRUSTEES HAS UNANIMOUSLY AGREED THAT THIS
PROPOSAL IS IN THE BEST INTEREST OF SHAREHOLDERS AND
URGES YOU TO VOTE IN FAVOR OF THE PROPOSAL.
You are encouraged to specify your choices by marketing the appropriate boxes.
If you do not mark any boxes, your proxy will be voted for "FOR" the
proposal. Please mark, sign, date and return this proxy card promptly using the
enclosed envelope if you are not voting by telephone or over the internet.
To vote by telephone, please call (800) 690-6903. To vote over the Internet,
go to www.proxyvote.com. In either case you will be asked to enter the control
number on the right hand side of this proxy card.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X [CONTROL NUMBER]
- ------------------------------------------------------------------------------------------------------------------------------------
NUVEEN WASHINGTON PREMIUM INCOME MUNICIPAL FUND, INC.
Preferred Shares: Series TH
WHETHER OR NOT YOU PLAN TO JOIN US AT THE MEETING, PLEASE
COMPLETE, DATE AND SIGN YOUR PROXY CARD AND RETURN IT IN
THE ENCLOSED ENVELOPE SO THAT YOUR VOTE WILL BE COUNTED.
AS AN ALTERNATIVE, PLEASE CONSIDER VOTING BY TELEPHONE
(800-690-6903) OR OVER THE INTERNET (www.proxyvote.com).
SEE THE ENCLOSED INSERT FOR FURTHER INSTRUCTIONS ON
VOTING BY PHONE OR OVER THE INTERNET.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
Proposal 1. Approval of an Agreement and Plan of For Against Abstain
Reorganization and Liquidation between
Nuveen Premium Income Municipal Fund 4, / / / / / /
Inc. and Nuveen Washington Premium Income
Municipal Fund.
In their discretion, the proxies are authorized to vote upon such other business as may properly come before the special meeting.
The shares to which this proxy relates will be voted as specified. If no specification is made, such shares will be voted "FOR"
the proposal set forth on this proxy.
PLEASE BE SURE TO SIGN AND DATE THIS PROXY IF YOU ARE NOT VOTING BY PHONE OR OVER THE INTERNET.
NOTE: Please sign your name exactly as it appears on this proxy. If shares are held jointly, each
holder must sign the proxy. If you are signing on behalf of an estate, trust or corporation, please
state your title or capacity.
- ------------------------------------------- ---------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
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